This enforcement update covers:
- FERC and Department of Energy nominees clear Senate committee;
- District court dismisses oil price manipulation complaints against multiple energy companies;
- Barclays and FERC file Second Amended Joint Status Report and Court schedules settlement conference;
- Fifth Circuit affirms dismissal of TOTAL’s declaratory judgment action against FERC;
- Supreme Court limits SEC disgorgement to 5-year statute of limitations;
- Kraft Foods moves to compel documents from CFTC; and
- Fifth Circuit vacates judgment involving overly broad privilege standard and related protective order.
First, the best news: We’re delighted to welcome Danielle Garbien to our team Sidley. Getting Danielle (formerly Danielle Schonback) on our team (once again) is terrific. Danielle has worked closely with many of you. She’s a terrific lawyer, who gets the job done well. Danielle focuses her practice on representing investment banks, hedge funds and energy and commodity companies in a variety of transactional, regulatory and risk management matters Please say ‘hello’ when you can.
FERC and Department of Energy nominees clear Senate Energy & Natural Resources Committee. On Tuesday, June 6, the Senate Energy & Natural Resources Committee approved President Trump’s two FERC nominees. Neil Chatterjee, an energy policy aide to Senator Majority Leader Mitch McConnell, and Robert Powelson, a Pennsylvania utility regulator, now advance to the Senate for full confirmation, which is expected before the July 4 congressional recess. Their confirmation will return a quorum to the Commission for the first time since Norman Bay resigned in early February. Deputy Energy Secretary nominee Dan Brouillette also advanced to the full Senate on a committee vote of 17-6.
District Court dismisses oil price manipulation complaints against multiple energy companies. On Thursday, June 8, Judge Andrew Carter in the District Court for the Southern District of New York dismissed multidistrict litigation complaints against nine energy companies for alleged manipulation of the North Sea Brent crude oil and Brent crude futures markets (order attached). Derivative traders and landowners brought various claims in 2013 under the Commodities Exchange Act, the Sherman Act, and several state laws. The Court held that plaintiffs’ CEA claims were based on allegedly misleading price reports given to Platts in London about physical transactions that occurred outside the U.S., which was impermissibly extraterritorial and did not establish a valid claim. The Court dismissed the Sherman Act claims because Plaintiffs did not show that they participated in the actual markets that were allegedly manipulated, and therefore did not sufficiently allege antitrust injury required to support an antitrust claim. The Court also dismissed plaintiffs’ claims of unjust enrichment, state antitrust injury, and unfair trade practices. In an order addressing personal jurisdiction issued that same day, the court dismissed claims against Shell International Trading and Shipping because its alleged conduct is sufficiently connected to the U.S.
Barclays and FERC file Second Amended Joint Status Report and discovery plan; Court schedules Settlement Conference. On May 26, Barclays and FERC filed their Second Amended Joint Status Report and Rule 26(f) discovery plan, as ordered by Judge Nunley of the U.S. District Court for the Eastern District of California on March 30. The parties stated their respective summaries of the claims and their positions related to jurisdiction, venue, and discovery. Notably, Defendants asked FERC to provide its complete investigative file in order to expedite discovery. The parties disagreed on the number of interrogatories each side may serve and differed on most scheduling dates, with FERC proposing a shorter discovery schedule overall. FERC proposed discovery to conclude by July 2018 with trial to commence late March 2019, while Defendants requested discovery to end in August 2018 and a trial date of June 3, 2019. The parties agreed on the number of depositions, certain electronic discovery protocols, that trial is expected to last four to six weeks, and both noted willingness to pursue settlement discussions. On Thursday, June 8, the court scheduled a Settlement Conference for October 11-12, 2017, before Magistrate Judge Kendall Newman and directed the parties to exchange statements seven days before the conference.
