Fed. Energy Regulatory Comm'n v. Silkman

233 F.Supp.3d 201

FEDERAL ENERGY REGULATORY COMMISSION, Petitioner,

v.Richard SILKMAN, et al., Respondents.

1:16–cv–00205–JAW

United States District Court, D. Maine.

Signed January 26, 2017

Gabriel S. Sterling, III, Demetra E. Anas, Elizabeth K. Canizares, Michael Raibman, Nicole L. Brisker, Federal Energy Regulatory Commission, Washington, DC, Andrew K. Lizotte, U.S. Attorney's Office, Portland, ME, for Petitioner.

Peter J. Brann, Stacy O. Stitham, Brann & Isaacson, Lewiston, ME, for Respondents.

ORDER REGARDING PROCEDURES APPLICABLE TO PETITION FOR ORDER AFFIRMING ASSESSMENT OF CIVIL PENALTIES

JOHN A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE

On July 17, 2012, the Federal Energy Regulatory Commission (FERC or Commission) issued orders to show cause to an energy consulting firm and its managing member (Respondents), requiring them to show cause why the Commission should not (1) find them in violation of section 222 of the Federal Power Act (FPA), 16 U.S.C. § 824v, and FERC's rule against energy market manipulation (the Anti–Manipulation Rule); (2) assess civil penalties against the firm and the managing member; and (3) require the firm to disgorge unjust profits.

Pursuant to the FPA, the Respondents, upon receiving the orders to show cause, faced a choice of procedures. First, under 16 U.S.C. § 823b(d)(2), the Respondents could proceed to a hearing before an Administrative Law Judge (ALJ) and appeal any unsatisfactory decision to the Commission and, eventually, to the United States Court of Appeals in accordance with the Administrative Procedure Act (APA). Alternatively, under 16 U.S.C. § 823b(d)(3), the Respondents could bypass a hearing with an ALJ and request the Commission to make a prompt ruling on the proposed penalties. If the Commission imposed a penalty, and the Respondents failed to pay within sixty days, the Commission could institute an action in the district court for an order affirming the Commission's penalty assessment. The FPA states that, in ruling on the Commission's penalty assessment, the district court "shall have the authority to review de novo the law and the facts involved[.]"

In this case, the Respondents opted for an immediate ruling from the Commission under § 823b(d)(3), and on August 29, 2013, the Commission issued assessment orders imposing the proposed penalties. The Respondents failed to pay the penalties within sixty days. Accordingly, the Commission filed a petition for an order affirming its assessment orders.

In a matter of first impression in the District of Maine, this Court must determine the applicable procedures that govern the Court's de novo review of the Commission's assessment orders. After considering the compelling arguments and authorities both parties bring to bear on the issue, the Court has resisted the temptation to make a grand pronouncement about the scope of de novo review under § 823b(d)(3) and instead concludes, based on the specific circumstances of this case, that it will treat this matter as an ordinary civil action subject to the Federal Rules of Civil Procedure.

I. BACKGROUND

A. Procedural History

1. Proceedings in the District of Massachusetts

On December 2, 2013, FERC filed a petition in the District of Massachusetts for an order affirming its assessment orders. Pet. for Order Affirming FERC's Aug. 29, 2013 Orders Assessing Civil Penalties Against Richard Silkman and Competitive Energy Services, LLC (ECF No. 1) (FERC Pet. ). On December 19, 2013, the Respondents filed a motion to dismiss, Resp'ts' Mot. to Dismiss (ECF No. 8), and a motion to transfer to the District of Maine. Resp'ts' Mot. to Transfer (ECF No. 9). On January 9, 2014, FERC filed oppositions to the motion to dismiss, FERC's Opp'n to Resp'ts' Mot. to Dismiss (ECF No. 18), and the motion to transfer. FERC's Opp'n to Resp'ts' Mot. to Transfer (ECF No. 19).

On March 3, 2014, Judge Douglas Woodlock notified the parties of an initial scheduling conference and ordered the parties to submit a joint statement regarding scheduling pursuant to Massachusetts Local Rule 16.1. Notice of Scheduling Initial Scheduling Conf., Order for Joint Statement and Certifications, and Order for Elec. Filing (ECF No. 20). The parties filed their joint statement on March 25, 2014, highlighting their disagreement about the nature and scope of the applicable procedures. Joint Rep. Pursuant to Fed. R. Civ. P. 26(f) and Loc. R. 16.1 (ECF No. 22) (Joint Rep. ).

At the scheduling conference on April 3, 2014, Judge Woodlock denied the motion to transfer without prejudice and scheduled a hearing on the motion to dismiss.

