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Another Win for Respondents’ Rights: California District Court Opines on Scope of De Novo Review

On March 8, 2017, the U.S. District Court for the Eastern District of California issued an order affirming that ETRACOM LLC and its owner (the “Respondents”) are entitled to a full trial on the merits and discovery rights in an action brought by the Federal Energy Regulatory Commission (“FERC” or the “Commission”) seeking to enforce an order assessing civil penalties against the Respondents for alleged market manipulation in the California energy market.  The primary issue at stake was the meaning of the Federal Power Act’s (“FPA”) reference to “de novo review” in a civil action brought by FERC seeking enforcement of a civil penalty in federal district court.  FERC had argued that courts reviewing a FERC penalty assessment de novo need only review the administrative record developed by the agency.  The Respondents, in contrast, argued that the reference to de novo review entitled them to a trial on the merits in accordance with the Federal Rules of Civil Procedure (“FRCP”), including full discovery rights, and without deference to the agency’s findings or the administrative record.

In the March 8 Order, the court agreed with the Respondents and held that the FRCP apply to FERC’s action seeking enforcement of its prior civil penalty assessment.  The court explained that the FRCP apply to all civil actions before U.S. District Courts except where there is “a clear expression of congressional intent to exempt actions from the FRCP.”  Parsing the language of the FPA, the court explained that the reference to an “action” in district court is generally interpreted to require the full procedural protections typically afforded in a court of law.  The court also explained that the legislative history of other federal statutes providing for de novo review supported a finding that congress intended the FRCP to apply to actions brought by FERC to enforce its civil penalty assessments.  Finally, the court noted that the federal district courts in Massachusetts, Maine, and the District of Columbia that have considered the same issue have reached the same conclusion.

The March 8 order represents a significant victory for subjects of FERC enforcement actions wishing to challenge the Commission’s allegations in a court of law.  As noted in the March 8 order, at this point, federal district courts have consistently rejected FERC’s arguments respecting the meaning of de novo review and have found that respondents are entitled to a fresh review of the facts at issue, including the opportunity to seek discovery.  While there are a number of federal district courts still evaluating the proper scope of review in an action seeking enforcement of FERC’s civil penalty assessments, it appears increasingly well established that such matters should proceed as ordinary civil actions with full due process rights for the respondents.  As this and other threshold procedural issues become settled, it is possible that we will see cases moving more quickly towards the substantive merits of the dispute, providing a glimpse into the courts’ view of the bounds of FERC’s anti-manipulation authority.  

© 2018 Bracewell LLP


About this Author

Michael Brooks, Energy, Commodities, attorney, Bracewell, law firm

Michael focuses his practice in the areas of energy, commodities and derivatives law. He represents energy companies and commodity trading companies in a wide variety of regulatory, compliance and enforcement matters and routinely advises clients regarding compliance with federal rules and regulations governing the trading, ownership and transportation of energy commodities.

In addition to actively representing clients in investigations and regulatory matters involving the Federal Energy Regulatory Commission (FERC) and the Commodity Futures...

Robert E. Pease, Energy, Attorney, Bracewell law firm
Senior Counsel

Bob Pease represents clients involved in the energy sector in CFTC and FERC regulatory, compliance and enforcement matters involving power, gas, and crude oil, as well as Dodd Frank implementation. Bob has more than 25 years of senior-level experience at CFTC and FERC handling energy-related policy, compliance and enforcement matters, most recently as Counsel to the Director in the Division of Enforcement with the CFTC. Before his time with the CFTC, Bob spent more than 20 years at FERC most recently as Director of Investigations. Bob was involved in some of the most significant investigations and enforcement cases at FERC since the enactment of the Energy Policy Act of 2005. Bob’s experience at the CFTC and FERC enables him to bring a unique perspective to compliance and enforcement, and Dodd Frank matters before these agencies.

Stephen Hug, Environmental Attorney, Bracewell Law Firm

Stephen Hug represents clients in matters related to federal regulatory policies, regulations and rules applicable to the electric industry. His experience includes assisting clients with compliance with the rules and regulations of the Federal Energy Regulatory Commission (FERC) and the Federal Power Act (FPA).  Stephen also represents clients in litigated proceedings before FERC.

Serena Rwejuna, Energy Attorney, Bracewell Law Firm

Serena Rwejuna focuses her practice on energy regulation and public policy matters. She advises energy companies and other clients in matters involving energy projects, applications, transactions and litigation before the Federal Energy Regulatory Commission (FERC). She has assisted with the preparation and filing of initial applications, compliance filings and various pleadings in connection with regulatory approvals and other FERC requirements.

SARAH L. RAFIE, Bracewell, electric utilities lawyer, hydroelectric generators attorney

Sarah Rafie counsels clients in relation to regulatory matters, particularly in infrastructure service industries, including electric utilities and hydroelectric generators. She advises clients regarding compliance matters before the Federal Energy Regulatory Commission (FERC) and various state regulatory agencies.

Before joining Bracewell, Sarah served as a judicial intern to Judge Jennifer W. Elrod of the U.S. Court of Appeals for the Fifth Circuit in Houston, and as an appellate intern in the U.S. Attorney’s Office for the Western District of...