S. Branch LLC v. Commonwealth Edison Co.

46 F.4th 646

SOUTH BRANCH LLC, et al., Plaintiffs-Appellants,

v.COMMONWEALTH EDISON COMPANY and Exelon Corporation, Defendants-Appellees.

Nos. 21-2861

21-2872 & 21-2873

United States Court of Appeals, Seventh Circuit.

Argued May 17, 2022

Decided August 22, 2022

Derek W. Loeser, Attorney, Keller Rohrback LLP, Seattle, WA, Matthew J. Piers, Emily Brown, Charles D. Wysong, Attorneys, Hughes Socol Piers Resnick & Dym, Ltd., Chicago, IL, Jonathan D. Selbin, Attorney, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, for Plaintiffs-Appellants South Branch LLC, TFO Golub Burnham LLC, TFO Golub IT 2.0 LLC, Rockwell on the River LLC.

Terrence J. Truax, Nicole A. Allen, Ali Alsarraf, Attorneys, Jenner & Block LLP, Chicago, IL, Matthew E. Price, Attorney, Jenner & Block LLP, Washington, DC, for Defendants-Appellees.

Jonathan D. Selbin, Jason L. Lichtman, Attorneys, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, Ian R. Bensberg, Kevin R. Budner, Attorneys, Lieff, Cabraser, Heimann & Bernstein, LLP, San Francisco, CA, Andrew Kaufman, Attorney, Lieff, Cabraser, Heimann & Bernstein, LLP, Nashville, TN, Derek W. Loeser, Attorney, Keller Rohrback LLP, Seattle, WA, Matthew J. Piers, Attorney, Hughes Socol Piers Resnick & Dym, Ltd., Chicago, IL, for Plaintiffs-Appellants Steven Brooks, David Chavez, 1540 Milwaukee LLC.

Derek W. Loeser, Ryan McDevitt, Attorneys, Keller Rohrback LLP, Seattle, WA, Gary A. Gotto, Attorney, Keller Rohrback LLP, Phoenix, AZ, Matthew J. Piers, Attorney, Hughes Socol Piers Resnick & Dym, Ltd., Chicago, IL, Jonathan D. Selbin, Attorney, Lieff, Cabraser, Heimann & Bernstein, LLP, New York, NY, for Plaintiff-Appellant Lawrence H. Gress.

Before Sykes, Chief Judge, and Kirsch and Jackson-Akiwumi, Circuit Judges.

Kirsch, Circuit Judge.

Nine Illinois energy consumers sued their electricity provider, Commonwealth Edison Company, and its parent, Exelon Corporation, on behalf of themselves and those similarly situated for damages under the Racketeer Influenced and Corrupt Organizations Act (RICO) alleging injury from increased electricity rates. These rates increased, the plaintiffs allege, because ComEd bribed the former Illinois Speaker of the House to shepherd three bills through the state's legislature. The district court dismissed the suit. Because paying a state's required filed utility rate is not a cognizable injury for a RICO damages claim, we affirm.

I

Since we are reviewing a dismissal on the pleadings, we treat the following well-pleaded facts in the complaint as true. See Bilek v. Fed. Ins. Co. , 8 F.4th 581, 586 (7th Cir. 2021). When appropriate, we also cite matters of public record not subject to reasonable dispute for which we take judicial notice. See Orgone Cap. III, LLC v. Daubenspeck , 912 F.3d 1039, 1044 (7th Cir. 2019).

Exelon Corporation is a utility services holding company engaged in the energy distribution and transmission business across multiple states through several subsidiaries, including Commonwealth Edison Company.¹ ComEd purchases, transmits, distributes, and sells electricity to retail customers in northern Illinois. As an Illinois public utility, ComEd must file its electricity rates with the Illinois Commerce Commission (ICC). See 220 Ill. Comp. Stat. §§ 5/9-102, 5/9-104.

To secure passage of favorable legislation, ComEd engaged in a yearslong "pay to play" scheme with Michael Madigan, the former Speaker of the Illinois House of Representatives and Chair of the Illinois Democratic Party. Through that scheme, ComEd paid bribes to Madigan's associates, and, in return, Madigan used his roles as Speaker and Party Chair to push advantageous bills through the state legislature. As relevant here, three bills became law during the ComEd-Madigan scheme: (1) the Energy Infrastructure and Modernization Act of 2011 (EIMA); (2) 2013 amendments to that legislation; and (3) the Future Energy Jobs Act of 2016 (FEJA).

First, in 2011, ComEd paid three Madigan connections indirectly as subcontractors for little or no work, contracted with a Madigan-affiliated law firm, and hired paid interns from Madigan's ward, to influence Madigan to secure the passage of EIMA. In return, Madigan used his power as Speaker to permit the House of Representatives to vote on the bill and to ensure House members would vote in support. The House approved the bill, with 67 of 116 representatives voting for its passage. The Senate then approved the bill as well, with 31 of 55 senators voting in its favor.

