FEDERAL ENERGY REGULATORY COMMISSION, Petitioner – Appellee, v. POWHATAN ENERGY FUND, LLC; HOULIAN “ALAN” CHEN; HEEP FUND, INC.; CU FUND, INC., Respondents – Appellants. EDISON ELECTRIC INSTITUTE; ELECTRIC POWER SUPPLY ASSOCIATION; ENERGY TRADING INSTITUTE, Amici Supporting Appellants.
No. 18-2326
United States Court of Appeals, Fourth Circuit
February 11, 2020
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 18-2326
FEDERAL ENERGY REGULATORY COMMISSION, Petitioner – Appellee, v. POWHATAN ENERGY FUND, LLC; HOULIAN “ALAN” CHEN; HEEP FUND, INC.; CU FUND, INC., Respondents – Appellants.
EDISON ELECTRIC INSTITUTE; ELECTRIC POWER SUPPLY ASSOCIATION; ENERGY TRADING INSTITUTE, Amici Supporting Appellants.
Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. M. Hannah Lauck, District Judge. (3:15-cv-00452-MHL)
Argued: December 11, 2019
Decided: February 11, 2020
Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.
Affirmed and remanded by published opinion. Judge Wilkinson wrote the opinion, in which Judge Keenan and Judge Diaz joined.
ARGUED: John N. Estes III, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Washington, D.C., for Appellants. Anand Ram Viswanathan, FEDERAL ENERGY REGULATORY COMMISSION, Washington, D.C., for Appellee. ON BRIEF: Patrick R. Hanes, Jonathan T. Lucier, WILLIAMS MULLEN, Richmond, Virginia, for Appellant Powhatan Energy Fund, LLC. Donna M. Byrne, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Washington, D.C.; Abbe David Howell, WINSTON & STRAWN LLP, Washington, D.C., for Appellants Houlian Chen, HEEP Fund Inc., and CU Fund Inc. Larry R. Parkinson, Director, Office of Enforcement, Geo. F. Hobday, Jr., Director, Courtney Spivey Urschel, Deputy Director, Division of Investigations, David Morenoff, Deputy General Counsel, Robert H. Solomon, Solicitor, Samuel G. Backfield, Lisa L. Owings, Mark E. Nagle, Daniel T. Lloyd, Elizabeth K. Canizares, FEDERAL ENERGY REGULATORY COMMISSION, Washington, D.C., for Appellee. Emily Fisher, EDISON ELECTRIC INSTITUTE, Washington, D.C., for Amicus Edison Electric Institute. Christopher McEachran, Raleigh, North Carolina, Matthew A. Fitzgerald, Richmond, Virginia, Todd Mullins, Noel Symons, MCGUIREWOODS LLP, Washington, D.C., for Amici Edison Electric Institute, Electric Power Supply Association, and Energy Trading Institute.
The
The question here is when FERC‘s claim “first accrued” with respect to this district court action, thereby starting
I.
A.
FERC is an independent regulatory commission comprised of five members appointed by the President and confirmed by the Senate.
As amended by the Energy Policy Act of 2005, the FPA prohibits the use of manipulative schemes in connection with the purchase or sale of electric energy. In particular,
The FPA creates two procedural pathways by which such civil penalties may be assessed and imposed.
Both options begin with the same, statutorily prescribed first step: “Before issuing an order assessing a civil penalty against any person under this section, [FERC] shall provide to such person notice of the proposed penalty.”
The exact form that this proceeding takes is determined by the alleged violator‘s choice of procedural pathway. If the subject of an OSC elects the Default Option, then the
case proceeds to a formal adjudication before an ALJ.
On the other hand, if, after receiving an OSC, a party elects the Alternate Option, no formal administrative hearing is statutorily required before FERC assesses a penalty. Instead, the case is channeled into an abbreviated agency proceeding, which we will call the Show Cause Process. In this context, the FPA mandates that FERC “shall promptly assess” a penalty “by order.”
Finally, upon the district court‘s final judgment, or after a final administrative order under the Default Option, FERC must file an action in federal district court “to recover” any civil penalty that remains unpaid.
