MEMORANDUM AND ORDER
Before the Court are numerous motions seeking dismissal of the two above captioned cases. The lead case, civil case no. 2:06-cv-0559, was filed on March 16, 2006, and its companion case, civil case no. 2:06-cv-0592, was filed five (5) days later on March 21, 2006. These actions involve identical Defendants and are based on same or similar allegations, same or similar events and pose same or similar questions of fact and law.
Due to this marked similarity, the Court ordered the cases related. See Civ. Case No. 2:06-cv-0559, Docket 15, March 28, 2006. The Motions to Dismiss filed in these actions seek dismissal through virtually identical mechanisms. Given the likeness of the Parties, the underlying factual predicate, and the bases of the motions filed in both actions, the Court shall herein dispose of all pending motions in both the lead case as well as the member case (collectively, the “Action”) as set forth below.
BACKGROUND
The present Action was brought by Pacific Gas & Electric (“PG & E”), Southern California Edison Company (“SCEC”), the California Electricity Oversight Board (“CEOB”) and San Diego Gas & Electric (“SDGE”) (collectively, “Plaintiffs”) against twenty separate non-public government entities including Arizona Electric Power Cooperative, Inc. (“Arizona”), City of Anaheim (“Anaheim”); City of Azusa (“Azusa”); City of Banning (“Banning”); City of Burbank (“Burbank”); City of Glendale (“Glendale”); City of Los Ange-les (“Los Angeles”); City of Pasadena (“Pasadena”); City of Riverside (“Riverside”); City of Santa Clara (“Santa Clara”); City of Seattle (“Seattle”); City of Vernon (“Vernon”); Eugene Water and Electric Board (“Eugene”); Los Angeles Department of Water and Power (“LA Water”); Modesto Irrigation District (“Modesto”); Northern California Power
Plaintiffs purchase Energy from a number of sources and resell that Energy to consumers at retail prices. The California wholesale markets are operated by the California Independent System Operator Corporation (“ISO”) and California Power Exchange Corporation (“PX”) under tariffs filed with and approved by the Federal Energy Regulatory Commission (“FERC”). The ISO and PX are public utilities under the Federal Power Act (“FPA”) and are, therefore, subject to FERC’s jurisdiction.
The ISO is generally the entity responsible for operating and maintaining California’s electric transmission grid, including resolving transmission congestion and purchasing electric power to maintain system reliability. The PX acts as a clearinghouse for daily and hourly markets and submitted schedules of electric power to the ISO in which scheduled generation for the following day equaled scheduled demand. Pursuant to the PX Tariff, sellers in the PX market submitted offers to sell electric power, and purchasers submitted demand bids for the quantity of electric power that they wanted to buy. The PX conducted day-ahead and same-day auctions that allowed parties to adjust their hourly commitments based on changing needs and availability. Under its tariff, the PX was charged with responsibility for, among other things, settling energy trades between PX market participants and preparing and distributing to PX market participants invoices reflecting the amounts payable and receivable by them in connection with their trading through the PX.
In general, the PX determined, for each hour in each of the markets that it operated, a single market-clearing price that all electric power suppliers were paid under the auction provisions of the PX tariff. The PX matched offers to buy and sell beginning with the lowest-priced bids and continuing up to the highest-priced bids until the amount of power accepted matched the amount sought by purchasers at that price. The price of the last, and therefore the highest-priced, accepted bid set the price for the entire market. All sellers of electric power in a given auction received the same market-clearing price, even if the seller had offered to sell at a lower price.
In order to obtain sufficient electric power to maintain reliability of California’s electric grid, the ISO at times was required to procure electric power through procedures other than its regular auction. During the period at issue, the ISO was often forced to solicit such electric power, known as “out-of-market” or “OOM” electric power, to meet California’s demand for electric power. The ISO Tariff permitted the ISO to solicit this electric power through extraordinary means, such as seeking Energy from OOM electric power marketers and generators, including the Defendants. These purchases were subject to certain price caps applicable in the
Plaintiffs allege that the ISO and PX Tariffs filed with FERC contained the only terms and conditions, including the pricing formulas, upon which transactions in the ISO and the PX could lawfully be conducted. Further, the Plaintiffs aver that Defendants voluntary sale of Energy into the ISO and PX markets render them charged with knowledge and acceptance of those terms and conditions giving rise to contract remedies. This assertion is heavily disputed by Defendants. As additional support for the foregoing, Plaintiffs contend that the PX tariff required all PX market participants to execute a PX Participation Agreement. That Agreement provided, inter alia, that the PX market participant “will abide by and will perform all of the obligations under the PX tariff in respect of all matters set forth therein including, without limitation, all matters relating to the trading of Energy by it through the PX market.”