When the bill reached the governor's desk, however, Governor Pat Quinn vetoed it. So Madigan again used his powers and influence to permit a vote overriding the veto and to urge support of the override. That effort succeeded after Madigan pressured ten members of the House Democratic caucus and four members of the Senate Democratic caucus who had not originally supported the bill to vote to override the veto.

Once enacted, EIMA weakened the role of the ICC. Although Illinois law still required public utilities to file rates with the ICC, EIMA implemented statutorily prescribed, performance-based rate increases that limited the ICC's discretion in reviewing rates. EIMA also authorized at least $2.6 billion in ComEd spending on smart meters and smart grid infrastructure, costs that were required to be passed on to customers.

Second, in 2013, ComEd secured amendments to EIMA that further curbed the ICC's regulatory authority and protected ComEd's profit margins. The General Assembly again passed the legislation over Governor Quinn's veto, and Madigan provided the votes to do it.

And third, in 2016, ComEd had Madigan usher FEJA through the General Assembly.

Madigan's top advisers and ComEd's lobbyists handpicked lawmakers to vote on the bill in the House legislative committee. After ComEd identified six Democratic committee members who were likely to vote against the bill, Madigan removed them from the committee and replaced them with lawmakers more favorable to the legislation. The bill passed 16-0 out of committee and went on to pass in the House (63 out of 101 votes) and the Senate (32 out of 50 votes). Governor Bruce Rauner signed the bill into law.

FEJA provided $2.35 billion in funding for nuclear power plants operated by Exelon paid for through a new fee for utility customers based on a Zero Emissions Credits system. Under that system, the Illinois Power Agency procures these Credits from zero-emissions utilities (such as Exelon's nuclear power plants). Public utilities like ComEd must purchase the Credits from the Power Agency at a statutory rate. And ComEd then passes that cost on at a flat per-kilowatt hour rate to all retail customers. Illinois electricity consumers pay $235 million annually for the Zero Emissions Credit system, and FEJA authorized the system to last at least ten years. FEJA also allowed ComEd to charge ratepayers for all energy efficiency programs and for some expenses relating to employee incentive compensation, pensions, and other post-employment benefits.

Because of these three pieces of legislation, Illinois electricity consumers have had to pay more for electricity. The plaintiffs sued ComEd and Exelon on behalf of themselves and those similarly situated, bringing a federal RICO claim and several state-law claims. ComEd moved to dismiss the federal RICO claim under Federal Rule of Civil Procedure 12(b)(6), arguing that (1) the complaint failed to allege enough for proximate causation; (2) the court could not award damages under the filed rate doctrine; and (3) Fletcher v. Peck , 10 U.S. 87, 6 Cranch 87, 3 L.Ed. 162 (1810), required dismissal.

Based on ComEd's first and third arguments, the district court granted this motion. It dismissed the civil RICO claim with prejudice and declined to exercise jurisdiction over the remaining state-law claims. The plaintiffs have appealed the dismissal of their RICO claim.

II

We start and end with what the district court passed over: the filed rate doctrine. See Smith v. RecordQuest, LLC , 989 F.3d 513, 517 (7th Cir. 2021) ("[W]e may affirm on any basis in the record.") (citation omitted). Although the district court mentioned this doctrine as a potential "slam dunk" for ComEd, the court thought it inappropriate to address at the Rule 12(b)(6) stage since we've said that the filed rate doctrine is an affirmative defense properly addressed through a Rule 12(c) motion for judgment on the pleadings. See Gunn v. Cont'l Cas. Co. , 968 F.3d 802, 806 (7th Cir. 2020). But since the district court had before it all that was needed to rule on the defense, we construe ComEd's motion arguing for dismissal based on the filed rate doctrine as a motion for judgment on the pleadings under Rule 12(c) and proceed to consider it below. See id. at 807 ; Walczak v. Chicago Bd. of Educ. , 739 F.3d 1013, 1016 n.2 (7th Cir. 2014).

Before turning to our analysis of the plaintiffs' federal RICO claim, we explain the significance of a utility's rate filing in Illinois (where ComEd operates). Effectively, a filed rate has the force and effect of a legislative statute. Illinois requires electricity utilities to file tariffs, which set "forth services being offered; rates and charges with respect to services; and governing rules, regulations, and practices relating to those services," with the ICC. Adams v. N. Illinois Gas Co. , 211 Ill.2d 32, 284 Ill.Dec. 302, 809 N.E.2d 1248, 1263 (2004) ; see 220 Ill. Comp. Stat. § 5/9-102. Utilities must charge no more or less than the rates filed in their tariffs. See 220 Ill. Comp. Stat. § 5/9-240 ("Except as in this Act otherwise provided, no public utility shall charge, demand, collect or receive a greater or less or different compensation ... than the rates or other charges applicable ... as specified in its schedules on file and in effect at that time, ... nor shall any such public utility refund or remit ... any portion of the rates or other charges so specified ...."). Under a rule known as the filed rate doctrine, Illinois state...