Because the FPA does not contain a statute of limitations, the general statute of limitations applicable to many penalty provisions throughout the U.S. Code applies to actions brought under both the Default and Alternate Options. It provides:
Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.
B.
Appellants are Dr. Houlian Chen and various financial entities either owned by Dr. Chen or on whose behalf he has executed trades in the wholesale electricity market. In September 2007, Dr. Chen began trading on a wholesale electricity market administered by PJM Interconnection, LLC (the PJM Market). In August 2010, FERC began investigating after receiving two independent complaints that appellants
After an extensive investigation and the failure of settlement efforts, FERC issued an OSC to appellants on December 7, 2014, alleging that they had violated the Anti-Manipulation Provision and its implementing regulations. J.A. 184-275. Appellants denied the charges and elected to proceed via the Alternate Option. On May 29, 2015, FERC duly issued a PAO, which sought over $29 million in civil penalties and $4 million in disgorgement, on the grounds that appellants had violated
On February 28, 2018, appellants filed a motion to partially dismiss the complaint. As is relevant here, they argued that the bulk of the allegedly fraudulent conduct giving rise to FERC‘s claim was no longer actionable under
FERC opposed the motion to dismiss. It principally argued that, where the subject of an enforcement proceeding elects the Alternate Option, FERC‘s claim does not “accrue,” for purposes of filing suit in federal district court, until the subject fails to pay the assessed penalties within sixty days of the PAO. Since FERC filed suit within five years of that date in the instant case, it maintained that the entirety of its case was timely.
The district court denied appellants’ motion to dismiss on September 24, 2018. Agreeing with FERC, it held that FERC‘s claim “accrued” under
Simultaneous with its denial of appellants’ motion to dismiss, the district court certified its ruling for interlocutory appeal pursuant to
filed a petition for permission to appeal, which this court granted on November 5, 2018.
II.
A.
At the heart of this case is the meaning of
The proper construction and application of a statute of limitations is a question of law we review de novo. Franks v. Ross, 313 F.3d 184, 192 (4th Cir. 2002). Because we confront a case in which a private party raises a statute of limitations to bar a government action, we are obliged to apply a “strict construction in favor of the government.” E.I. Du Pont De Nemours & Co. v. Davis, 264 U.S. 456, 462 (1924). In keeping with this injunction, we are mindful of “the hazards inherent in attempting to define for all purposes when a ‘cause of action’ first ‘accrues.‘” Crown Coat Front Co. v. United States, 386 U.S. 503, 517 (1967). Rather, “[s]uch words are to be interpreted in the light of the general
purposes of the statute and of its other provisions, and with due regard to those practical ends which are to be served by any limitation of the time within which an action must be brought.” Id. (internal quotation marks and citation omitted).
B.
With these background principles in mind, we turn to the merits of appellants’ challenge. In applying the statute of limitations in
On the first matter, appellants agree that FERC commenced “an action, suit[,] or proceeding” within the meaning of
As to when FERC‘s claim “first accrued” for purposes of filing the district court action, appellants argue that the statute of limitations in
disputed conduct, and, more specifically, that the Supreme Court has held that a civil penalty claim for fraud under the Investment Advisers Act “accrues—and the five-year clock [of
Although appellants are correct that there are many instances in which a claim accrues instantly upon a statutory violation, no natural law principle dictates that result. Statutes of limitation are, as the name implies, statutory. And as creatures of congressional intent, their application to a given cause of action must take
Time and again, the Supreme Court has reiterated this basic principle: “[A] claim accrues when the plaintiff has a complete and present cause of action.” Gabelli, 568 U.S. at 448 (internal quotation marks and citation omitted). This occurs “when the plaintiff can file suit and obtain relief.” Wallace v. Kato, 549 U.S. 384, 388 (2007) (quoting Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of Cal., 522 U.S. 192, 201 (1997)); accord Clark v. Iowa City, 87 U.S. 583, 589 (1874) (“All statutes of limitation begin to run when the right of action is complete . . . “); Evans v. Gee, 36 U.S. 80, 84 (1837) (concluding that an action was not time barred because limitations period did not run until legal liability had attached); Montgomery v. Hernandez, 25 U.S. 129, 134 (1827) (holding that the statute of limitations did not run until plaintiff had “right to demand of the marshal the proceeds of the sales, or to sue for the recovery thereof“).
