23 January 2016

Energy Enforcement Update

Parties in FERC case against Powhatan/Chen file further briefing on the de novo review procedures under the FPA.  On January 21, FERC and Powhatan/Chen each filed memos briefing the court on their positions for de novo review under Section 31(d) of the Federal Power Act.  Recall on January 7, Judge M. Hannah Lauck of the Eastern District of Virginia held a pretrial hearing in Richmond.  At that hearing, Judge Lauck ordered further briefing regarding a number of specific questions on the de novo review issue.

Parties in FERC case against Powhatan/Chen file further briefing on the de novo review procedures under the FPA.  On January 21, FERC and Powhatan/Chen each filed memos briefing the court on their positions for de novo review under Section 31(d) of the Federal Power Act.  Recall on January 7, Judge M. Hannah Lauck of the Eastern District of Virginia held a pretrial hearing in Richmond.  At that hearing, Judge Lauck ordered further briefing regarding a number of specific questions on the de novo review issue.

In its brief, FERC argues the court should rule de novo review means a review by the judge of the Commission’s Order Assessing Civil Penalties, and the judge should base her review on the administrative record.  FERC requests that the court adopt procedures similar to those Judge Nunley adopted in the Barclays proceeding.

Chen and Powhatan argue FERC’s litigation position contradicts the plain meaning of the FPA, the case law, FERC’s prior statements outside of litigation, due process, and basic common sense.  They assert Congress did not authorize FERC to impose the quasi-criminal sanction of civil penalties without the defendants ever having their “day in court.”

FERC and Maxim Power also file briefing on the de novo review procedures under the FPA.  Meanwhile in Massachusetts, on January 20, FERC and Maxim Power filed their briefs on de novo review.  Remember, on December 17, Judge Mastroianni, who is presiding over FERC’s case against Maxim, held a hearing on Maxim’s motion to dismiss.  At that hearing, Judge Mastroianni ordered supplemental briefing on the de novo review issue.  Judge Mastroianni indicated he wanted to address the de novo issue before considering the pending motion to dismiss.  A status hearing is scheduled for February 24 to determine if further argument or briefing is needed.

Echoing its arguments in Powhatan, FERC argues that the FPA gives the court wide latitude to determine how to carry out its review of the Order Assessing Civil Penalties against Maxim.  Again, FERC asks the court to adopt procedures similar to Judge Nunley’s in the Barclays case.

Maxim argues FERC’s interpretation of Section 31(d) of the FPA violates due process.  FERC’s interpretation, Maxim argues, is contrary to the plain language of Section 31(d), FERC’s own prior orders construing Section 31(d), and district court precedent from the First Circuit.  Maxim also argues that Section 31(d) of the FPA does not exempt FERC from the Federal Rules.

City Power and Tsingas file reply to FERC’s opposition to motion to dismiss.  On January 22, City Power and K. Stephen Tsingas filed their reply to FERC’s opposition to City Power’s motion to dismiss the action pending in federal court in DC.  The defendants argue that FERC’s petition for an order affirming FERC’s Order Assessing Civil Penalties is an improper denial of their due process because they have not yet had the opportunity to cross-examine witnesses and proffer evidence before a neutral decision-maker.  The defendants also challenge FERC’s manipulation and false statement claims.  Finally, the defendants argue that Tsingas cannot be held liable for market manipulation as an individual, and that he cannot be held liable for penalties against City Power under FERC’s joint and several liability theory.

Industry group files amicus brief in CFTC action against DRW.  In New York, a group of prominent industry associations (CME Group Inc.; Commodity Markets Council; Futures Industry Association, Inc.; Intercontinental Exchange, Inc.; and the Managed Funds Association) sought leave to file an amicus brief in the CFTC’s enforcement action against defendants Donald R. Wilson and DRW Investments, LLC for alleged manipulation and attempted manipulation of the price of the IDEX interest rate swap futures contract.  In their proposed brief, the industry groups argue that the CFTC is wrongly trying to change the settled legal standard for attempted price manipulation.  The argument is over whether, under the “traditional” standard for attempted manipulation (as opposed to the new, broader alternative manipulation provision added by Dodd-Frank), the CFTC has to show only an intent to “affect” price (the CFTC’s position), or whether the CFTC has to show an intent “to create an artificial price” (the defendants’ position, supported by the amicus brief).  Our colleague Geoffrey Aronow, former Director of Enforcement at the CFTC, said: “The most troublesome aspect of the debate is the CFTC’s seeming position that it need only provide evidence that the defendant knew his actions would impact price in order to carry its burden.  Of course, traders often know that their actions will impact price – indeed, in an efficient market, you would expect any shift in the supply or demand to affect price.”  Hence, the industry group’s alarm about the chilling effect CFTC’s interpretation could have on market participation.

On January 19, the CFTC filed an opposition to leave to file the amicus brief.  After vociferously objecting to the group’s brief, CFTC does suggest that it is prepared to draw a distinction between “intent to affect price” and “the knowledge that an overt act will likely cause a price movement.”  But as our colleague Geoff points out:  “the CFTC takes the position that it does not need to provide direct evidence of intent, but is allowed to draw an inference of intent from indirect evidence, and takes the position that the improper ‘intent’ need not be the primary, let alone sole, motive for the actions in question.  So, it is not yet clear to me how or where the Commission is prepared would draw that distinction.”

Kraft files motion for interlocutory appeal of order denying motion to dismiss.  Early appeals in these manipulation cases is become quite the fashion.  Kraft follows suit.  On January 19, Kraft moved for interlocutory appeal of Judge Blakey’s December 18 order denying Kraft’s motion to dismiss in the Northern District of Illinois.  Judge Blakey had denied Kraft’s motion to dismiss two counts in the CFTC’s complaint for alleged manipulation of the cash wheat and wheat futures markets in violation of the Commodity Exchange Act §§ 6(c)(1), 6(c)(3), and 9(a)(2) and CFTC Regulations 180.1 and 180.2.

FERC Commissioner Clark will not seek re-nomination.  As widely reported, but repeated here just in case, at the January open meeting, FERC Commissioner Tony Clark announced he has decided not to seek re-nomination.  Commissioner Clark’s term officially ends at the end of June, but he may remain at FERC until the end of the current congressional session unless a replacement is confirmed by the Senate.  In his words quoting Monty Python, “I’m not dead yet.”

*****

Join Sidley for a cocktail reception to kick off the 2016 NAPE Summit in Houston.  Sidley’s 2016 Houston NAPE Reception will be held on Tuesday, February 9th from 5 p.m. – 7:30 p.m. at The Grove Restaurant at Discovery Green, Houston.  Join us for this networking event at NAPE, a chance to meet up with your industry peers and colleagues and to make new connections.

Tuesday, February 9, 2016, 5:00 p.m. – 7:30 p.m.
The Grove Restaurant at Discovery Green
Treehouse/Vista Room (2nd floor)
1611 Lamar Street
Houston, TX 77010

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