177 F. Supp. 3d 683
D. Mass.2016Background
- FERC assessed civil penalties against Lincoln Paper & Tissue (Lincoln), Competitive Energy Services, LLC (CES), and Richard Silkman for allegedly inflating and freezing DALRP baselines to collect payments for demand reductions that did not occur.
- DALRP (administered by ISO‑NE) pays participants for day‑ahead reductions measured against a rolling baseline; participants who consistently cleared bids could prevent baseline recalculation.
- Lincoln allegedly curtailed its on‑site generation during the baseline period (increasing grid purchases), then bid to freeze the inflated baseline and received roughly $379,016.03.
- CES and Silkman allegedly devised and executed a comparable scheme for Rumford Paper; CES/Silkman received payments of roughly $166,841.13.
- FERC issued Show Cause Orders and then assessed civil penalties; respondents elected immediate assessment procedures and did not pay, so FERC petitioned district court to affirm the penalty orders.
- The district court (Woodlock, J.) denied motions to dismiss/judgment on the pleadings, addressing waiver, statute of limitations, jurisdiction, vagueness/notice, Rule 9(b) pleading, aider/abettor liability, and whether “entity” includes individuals.
Issues
| Issue | FERC's Argument | Respondents' Argument | Held |
|---|---|---|---|
| Waiver of defenses | FERC: respondents waived defenses by not raising them in agency proceeding per 18 C.F.R. § 385.213 | Respondents: some defenses (statute of limitations) ripened later; jurisdictional challenges not waived | Court: statute‑of‑limitations defense not waived; jurisdictional challenges not waived (can be raised for ultra vires agency action) |
| Statute of limitations (28 U.S.C. § 2462) | FERC: Meyer governs — agency proceedings timely initiated within 5 years; enforcement suit accrues after penalty assessment and 60‑day nonpayment, so suit timely | Respondents: Gabelli requires accrual at time of violation (2007–2008), so suit untimely | Held: Meyer controls; enforcement claim accrued after administrative assessment and 60‑day nonpayment; FERC's petitions timely |
| FERC jurisdiction over DALRP conduct | FERC: demand‑response programs target wholesale market and are within FERC authority | Respondents: DALRP regulation exceeds FERC authority into retail sphere | Held: Supreme Court in FERC v. EPSA confirms FERC authority over demand response; jurisdiction exists |
| Void‑for‑vagueness / fair notice | FERC: Anti‑Manipulation Rule prohibits fraud; scienter and program materials (ISO‑NE tariff, Constellation notice) provided adequate notice | Respondents: baseline rules insufficiently specific; first clear interpretation arose during enforcement | Held: Not unconstitutionally vague as applied; scienter requirement and prior warnings (Constellation letter, ISO‑NE tariff) supply notice |
| Pleading particularity (Rule 9(b)) | FERC: complaint alleges scheme, timing, bids, payments, and scienter with sufficient detail | Respondents: insufficient particularity on scheme, scienter, and jurisdictional transactions | Held: Allegations sufficiently particular under Rule 9(b); related substantive challenges addressed elsewhere |
| Aider/abettor vs primary liability | FERC: Section 222 and Rule lc.2 reach manipulative devices used "directly or indirectly" | CES/Silkman: statute modeled on securities law which — per Central Bank — does not reach aider/abettor liability for primary violation | Held: Central Bank principle applies; aiding and abetting alone is not covered, but CES/Silkman may be primary violators because they allegedly submitted false statements/bids to ISO‑NE themselves |
| Scope of “entity” in § 222 (natural persons) | FERC: "entity" includes natural persons; agency interpretation so states | Silkman: "entity" excludes natural persons | Held: Court gives Chevron deference to FERC’s reasonable interpretation that “entity” includes individuals; Silkman not exempt |
Key Cases Cited
- FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (2016) (Supreme Court upheld FERC authority over demand‑response compensation in organized wholesale markets)
- United States v. Meyer, 808 F.2d 912 (1st Cir. 1987) (administrative penalty proceedings can restart limitations clock; enforcement accrues after agency adjudication)
- Gabelli v. SEC, 133 S. Ct. 1216 (2013) (statute of limitations for SEC penalty suits begins at time claim accrues; discovery rule generally inapplicable)
- Central Bank of Denver v. First Interstate Bank, 511 U.S. 164 (1994) (statutory language limiting securities liability does not create private aiding‑and‑abetting liability)
- Stoneridge Inv. Partners v. Scientific‑Atlanta, 552 U.S. 148 (2008) (secondary actors may not be liable where their deceptive acts were not relied on by investors; limits on attributing primary liability)
- L.A. Tucker Truck Lines, Inc. v. United States, 344 U.S. 33 (1952) (general rule that courts will not overturn agency action on grounds not timely raised before the agency)