Happy New Year! In our first enforcement update of 2017, we cover:
- FERC increases maximum civil penalties for violations for 2017;
- City Power and FERC file joint stipulation requesting referral to mediation; and
- TOTAL files supplemental authority and FERC responds in declaratory judgment action in Fifth Circuit.
FERC increases maximum civil penalties for violations. On January 9, FERC issued a final rule to amend its regulations governing the maximum civil monetary penalties assessable for violations of statutes, rules, and orders within FERC’s jurisdiction, which is required by the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended most recently by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new adjusted maximum civil penalty for many Federal Power Act and Natural Gas Act violations, including manipulation violations, has increased to $1,213,503 per violation, per day (up from $1,193,970 per violation, per day).
City Power and FERC request referral to mediation. On January 4, FERC and City Power filed a joint stipulation requesting referral to mediation in the U.S. District Court for the District of Columbia. This mediation process is to enable FERC to evaluate the defendants’ contentions concerning ability to pay. The stipulation lists the materials that City Power and Tsingas will provide to both FERC and the mediator, including recent tax returns and financial statements post-dating those provided in response to data requests during the investigation. This stipulation could mean that a settlement is possible. According to the stipulation, if the parties reach a tentative settlement agreement, FERC can make final settlement approval contingent on City Power and Tsingas supplementing this production of financial data to include a full update of the financial discovery defendants provided in response to data requests during the investigation. Nonetheless, the parties requested that the mediation process not slow down or otherwise affect proceedings in district court.
TOTAL files supplemental authority and FERC responds in Fifth Circuit proceeding. On January 3, TOTAL filed a notice of supplemental authority in the Fifth Circuit in its declaratory judgment action against FERC. TOTAL filed a copy of Bandimere v. SEC, No. 15-9586 (10th Cir. Dec. 27, 2016), in which the Tenth Circuit held that SEC ALJs are inferior officers subject to the Appointments Clause.
In Bandimere, the Tenth Circuit found lacking constitutional authority for the five administrative law judges who preside over contested administrative proceedings brought by the Division of Enforcement of the U.S. Securities and Exchange Commission. That decision splits from the D.C. Circuit’s recent decision in Raymond J. Lucia Cos. v. SEC. The Tenth Circuit reasoned that SEC ALJs are “inferior officers” of the United States, as opposed to employees, and therefore subject to the Appointments Clause of the Constitution, and so vacated the SEC’s ruling against petitioner David Bandimere on the grounds that the ALJ who presided over the underlying enforcement hearing—and rendered an initial decision that the Commission later confirmed—was not appointed in accordance with the Appointments Clause and thus held his position unconstitutionally. Recall that The Wall Street Journal reported in May 2015 that the SEC won 90% of cases before its ALJs from October 2010 through March 2015, as compared to 69% of cases in federal court during the same period. See Jean Eagelsham, SEC Wins With In-House Judges, Wall St. J., May 6, 2015.
Now, seeking to have the FERC enforcement case against it heard in court and not before a FERC ALJ, TOTAL lodged the Bandimere decision with the U.S. Court of Appeals for the Fifth Circuit and argued the Tenth Circuit’s reasoning reinforces why serious constitutional concerns compel rejecting FERC’s interpretation of the Natural Gas Act as excluding de novo district court review. According to TOTAL, Bandimere expressly disagrees with Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016)—on which FERC strongly relies—in holding that SEC ALJs (like FERC ALJs) are inferior officers, even if they cannot render final decisions, because they exercise significant discretion in “shap[ing] the administrative record,” “mak[ing] credibility findings” that “receive deference” from the SEC, “impos[ing] sanctions,” and “issu[ing] initial decisions.”
On January 10, FERC filed a response. FERC argues that the Bandimere decision focuses entirely on the question whether the SEC’s ALJs are “Officers” for purposes of the Constitution’s Appointments Clause—a question that is not presented in the TOTAL case, which concerns the scope of district court jurisdiction over violations of the Natural Gas Act. According to FERC, the district court properly declined to rule upon TOTAL’s constitutional claims because the court lacked jurisdiction, and TOTAL’s claims are not ripe for review.
Please note that a rehearing en banc has been requested but not adjudicated in Lucia and that the SEC will seek such rehearing in Bandimere. Should the DC Circuit and Tenth Circuit remain in disagreement, Supreme Court could grant review on whether SEC ALJs have been operating contrary to the U.S. Constitution. And the extension of such rulings to FERC would hang in the balance.