PX Tariff Appendix A, Participation Agreement, § 11(B). The PX Participation Agreement further provided that “[t]he PX Tariff is incorporated herein and made a part hereof.” PX Tariff Appendix A, Participation Agreement, § 8.
Similarly, the ISO Tariff contemplated that each market participant, including the Defendants, would execute an ISO Scheduling Coordinator Agreement. That Agreement was prescribed by the ISO tariff and provided, inter alia, that the ISO Scheduling Coordinator “will abide by, and will perform all of the obligations under the ISO Tariff placed on Scheduling Coordinators in respect of all matters set forth therein including, without limitation, all matters relating to the scheduling of Energy and Ancillary Services on the ISO controlled grid, ... [and] billing and payments .... ” ISO Tariff Appendix B, Scheduling Coordinator Agreement, § 2(B). The Scheduling Coordinator Agreement further provided that “[t]he ISO Tariff is incorporated herein and made a part hereof.” ISO Tariff Appendix B, Scheduling Coordinator Agreement, § 8.
Beginning in May 2000, the prices demanded by sellers in the ISO and PX markets rose dramatically and sellers continued to demand those unprecedented prices for over a year. As a result of the auction provisions of the ISO and PX Tariffs, these extremely high prices were charged by all Energy sellers in the markets, even if individual sellers had offered to sell their power in the auctions at lower prices.
As a result of these unprecedented prices, SDG & E filed a complaint with FERC under the FPA against Energy sellers subject to FERC’s jurisdiction. August 2, 2000, FERC Docket No. EL00-95. PG & E, SCE, and the EOB intervened on August 14, 2000. In that proceeding, the complaining parties requested that FERC investigate the justness, reasonableness, and lawfulness of rates being charged in the California ISO and PX markets and that FERC order refunds to the extent that FERC determined that sellers had charged unjust, unreasonable, or otherwise unlawful rates.
Following the foregoing proceeding, FERC immediately initiated an investiga
On December 15, 2000, FERC issued an order eliminating the requirement that the Plaintiffs purchase all of their needed electric power through the PX. The Order included proposed price mitigation measures and refund liability of public utility sellers.
The power crisis ultimately ended on June 19, 2001, when FERC imposed “must offer” requirements on electric power generators prohibiting them from withholding generation, and imposed price caps on wholesale sellers of electric power across all western states effective June 21, 2001 (“June 19, 2001, Order”).
San Diego Gas & Electric Co., et al.,
On July 25, 2001, FERC ordered both public and non-public utilities to refund those sums charged in excess of the price it had deemed to be just and reasonable for the period beginning October 2, 2000, and ending June 20, 2001 (“Refund Period”).
The Bonneville Court unanimously concluded that FERC exceeded its jurisdiction when it ordered non-public utilities that sold Energy into the California market during the relevant period to pay refunds. The Ninth Circuit explained that FERC derives its refund authority from the FPA and specifically from Section 201(f) thereof. Id. at 915. The court further clarified that governmental entities (non-public utilities), like Defendants herein, are not subject to the provisions of subchapter II of the FPA unless otherwise specifically provided. Id. Accordingly, the court remanded the action for further proceedings.
STANDARD
Federal Courts are presumptively without jurisdiction over civil actions, and the burden of establishing the contrary rests upon the party asserting jurisdiction.
Kokkonen v. Guardian Life Ins. Co. of America,
In moving to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the challenging party may either make a facial attack on the allegations of jurisdiction contained in the complaint or can instead take issue with subject matter jurisdiction on a factual basis.
If the motion constitutes a facial attack, the Court must consider the factual allegations of the complaint to be true.
Williamson v. Tucker,
If the Court grants a motion to dismiss a complaint, it must then decide whether to grant leave to amend. Generally, leave to amend should be denied only if it is clear that the deficiencies of the complaint cannot be cured by amendment.
Broughton v. Cutter Labs.,
ANALYSIS
I. Subject Matter Jurisdiction
Plaintiffs seek to invoke federal question jurisdiction based on 28 U.S.C. § 1331. Specifically, paragraph 1 of PG & E’s Complaint provides as follows:
Plaintiffs’ claims require resolution of a disputed and substantial issue of federal law in that plaintiffs’ claims arise out of defendants’ sales of electric power in wholesale electricity markets that are within the Federal Energy Regulatory Commission’s (“FERC”) exclusive regulatory jurisdiction, and plaintiffs are suing to recover for defendants’ breaches of their contractual obligations contained in tariffs filed with and regulated by FERC.