As the Supreme Court recognized in Gabelli, this rule—that statutes of limitation do not run until a plaintiff has a complete and present cause of action—“has governed since the 1830s when the predecessor to
That these circumstances often occur at the moment of the violation does not imply that they invariably will or that every claim must accrue at that time. Crown Coat is instructive on this point. There, the Supreme Court held that a contractual variance claim against the government “first accrued,” under the applicable statute of limitations, upon the conclusion of administrative proceedings rather than at the time of the contract‘s completion. Crown Coat, 386 U.S. at 510, 514. This because the language of the contract and the governing statutory landscape made clear that the plaintiff had no “right to demand payment” in federal court until final administrative action. Id. at 511-14 (citation omitted). To be sure, unlike in the instant appeal, the plaintiff in Crown Coat was a private party
suing the government, but that in no way diminishes the Supreme Court‘s basic holding that “congressional purpose” governs the determination of when a right to sue comes into existence. See id. at 513-14.
In this case, Congress plainly conditioned FERC‘s right to bring an action
The FPA‘s statutory prerequisites to filing suit set this case apart from Gabelli. The statute at issue there permitted the Securities and Exchange Commission to proceed directly to district court for a penalty assessment.
As a result, Gabelli did not, as appellants contend, adopt an “unconditional ruling
that government claims for civil penalties must face a fixed expiration date, five years from when the disputed conduct occurred.” Appellants’ Op. Br. 19. The Court merely asked whether, in the context of SEC actions for civil penalties, “the five-year clock [of
Appellants try to downplay the significance of the constraints set by Congress in the FPA. They first assert that the “minimal statutory procedural prerequisites that existed could have been met easily and promptly,” and second, that Congress could not have intended the statute of limitations to run only after the completion of procedures subject to FERC‘s exclusive control. Appellants’ Op. Br. 18. This argument errs twice over.
To start, the procedures mandated under the Alternate Option are extensive, not “minimal.” In order to apprise the regulated party of the nature of its transgressions, FERC conducts thorough investigations of complex, potentially fraudulent financial transactions. FERC is then obligated to provide a suspected violator “notice of the proposed penalty,” along with a description of and opportunity to elect between the Default and Alternate Options.
of the Alternate Option, FERC is required to commence the Show Cause Process and “promptly” issue a PAO.
Put otherwise, the agency action mandated by the Alternate Option contemplates extensive factfinding and the application of law to fact. The process afforded appellants in this case is on all fours with that general observation. By way of the OSC, appellants received notice of the charges against them, including the detailed factual allegations giving rise to FERC‘s claim that they had engaged in sophisticated manipulation of the PJM Market. After providing numerous opportunities to respond to these allegations, FERC issued a 90-page PAO concluding that appellants “serious[]” violations warranted the assessment of substantial penalties. See J.A. 90-179. FERC then, as statutorily mandated, waited at least 60 days before filing the instant district court action. In short, the procedures set out by Congress, and as applied by FERC, are far from de minimis or “easily” satisfied.
As for appellants’ objection to FERC‘s control over the timing of this process, it also misses the mark. The compendium of statutory requirements that FERC must comply with is firmly rooted in the text of the FPA. Further, the authority to implement these requirements is congressionally delegated. In addition to Congress‘s general conferral of authority on FERC to make “such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of [the Federal Power Act],”
“all hearings, investigations, and proceedings” under the Act,
For good reason: Congress structured the FPA so as to afford FERC latitude in determining whether the statute‘s highly technical rules have been violated and, in the event of a violation, in assessing a penalty reflective of the harms that market manipulation visits on consumers. See PPL EnergyPlus, LLC v. Nazarian, 735 F.3d 467, 473 (4th Cir. 2014) (“The federal [wholesale electricity] markets are the product of a finely-wrought scheme that attempts to achieve a variety of different aims“). In essence, the degree to which FERC controls the pace of proceedings—and therefore when a complete and present cause of action accrues—is a matter of congressional design. And because, to reiterate, the general statute of limitations in
To adopt appellants’ position that FERC has only five years from the date of the underlying violation both to complete the entire Show Cause Process and to institute the district court action would materially disrupt this carefully reticulated enforcement scheme. Appellants’ view would, in effect, put a suspected violator in control of the enforcement timeline and give it “considerable incentive to employ the available procedures to work delay.” United States v. Meyer, 808 F.2d 912, 919 (1st Cir. 1987). The procedures here lend themselves to that perverse result, owing to the complexity of the subject matter and proceedings under FERC‘s charge. Yet, as the First Circuit noted with respect to complex administrative litigation, “it strikes us as implausible that Congress intended to endow private litigants with so powerful an incentive for procrastination.” Id. at 920.
