Federal Energy Regulatory Commission v. Coaltrain Energy, L.P.
2:16-cv-00732
| S.D. Ohio | Mar 30, 2018Background
- FERC sued Coaltrain Energy, L.P., and five individuals under the Federal Power Act (FPA), seeking enforcement of a May 27, 2016 penalty order assessing civil penalties and disgorgement for manipulating PJM wholesale electricity markets via UTC (virtual) trades and for false statements during the investigation.
- Between June 15 and September 2, 2010, Coaltrain executed large volumes of UTC trades (the alleged "OCL Strategy") that paid for transmission reservations to qualify for Marginal Loss Surplus Allocation (MLSA) credits, despite those trades being unprofitable on arbitrage grounds.
- FERC alleges the scheme (1) diverted MLSA payments from legitimate market participants and (2) locked up transmission capacity; the Commission found violations of 16 U.S.C. § 824v (Anti‑Manipulation) and 18 C.F.R. § 35.41(b) (Rule of Candor) and assessed penalties.
- Defendants moved to dismiss for lack of personal jurisdiction, improper venue, and failure to state claims; they also sought transfer to Delaware. The court treated the suit as a typical civil enforcement action subject to the Federal Rules.
- The Court held that venue and personal jurisdiction were proper in the Southern District of Ohio, declined to transfer to Delaware, denied Coaltrain’s motion to dismiss, and granted in part/denied in part motions by some individual defendants—finding FERC pleaded plausible claims under the Anti‑Manipulation Rule and that Coaltrain plausibly violated the Rule of Candor, but holding some individuals not liable under § 35.41(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction / nationwide service under 16 U.S.C. § 825p | FERC can invoke nationwide service; minimum contacts to U.S. suffice. | Defendants: § 825p limits nationwide service to cases where venue under the FPA is satisfied; thus jurisdiction should be tied to venue. | Court: Sixth Circuit precedent permits nationwide service; in any event venue is proper here, so jurisdiction stands. |
| Venue (16 U.S.C. § 825p) | Venue proper in S.D. Ohio because trades and transmission reservations affected nodes and transmission in this district and harmed local market participants. | Defendants: UTC trades were purely virtual and occurred where trading desks sat (DE/PA); thus no act "occurred" in Ohio. | Court: Venue proper—reservations and virtual trades involved transmission at specific nodes in the district; distinction between physical/virtual immaterial. |
| Anti‑Manipulation liability under 16 U.S.C. § 824v / 18 C.F.R. § 1c.2 | FERC: UTC trades paid for transmission to capture MLSA credits (not arbitrage). That scheme deceived PJM and injured market; scienter alleged; individuals and entity liable. | Defendants: UTCs were lawful; FERC lacked authority over virtual trades; § 824v doesn’t reach individuals; Rule is vague and exceeds authority; some individuals only devised scheme (not primary actors). | Court: FERC has authority over UTCs tied to paid transmission; "entity" includes natural persons; Rule valid and not unconstitutionally vague; FERC pleaded deceptive scheme and scienter; creators who also used/implemented the scheme may be primary violators; mere designers without use not liable. |
| Rule of Candor (18 C.F.R. § 35.41(b)) and penalties against individuals | FERC: Coaltrain made false/misleading statements and omitted Spector 360 records; Section 206 authorizes Rule; penalties may be assessed as charged and some individuals jointly/severally liable for company violations. | Coaltrain/individuals: Rule exceeds FERC authority; Rule applies to "Sellers" only; individuals who are not Sellers cannot be penalized for company Rule breaches; FERC didn’t separately penalize § 35.41(b) violations. | Court: § 35.41(b) is within FERC’s Section 206 authority; Coaltrain’s Rule of Candor claim survives; but the court rejects imposing Coaltrain’s § 35.41(b) penalty on P. Jones and Sheehan where FERC itself found they were not liable for that Rule—they cannot be held liable for a violation the agency did not find them to have committed. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must be plausible; factual enhancement required)
- United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320 (nationwide service of process can confer personal jurisdiction)
- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (statutory text limits liability to primary actors; no private aiding-and-abetting liability under §10(b) analog)
- Santa Fe Indus. v. Green, 430 U.S. 462 (interpreting scope of fraud claims under federal securities analogs)
- Stoneridge Inv. Partners, LLC v. Scientific‑Atlanta, 552 U.S. 148 (conduct can be deceptive absent misstatements; scheme liability principles)