199 F. Supp. 3d 218
D.D.C.2016Background
- City Power Marketing, founded by K. Stephen Tsingas, engaged in virtual UTC (Up‑To‑Congestion) trading in PJM’s day‑ahead and real‑time wholesale electricity markets in July 2010.
- City Power placed "loss trades": round‑trip UTCs and trades between node pairs with no (or minimal) price spread, generating paid transmission reservations that triggered Marginal Loss Surplus Allocation (MLSA) credits. These trades produced roughly $1.2M–$2M in MLSA/profits after costs.
- FERC investigated, issued preservation directives, and obtained instant messages (IMs) showing City Power personnel discussing the trades as "net flat," "dirty," and a way to get "money for doing nothing." Jurco had archived IMs that City Power did not disclose to FERC during the investigation.
- FERC issued a Show Cause Order and then a Penalty Assessment Order finding violations of the Anti‑Manipulation Rule (18 C.F.R. § 1c.2) and Market Behavior Rule 3 (18 C.F.R. § 35.41(b)); it ordered disgorgement and assessed civil penalties. City Power elected the FPA § 31(d)(3) path and declined to pay; FERC sued in district court to affirm the assessment.
- City Power moved to dismiss arguing (inter alia) that the case should be treated as summary review of the agency record rather than a normal civil action, that FERC failed to state claims, that FERC lacked fair notice and jurisdiction, and that individuals cannot be liable under Section 222.
- The district court denied the motion to dismiss: it held the suit is a normal federal civil action (Federal Rules apply), and that FERC plausibly alleged both Anti‑Manipulation and Market Behavior Rule 3 claims; it also rejected the contention that "entity" unambiguously excludes individuals.
Issues
| Issue | Plaintiff's Argument (FERC) | Defendant's Argument (City Power / Tsingas) | Held |
|---|---|---|---|
| Proper procedure / scope of review | District court action under FPA §31(d)(3) allows de novo fact and law adjudication; but ordinary civil‑procedure rules apply rather than summary record review | This is a limited record review of FERC’s order; defendants are entitled only to the agency record and no expanded discovery or jury trial | Court: Treat case as ordinary civil action under Federal Rules; discovery and summary judgment procedures available; skirted deciding right to jury now |
| Anti‑Manipulation claim (sham UTCs) | City Power traded UTCs as sham transactions to collect MLSA, not to arbitrage price spreads — a deceptive scheme violative of §1c.2 | Trades disclosed price/node/volume to PJM; thus not deceptive; some trades involved real or theoretical risk | Court: FERC pleaded a plausible deception theory: sham trades (round‑trips, zero‑spread nodes) intended to extract MLSA; claim survives 12(b)(6) challenge |
| Fair notice / due process | Anti‑Manipulation Rule broadly proscribes schemes to defraud; reasonable market participant should have known loss trades designed solely to collect MLSA were fraudulent | FERC and prior Black Oak orders failed to give clear notice that loss trading would be treated as fraud; defendant lacked fair warning | Court: Rule and prior orders provided adequate notice that fraudulent schemes were prohibited; Black Oak did not endorse loss trading |
| Jurisdiction over virtual trades; individual liability | FERC: Section 222 covers deceptive schemes "in connection with" purchase/sale of transmission services; reserving paid transmission is jurisdictional; "entity" includes individuals | City Power: Virtual trades not jurisdictional because no physical transmission occurred; "entity" excludes natural persons so Tsingas cannot be liable individually | Court: FERC has jurisdiction because reserving transmission services is within FERC’s authority; "entity" ambiguously includes individuals and FERC’s reading is reasonable and entitled to Chevron deference |
| Market Behavior Rule 3 (false/misleading communications) | Tsingas made (or omitted) material statements about existence of archived IMs during investigation that were misleading or false | Statements were literally true or merely reflected uncertainty; not actionable | Court: Accepting FERC’s allegations, statements and omissions about Jurco’s archived IMs could be misleading/material and therefore state a viable claim under Rule 3 |
Key Cases Cited
- FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (2016) (describing wholesale electricity auction structure and FERC authority over organized markets)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard on facial plausibility)
- Stoneridge Inv. Partners LLC v. Scientific‑Atlanta, 552 U.S. 148 (2008) (conduct can be deceptive even absent specific oral/written misstatements)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (limits on implied private securities‑fraud liability and relation of rule to statute)
- Markowski v. SEC, 274 F.3d 525 (D.C. Cir. 2001) (trading lawful in substance can be deceptive if motivated by external purpose)
- New York v. FERC, 535 U.S. 1 (2002) (interconnected grid transmissions constitute interstate commerce)
- Califano v. Yamasaki, 442 U.S. 682 (1979) (statutory clarity needed to displace Federal Rules of Civil Procedure)