Us Commodity Futures Trading v. Nrg Energy

• Decision Date: 04 August 2006
• Docket Number: No. 05-2570.,05-2570.
• Parties: UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. NRG ENERGY, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

457 F.3d 776

UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. NRG ENERGY, INC., Defendant-Appellee.

No. 05-2570.

United States Court of Appeals, Eighth Circuit.

Submitted: May 15, 2006.

Filed: August 4, 2006.

Counsel who presented argument on behalf of the appellant was Martin B. White of Washington, D.C. Also appearing on the brief were Patrick J. McCarty, Kirk Manhardt, and Glynn L. Mays.

Counsel who presented argument on behalf of the appellee was Charles B. Rogers of Minneapolis, Minnesota. Also appearing on the brief were Timothy G. Gelinski and Jason R. Asmus.

Before MURPHY, GIBSON, and BENTON, Circuit Judges.

MURPHY, Circuit Judge.

The Commodity Futures Trading Commission (Commission) brought this action in the District of Minnesota to enjoin NRG Energy, Inc. (NRG) from reporting inaccurate market information in violation of the Commodity Exchange Act (the Act). NRG moved to dismiss for lack of jurisdiction because of its Chapter 11 case in the bankruptcy court in the Southern District of New York. The district court granted the motion, and the Commission appeals. We reverse.

NRG, which until 2004 was based in Minnesota, is in the business of generating, operating, trading, and marketing energy commodities, including natural gas and power. It filed for Chapter 11 bankruptcy relief in the United States Bankruptcy Court in the Southern District of New York on May 14, 2003. The Commission had been investigating whether NRG had violated provisions of the Act, and on August 20, 2003 it filed a proof of claim in NRG's bankruptcy case for "potential civil monetary penalties and/or restitution or disgorgement for violations of the Commodity Exchange Act, based on pre-petition conduct".

The bankruptcy court entered a confirmation order and plan of reorganization on November 24, 2003, which enjoined all entities with claims against NRG from "commencing or continuing in any manner any action or other proceeding of any kind with respect to any such Claim or Equity Interest" and from commencing any "claims, obligations, suits, judgments, damages, demands, debts, rights, causes of actions or liabilities released pursuant to the NRG Plan". The bankruptcy court order and plan also contained provisions retaining in the bankruptcy court "exclusive jurisdiction of all matters arising out of, or related to, the Chapter 11 Case and the NRG Plan".

NRG filed an objection to claims which included an objection to the Commission's proof of claim. The Commission did not respond or appear at the hearing on the objections, and on May 18, 2004 the bankruptcy court "expunged and discharged in its entirety" the Commission's proof of claim but retained jurisdiction over "all matters arising out of the First Omnibus Objection." On June 10, the Commission moved for reconsideration, and NRG responded with a motion to enforce the plan of reorganization. The bankruptcy court heard oral argument on the motions on November 17, 2004, but it has yet to rule on them.

The Commission filed this enforcement action against NRG on July 1, 2004 in the United States District Court for Minnesota. It alleges that from its headquarters in Minneapolis NRG's employees intentionally reported false information regarding natural gas prices and transactions. The Commission further alleges that the reporting of false information to an industry newsletter, "Platts' Gas Daily" (Gas Daily), influenced the daily index published by Gas Daily and affected the price of natural gas sold and traded in interstate commerce, in violation of § 9(a)(2) of the Act, 7 U.S.C. § 13(a)(2). Because of these past acts, the Commission seeks to enjoin NRG from committing future violations of the Act and for "such other and further remedial and ancillary relief as [the court] may deem necessary and appropriate".

NRG moved in the district court to dismiss the enforcement action for lack of jurisdiction or alternatively to transfer venue. It asserted that this action in the federal district court in Minnesota is barred by the bankruptcy court orders issued in the Chapter 11 case. NRG claimed further that the bankruptcy court has exclusive jurisdiction over the matter because the facts underlying the Commission's complaint are the same facts on which its proof of claim was based. The motion was referred to a magistrate judge who recommended that the case be dismissed or transferred, after concluding that this action is "with respect to" the Chapter 11 proceedings so the bankruptcy court retained exclusive jurisdiction and was in a better position to determine the effect of its orders. The Commission objected that its enforcement action is not "with respect to" the claim it filed in the bankruptcy court and that court was without authority to divest the district court of subject matter jurisdiction over this case. The district court adopted the magistrate judge's recommendation and dismissed the action for lack of jurisdiction.

The Commission appeals, arguing that the district court erred because the bankruptcy court orders do not apply to this enforcement action and in the alternative that the bankruptcy court lacked authority to deprive a district court of jurisdiction to hear an enforcement action arising under the Act. NRG asserts that the bankruptcy court orders bar the district court from exercising jurisdiction over this case and that the Commission cannot collaterally attack the validity of those orders in the district court in Minnesota. Our review of a dismissal for lack of subject matter jurisdiction is de novo. Sierra Club v. United States Army Corps of Engineers, 446 F.3d 808, 813 (8th Cir.2006).

The nonconstitutional jurisdiction of all federal courts, including bankruptcy courts, is fixed by Congress. Kontrick v. Ryan, 540 U.S. 443, 452, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004). Congress has provided that if the Commission determines that any entity or other person has violated a provision of the Act, it may "bring an action in the proper district court of the United States . . . to enjoin such act or practice, or to enforce compliance" with the act. 7 U.S.C. § 13a-1. Jurisdiction over bankruptcy proceedings is governed by 28 U.S.C. § 1334(a)-(b), which provides that district courts have "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." See In re Marlar, 432 F.3d 813, 814 (8th Cir.2005). District courts may refer to bankruptcy judges any or all cases "under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11". 28 U.S.C. § 157(a).

NRG's voluntary petition for bankruptcy protection under title 11 in the Southern District of New York was referred to a judge of the bankruptcy court, who was then vested with "limited authority" under the jurisdictional scheme created by Congress. Bd. of Governors v. MCorp Fin., Inc., 502 U.S. 32, 40, 112 S.Ct. 459, 116 L.Ed.2d 358 (1991). The purpose of title 11 protection is to allow an entity to "restructure . . . finances" and enter a plan of reorganization so that it is able to "continue to operate, provide its employees with jobs, pay its creditors, and produce a fair return for its stockholders." In re Cedar Shore Resort, Inc., 235 F.3d 375, 379 (8th Cir.2000).

Pursuant to its referred jurisdiction under 28 U.S.C. § 157(a) and consistent with the purposes of chapter 11, the bankruptcy court entered a confirmation order restricting the commencement of collateral proceedings which could adversely affect the bankruptcy estate. Entry of a confirmation order discharges all debts arising prior to the date of confirmation. 11 U.S.C. § 1141(d); McSherry v. Trans World Airlines, Inc., 81 F.3d 739, 740 (8th Cir.1996). The bankruptcy code defines debt as "liability on a claim", 11 U.S.C. § 101(12), and claim as a "right...