At any rate, forcing FERC to proceed on such an expedited basis would inhere to the detriment of market participants like appellants. For it would risk the imposition of civil penalties based on potentially slipshod
In light of the above, it is plain that FERC‘s claim did not accrue under
III.
Appellants complain that applying the well-established meaning of “accrued” in this context would “allow[] civil penalties under the FPA to be brought at any distance of time, leaving people and companies forever liable to a pecuniary forfeiture.” Appellants’ Op. Br. 2-3 (internal quotation marks and citations omitted). This, however, is incorrect. Far from creating an “infinite” statute of limitations, the FPA affirmatively obligates FERC to commence and prosecute actions for violations of the Anti-Manipulation Provision within a circumscribed timeframe.
A.
To begin with, it is clear that FERC must issue the statutorily required notice of proposed penalty, which it does by issuing an Order to Show Cause (OSC), within five years of the allegedly unlawful conduct giving rise to the claim. It bears reiterating here that FERC‘s issuing the OSC is not the same as its filing a lawsuit to enforce civil penalties
in federal district court. See supra Part I.A. Rather, what the OSC does, in addition to fulfilling the statutory notice requirement, is commence administrative proceedings that may culminate in the assessment of civil penalties. Id. The text of the FPA, the relevant regulations, and the structure of the overall enforcement scheme all compel the conclusion that FERC must issue the OSC and commence its administrative process within five years of the alleged misconduct. And while this is equally true regardless of whether the suspected wrongdoer elects the Default or Alternate Option, we focus our analysis on the Alternate Option as selected by appellants.
All parties agree that if FERC‘s Show Cause Process is a “proceeding” within the meaning of
the fact that under [the Alternate Option] FERC must first determine at the agency level whether to assess the penalty.“). They have split, however, over whether that determination is the result of a
To begin,
While the Show Cause Process does not contain all the hallmarks of a formal judicial or administrative adjudication, see Barclays Bank PLC, 2017 WL 4340258, at *12-14, it does share many crucial similarities. For one, the Show Cause Process is a “contested on-the-record proceeding” before FERC, not simply a unilateral prosecutorial decision.
penalty.
But even if the Show Cause Process were somehow not deemed a “proceeding,” FERC must nonetheless issue the OSC within five years of the unlawful conduct. That conclusion is compelled by the structure of the statutory scheme itself. It is undisputed that with respect to the Default Option FERC must commence the requisite ALJ adjudication within five years of the alleged violation for that action to be timely under
general “proceedings” under
Because FERC cannot know in advance which option—Default or Alternate—the party receiving the OSC will select, it must issue the OSC within five years of the unlawful conduct across the board. This is because, if FERC were to issue an OSC more than five years after the fraudulent conduct, an alleged violator could simply elect the Default Option and cause FERC‘s claim to be barred by the statute of limitations, as FERC would be unable to commence an ALJ “proceeding” within the requisite time period. As such, in order to head off such a limitations bar, the FPA‘s enforcement scheme affirmatively requires FERC to issue an OSC within five years of a suspected violation, regardless of which procedural option the defendant eventually elects. Indeed, FERC acknowledged as much at oral argument. See Oral Argument at 32:10 (“From the time of misconduct, the agency has five years to start the process by issuing an Order to Show Cause to assess a penalty.“). This is unsurprising, as it would add an unnecessary layer of confusion for different timelines to apply to the Default and Alternate Options.