Elec. Clerk's Notes (ECF No. 23). Additionally, Judge Woodlock ordered initial disclosures pursuant to Federal Rule of Civil Procedure 26(a)(1) and requested additional briefing regarding how the Court should conduct a "review de novo" under § 823b(d)(3). Id. The Respondents filed a supplemental brief on procedure on May 9, 2014. Resp'ts' Suppl. Br. on Pro. (ECF No. 28) (Resp'ts' Suppl. Br. ). FERC responded on June 6, 2014. FERC's Mot. for Leave to Cross–File Contours of the Case Resp. , Attach. 1, FERC's Resp. to Resp'ts' Mem. Regarding Ct.'s Auth. to Review De Novo Comm'n's Orders Assessing Civ. Penalties Against Resp'ts' (ECF No. 37) (FERC's Suppl. Resp. ).¹

On July 18, 2014, Judge Woodlock heard arguments on the motion to dismiss and the supplemental briefs on procedure, as well as additional arguments regarding transfer to the District of Maine. Elec. Clerk's Notes (ECF No. 43); Tr. of Mot. Hr'g (ECF No. 44). Following the hearing, on April 2, 2015, the Respondents filed a second supplemental brief on the applicable procedures. Resp'ts' Second Suppl. Brief on Pro. (ECF No. 52) (Resp'ts' Suppl. Br. II ).

The case was effectively stayed pending resolution of related issues in the United States Supreme Court² and the United States Bankruptcy Court for the District of Maine.³ By April 5, 2016, both matters were resolved, and the proceedings continued. On April 11, 2016, Judge Woodlock denied the Respondents' motion to dismiss, FERC v. Silkman , No. 1313054DPW, 2016 U.S. Dist. LEXIS 48409 (D. Mass. April 11, 2016) (ECF No. 65), and transferred the cases to the District of Maine for further proceedings. FERC v. Silkman , No. 1313054DPW, 2016 U.S. Dist. LEXIS 48401 (D. Mass. Apr. 11, 2016) (ECF No. 66).

2. Proceedings in the District of Maine

On April 21, 2016, following transfer to the District of Maine, the Respondents filed an answer to FERC's petition. Defs.' Answer (ECF No. 72). That same day, the Respondents filed a motion requesting a scheduling conference and an order assigning the case to the complex track. Defs.' Mot. for Scheduling Order and Conf. (ECF No. 73) (Resp'ts' Mot. ). Along with their motion, the Respondents filed a declaration from their attorney, Peter Brann, detailing the Respondents' experiences throughout the FERC investigation. Mot. for Complex Track , Attach. 1, Peter Brann Decl. (ECF No. 73) (Brann Decl. ). On April 28, 2016, FERC responded. FERC's Resp. to Resp'ts' Mot. for Scheduling Order and Conf. (ECF No. 74) (FERC's Resp. ). The Respondents replied on May 4, 2016. Defs.' Reply Br. in Supp. of Mot. for Scheduling Order and Conf. (ECF No. 79) (Resp'ts' Reply ).

On June 3, 2016, the Court held a scheduling conference. Minute Entry (ECF No. 84); Tr. of Proceedings (ECF No. 85). At the scheduling conference, the parties presented arguments concerning the procedures that should govern the Court's de novo review of the Commission's assessment orders. Tr. of Proceedings at 2:24–49:18. The Court ordered additional briefing from the Respondents' regarding (1) the additional documents they wish to obtain from the agency's investigative record, and (2) any additional discovery they require to present the Court with a complete record for de novo review. Id. at 46:6–47:2. The Court requested that FERC file a responsive brief to explain (1) why the Respondents are not entitled to discovery as a matter of law, and (2) why the Court should rely solely on FERC's administrative record in reviewing de novo the Commission's assessment orders. Id. at 47:25–48:7.

The Respondents filed their discovery brief on July 8, 2016. Defs.' Br. Concerning Disc. (ECF No. 86) (Resp'ts' Disc. Br. ). On July 22, 2016, the Respondents filed a supplemental brief alerting the Court to FERC v. Maxim Power Corp., 196 F.Supp.3d 181 (D. Mass. 2016). Defs.' Notice of Suppl. Auth. (ECF No. 87). On July 29, 2016, FERC filed its brief in response. FERC's Opp'n to Resp'ts' Br. Concerning Disc. (ECF No. 88) (FERC's Disc. Resp. ). The Respondents replied on August 8, 2016. Defs.' Reply Br. Concerning Disc. (ECF No. 89) (Resp'ts' Disc. Reply ). On August 17, 2016, the Respondents filed a second supplemental brief to alert the Court to another recently–decided case, FERC v. City Power Marketing, LLC , 199 F.Supp.3d 218 (D.D.C. 2016). Defs.' Second Notice of Suppl. Auth. (ECF No. 90). FERC responded to the Respondents' notices of supplemental authority on August 29, 2016. FERC's Resp. to Resp'ts' Notices of Suppl. Auth. (ECF No. 93) (FERC's Resp. to Suppl. Auth. ).

B. The Parties and Relevant Entities

FERC is an administrative agency of the United States, organized and existing pursuant to the FPA, 16 U.S.C. § 791a et seq. FERC Pet. ¶ 13. FERC's Office of Enforcement (Enforcement) "initiates and executes investigations of possible violations of the Commission's rules, orders, and regulations relating to energy market structures, activities, and participants. Office of Enforcement (OE) , FERC, https://www.ferc.gov/about/offices/oe.asp (last visited January 25, 2017). Based on its investigations, Enforcement may submit reports to the Commission recommending that the Commission institute administrative proceedings. FERC's Disc. Resp. at 4. Once the Commission authorizes an administrative proceeding, Enforcement's role shifts from investigator to litigator, and a "wall" goes up between the Commission and its Enforcement arm to prevent ex...