In a July 21, 2016 order, a federal district court for the first time in a FERC enforcement matter held that review of an assessed civil penalty pursuant to Section 31(d)(3) of the Federal Power Act (“FPA”) entails an “ordinary civil action requiring a trial de novo.”[1] In FERC v. Maxim Power Corp. (“Maxim”), the District of Massachusetts, departing from recent precedent and rejecting FERC’s position, ruled that the FERC-penalized respondents may seek discovery, depose and present witnesses, and argue the case before a jury, subject only to the court’s approval of an efficient discovery plan. This holding is a substantial procedural win for the Maxim respondents, and will serve as significant although non-binding precedent for other federal district courts’ review of FERC-assessed civil penalties.
In Maxim, FERC seeks enforcement of civil penalties of $5M and $50,000 against Maxim Power Corporation and several affiliates, the owners and operators of a power plant in Massachusetts, and Kyle Mitton, a Maxim employee, respectively, for alleged wholesale energy market manipulation and for submitting false or misleading information to ISO-NE, the FERC-approved operator of the New England wholesale energy market. With respect to FERC’s allegations, the July 21, 2016 order denied respondents’ motion to dismiss. The parties will litigate the issues on the merits.
From a procedural perspective, however, the order is less favorable to FERC. Under the FPA, a party may contest an assessed civil penalty by pursuing one of two procedural paths. Under the first, Section 31(d)(2), the party is entitled to a full evidentiary hearing before a FERC Administrative Law Judge (“ALJ”), after which the Commission decides the matter based on exceptions to the ALJ’s recommended decision. FERC’s ruling is appealable to the appropriate circuit court of appeals. Under the second, Section 31(d)(3), FERC must, upon finding of a violation, “promptly assess” the civil penalty without evidentiary hearing. If the penalized party does not remit payment to FERC within sixty days, the Commission must seek enforcement of the assessed civil penalty in a federal district court, where the court “has the authority to review de novo the law and the facts involved . . .”[2] The Maxim respondents selected the procedures of Section 31(d)(3). The “root” of the parties’ procedural disagreement was the nature of de novo review pursuant to Section 31(d)(3).[3] Contrary to FERC’s position, the...