B.
Likewise, after FERC has issued an OSC, the FPA makes clear that FERC is on the clock again—specifically, it must proceed with dispatch in conducting the Show Cause Process, assessing any penalty, and issuing the PAO. Section 823b of the FPA provides that, once an alleged violator has elected the Alternate Option, FERC “shall promptly assess [a] penalty, by order.”
does not define the crucial term “promptly,” the plain meaning of that word precludes the possibility of endless delay. See Oxford English Dictionary (3d ed. 2007) (defining “promptly” as “[i]n a prompt manner; readily, quickly; at once, without delay; directly, forthwith, there and then“).
Furthermore, the statutory requirement that FERC promptly assess a penalty is not merely precatory. On the contrary, the Administrative Procedure Act “imposes a general but nondiscretionary duty upon an administrative agency to pass upon a matter presented to it ‘within a reasonable time,’
There is no doubt that the FPA‘s mandate that FERC “shall promptly assess” a penalty is an action that FERC is required to take. See Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969, 1977 (2016) (“Unlike the word ‘may,’ which implies discretion, the word ‘shall’ usually connotes a requirement.“). Thus, at a minimum, if FERC were to disregard this statutory command, a party facing a potential penalty assessment could bring suit under the APA to force FERC to issue a PAO in a timely manner. See In re Am. Rivers & Idaho Rivers United, 372 F.3d 413, 419 (D.C. Cir. 2004) (noting that a reasonable
for agency action is usually “counted in weeks or months, not years“). Requiring an APA suit to force agency action is no small imposition, but at least the option is there.2
The process of investigation and subsequent enforcement is a complex and technical one, which cannot be completed in an afternoon. The FPA envisions a process which is responsive to the complicated nature of the activities the statute regulates, namely “the actions of sophisticated traders in complex markets,” Appellee‘s Br. 20, that necessarily require time to assess. At the same time, the FPA creates a clear and temporally bound three-step process for enforcing violations of the Anti-Manipulation Provision via the Alternate Option. First, as prescribed by
endorse the view that this carefully wrought scheme “transform[s]
C.
That is not all. We are not prepared to assume that FERC is determined to delay the expeditious prosecution of energy market manipulation that is essential to fulfilling its statutory mandate. As previously discussed, the “FPA delegates responsibility to FERC to regulate the interstate wholesale market for electricity,” Elec. Power Supply Ass‘n, 136 S. Ct. at 773, and to ensure that all rates charged in that market are “just and reasonable,” id. (quoting
This is especially true in cases where, as here, “footdragging would tend to reduce the [agency‘s] chances of proving its case and collecting monetary sanctions.” Meyer, 808 F.2d at 922. In particular, the FPA
timely manner” when determining the amount of civil penalties.
The statutory scheme we have outlined here is cognizant of two realities: (1) the violations at issue take time to investigate and to uncover and (2) the case must unfold in a manner that is respectful of the rights of the alleged violators. The legal process herein gives FERC time to develop the case but also affords the assurance that the alleged violator will be apprised through the OSC and the PAO as to what FERC is doing.
We doubt that the law as written has interminability as a drawback. Indeed, it would make no sense for FERC to go to the considerable trouble of working up a complex case, assessing a penalty for fraudulent market activities, observing the period for payment of the penalty pass, and then delaying filing suit in district court to affirm the penalty assessment. So much is apparent from the instant case. FERC issued a PAO to appellants on May 29, 2015. Then, on July 31, 2015—just three days after the expiration of the 60-day waiting period—FERC filed its complaint in the district court. Such prompt action in enforcing civil penalties is to be expected, as it represents the natural culmination of significant investigative efforts on the part of the agency.
IV.
For the foregoing reasons, we hold that FERC did not have a complete and present cause of action to file suit in federal district court until 60 days elapsed after it had issued the PAO and appellants refused to pay the assessed penalty. See
As such, FERC‘s claim had not “accrued” until that point, so this action was timely filed. See
AFFIRMED AND REMANDED