Fifth Circuit affirms dismissal of TOTAL’s declaratory judgment action against FERC. On Thursday, the Fifth Circuit affirmed the District Court for the Southern District of Texas in dismissing TOTAL’s declaratory judgment action against FERC. As you may recall, TOTAL brought its action over a year ago when FERC commenced enforcement proceedings, arguing that FERC was precluded from adjudicating violations or imposing penalties under the Natural Gas Act because those activities are vested exclusively in federal district courts. The Fifth Circuit concluded TOTAL’s claims are not ripe for resolution and did not assess the merits of TOTAL’s arguments. The Court cited its decision in Energy Transfer Partners v. FERC, where Energy Transfer similarly argued that NGA vested exclusive jurisdiction in federal district court rather than in a FERC ALJ proceeding. In both cases, the parties brought declaratory judgment actions before the matters had been heard before a FERC ALJ and before FERC had issued a final order. The Court declined to address TOTAL’s arguments about FERC’s authority under the NGA until FERC conclusively determines that violations occurred and imposes penalties.
Supreme Court limits SEC disgorgement to 5-year statute of limitations. On Monday, June 5, in SEC v. Kokesh, the U.S. Supreme Court unanimously held that disgorgement collected by the SEC is subject to U.S. Code § 2462, the 5-year limitations period for collecting “any civil fine, penalty, or forfeiture.” The Court overturned the Tenth Circuit, which had followed D.C. and First Circuit precedent in finding that disgorgement is not a penalty and the statute of limitations did not apply. The Court determined that SEC disgorgement is imposed as a consequence for violating public laws rather than for harming an individual, as well as for punitive and deterrence rather than compensatory purposes. This decision resolves a split with the Eleventh Circuit, which had concluded that disgorgement is effectively the same as forfeiture and thus subject to the 5-year limitations rule. The Court’s decision dramatically reduces sanctions imposed against a New Mexico investment adviser—$35 million disgorgement plus over $18 million in prejudgment interest—leaving a $2.4 million civil penalty on the SEC’s claims that Kokesh misappropriated money from business development companies over a 12-year period.
Kraft Foods moves to compel documents from the CFTC. Also on Monday, Defendants Kraft Foods Group and Mondelez Global filed a Motion to Compel the CFTC to produce 114 documents it withheld in discovery on the basis of the deliberative process or law enforcement privilege. The requested documents were created by the CFTC’s Division of Market Oversight analysts before legal or enforcement personnel became involved. The CFTC identified these same analysts as fact witnesses during discovery, but withheld the investigative materials they created on which they will testify. Defendants argue that the asserted privileges do not protect factual investigatory details from disclosure, and that any concern over public dissemination is covered by an existing protective order. They argue further that the CFTC cannot use its government privileges to provide certain investigatory information to support its claims, while at the same time invoking the privilege to avoid providing Defendants with helpful documents that might challenge them. Judge Blakey heard the motion on Thursday, June 8, set a briefing schedule to conclude by July 20, and scheduled an additional motion hearing for July 25.
Fifth Circuit vacates judgment involving overly broad privilege standard and related protective order. The Fifth Circuit recently vacated and remanded a district court order that had found a privilege log sufficient based on an over-broad standard of attorney-client privilege. In EEOC v. BDO LLC, the Fifth Circuit determined that Defendant’s privilege log was vague and incomplete, lacked sufficient detail to distinguish between legal and business advice, and failed to establish that communications were made in confidence and that confidentiality was not breached. The court focused on the distinction between privileged legal advice and non-privileged business advice, which is often less clear particularly in cases involving compliance issues. The court found that Defendant’s privilege log did not give sufficient detail to allow its opponent or the court to determine whether entries described as “legal advice” or courtesy copied to an in-house lawyer actually contained privileged communications. This case provides a helpful reminder to take care in identifying and describing relevant privilege assertions when preparing privilege logs to an opposing party. Courts may take a skeptical view when privilege logs are incomplete or assert blanket privilege claims, particularly on documents involving in-house lawyers. The full opinion is available here.