November 30, 2021

Volume XI, Number 334


November 29, 2021

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For Those Keeping Tally, Another Win for Defendants’ Rights: Exploring De Novo Review and Burdens of Proof

On March 30, 2017, the U.S. District Court for the Eastern District of California issued an order denying, without prejudice, the Federal Energy Regulatory Commission’s (“FERC” or the “Commission”) Motion to Affirm Civil Penalties against Barclays Bank PLC and four individuals (“Defendants”).[1]  As an initial matter, the court agreed with every other federal court that has opined on the issue of whether defendants are entitled to conduct discovery under the Federal Rules of Civil Procedure.[2]  Notably, though, the court went further than any other court in rejecting arguments raised by FERC with respect to procedural matters and the rights afforded defendants when seeking de novo review under Option 2, an alternative procedural route that provides relief in lieu of an administrative hearing before an ALJ.  The court addressed, and dismissed, a number of arguments presented by FERC:

  • The court agreed with the Defendants’ assertion that “[t]here is a fundamental difference between forcing a party to rely on and develop its defenses based entirely on the discovery taken by its opponent and allowing that party to engage in its own independent discovery in support of its own defenses.”The court further found it would “def[y] notions of fairness and common sense” for the court to deny the Defendants the opportunity to provide evidence that they assert could refute the charges against them.

  • The court also rejected FERC’s argument that the proceeding should be restricted to the “administrative record.”The court highlighted that the record was incomplete and further flagged the fact that FERC failed to identify any statute, regulation or policy that staff followed when creating the record.The court pointed out that the record does not include the entire investigative record compiled by staff.“FERC offers no explanation for why Enforcement did not present the omitted documents, data, and transcripts, nor does it explain why this Court should not consider them.”The court concluded: “Such an ‘administrative record’ cannot be the basis for a neutral ‘adjudication’ by FERC or by this Court.”

  • Similarly, the court shot down FERC’s argument that “issue exhaustion” bars the Defendants from introducing new arguments or evidence.FERC took the position that the court’s review should be limited to the evidence and arguments contained in its administrative record – maintaining that “issue exhaustion” should bar the Defendants from introducing new arguments or evidence as the civil action proceeds.The court concluded that FERC’s penalty assessment was not a final agency decision and, therefore, the doctrine of issue-exhaustion was inapplicable.

  • The court distinguished its role “as neutral decision-maker of the conflict between FERC and Defendants” from that of FERC when it was deciding whether to civilly prosecute the Defendants.The court found FERC’s argument that it should decide the case based solely upon the administrative record FERC purported to rely upon in assessing civil penalties unpersuasive because there was no real showing that FERC had compiled a proper administrative record or actually based its determination upon such record.Furthermore, the court highlighted the fact that “there is nothing prohibiting FERC from deciding to prosecute based entirely on evidence presented by its Enforcement staff, ex parte presentations made to it by Enforcement staff urging it to file suit, and even its own desire to ‘push the envelope’ or to make new law on what constitutes market manipulation in the energy markets.”

    • The court also stated that, if Defendants’ assertion that the Intercontinental Exchange found that Defendants “did not engage in any improper conduct,” depriving the Defendants of the opportunity to compel production of that allegedly exculpatory report “might work an injustice on Defendants.”

  • In discussing the burden of proof, the court pointed out that normal civil actions require the plaintiff to “prove” its case.“Such proof involves subjecting the evidence presented by both sides to give and take of the adversarial system.This has not happened thus far.”FERC has yet to “prove that [Defendants] broke the law, or that Defendants had a true opportunity to defend themselves.”

With the court’s decision to reject FERC’s restrictive interpretation of the rights afforded to Defendants under the Federal Power Act – consistent with every other court that has addressed the issue – it appears increasingly well-settled that the requirement that a district court review FERC’s decision de novo requires the opportunity for a trial, with discovery rights for defendants. 

 [1] Case No. 2:13-cv-2093 TLN DB.  The Motion to Affirm was denied without prejudice to its renewal as a dispositive motion at an appropriate time.

[2] See FERC v. Maxim Power Corp., 196 F. Supp. 3d 181 (D. Mass. 2016); FERC v. City Power Marketing, LLC, 199 F. Supp. 3d 218 (D.D.C. 2016); FERC v. Silkman, 2017 WL 374697, 2017 U.S. Dist. LEXIS 10902 (D. Me. 2017); FERC v. ETRACOM LLC, 2017 WL ___, 2017 U.S. Dist. LEXIS 33430 (E.D. Cal. 2017).

© 2021 Bracewell LLPNational Law Review, Volume VII, Number 90

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...

David Perlman, Energy Practice, Partner, Lawyer, Bracewell law firm

David Perlman is a partner in the energy practice in Bracewell's Washington, D.C. office. He represents and counsels clients before regulatory bodies such as the Federal Energy Regulatory Commission (FERC), Commodity Futures Trading Commission and state public utility commissions in regulatory and compliance matters, in the conduct of compliance programs and training, and in energy-related transactions and financings.

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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.

Ryan M. Eletto, Bracewell, environmental strategy lawyer, energy regulatory matters attorney

Ryan Eletto focuses his practice on energy regulation, environmental strategy, regulatory matters and public policy issues. He advises energy companies and other clients in litigation, investigation, enforcement and compliance matters involving administrative agencies, including the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission. 

Prior to joining Bracewell, Ryan served as a law clerk to the Honorable Bruce E. Kasold of the U.S. Court of Appeals for Veterans Claims in Washington, D.C.