See
PG & E Complaint, ¶ 1;
see also
SDG & E Complaint, ¶ 1. Plaintiffs, in their papers, go on to argue that while this case seeks to interpret what is essentially a state law matter rather than a federal matter, the Supreme Court has “recognized ... that in certain cases federal question jurisdiction will [also] lie over state-law claims” that require the resolution of a disputed and substantial issue of federal law.
See
Plf.s’ Opp’n., p. 47 (citing
Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg.,
More precisely, Plaintiffs salient contention is that subject matter jurisdiction exists in the present action as the federal ISO and PX Tariffs filed with FERC contained the only terms and conditions, including the pricing formulas, upon which transactions in the ISO and the PX could lawfully be conducted. Accordingly, the interpretation of those federal tariffs will be necessary to assess the merits of Plaintiffs’ claims. Further, Plaintiffs aver that Defendants voluntary sale of Energy into the ISO and PX markets render them charged with knowledge and acceptance of those terms and conditions giving rise to contract remedies under federal law. Defendants controvert Plaintiffs’ allegations by clarifying that Plaintiffs’ claims do not truly arise under a federal statute nor is there exclusive federal jurisdiction over the subject matter.
As noted above, district courts are courts of limited jurisdiction. They possess only that power authorized by the United States Constitution and statute.
Exxon Mobil Corp. v. Allapattah Servs., Inc.,
A. Arising Under Federal Jurisdiction
As an initial matter, the Parties and the Court agree that this case does not present a federal question of the first kind; namely one created under federal law. Rather, this is a purely state based contract action implicating certain language contained in a federal tariff. Plaintiffs seek to persuade the Court that this chiefly federal issue is merely played out against the backdrop of a state law contract claim. Defendants, predictably, claim the federal tariffs, while admittedly crafted pursuant to federal law, play but a bit role in an entirely state law contract action. In fact, this case poses the “litigation-provoking problem” of a federal issue embedded in a state-created cause of action.
See Merrell Dow Pharm. Inc. v. Thompson,
As a general matter, the Supreme Court has explained that the “vast majority” of cases brought under the federal-question jurisdiction of the federal courts are those in which federal law creates the cause of action.
Merrell Dow,
The cases that instruct the resolution of this jurisdictional quandary begin with the seminal case Merrell Dow adjudged in 1986. There, the complainants alleged that the misbranding of Benedictin resulted in pregnant women ingesting the drug which caused birth defects to their children. Plaintiffs sought redress on grounds of negligence, breach of warranty, strict liability, fraud, and gross negligence. As part of their cause of action, however, plaintiffs alleged the misbranding, in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”), was negligence per se. Defendants sought to have the case heard in a federal forum based on the existence of a federal issue embedded in the state law claims. The Supreme Court concluded that federal jurisdiction was lacking. In explaining its’ finding, the Supreme Court stated that
“a complaint alleging a violation of a federal statute as an element of a state cause of action, when Congress has determined that there should be no private, federal cause of action for the violation, does not state a claim ‘arising under the Constitution, laws, or treaties of the United States.’ ”
Merrell Dow,
The foregoing holding had been interpreted by some courts as standing for the proposition that absent a private right of action, federal jurisdiction cannot exist. In fact, that reading was later disapproved by the Court in a case entitled
Grable & Sons Metal Prods, v. Darue Eng’g & Mfg.,
In upholding the lower court’s determination that federal question jurisdiction did, in fact, exist, the Supreme Court wrote:
[W]hether Grable was given notice within the meaning of the federal statute is thus an essential element of its quiet title claim, and the meaning of the federal statute is actually in dispute; it appears to be the only legal or factual issue contested in the case. The meaning of the federal tax provision is an important issue of federal law that sensibly belongs in a federal court.
Grable,
Most recently, the Court considered a case rather on point with the case presently before this Court;
Empire Healthchoice Assur., Inc. v. McVeigh,
— U.S. -,
Empire involved a dispute about the meaning of terms in a federal health insurance contract between a federal agency and a private insurance carrier that set forth the details of a federal health insurance program created by federal statute and covering eight million federal employees. See Id. at 2138 (dissent by Justice Breyer). In Empire, it was undisputed that the statute at issue was federal in character, the program that created the statute was federal, the beneficiaries of the program were federal employees, and the premiums paid under the relevant policies were federal. Id. Yet, the Court concluded that subject matter jurisdiction did not exist. The Empire Court characterized the Grable decision as belonging to a “slim” category of cases as it presented a nearly pure issue of law that could be settled once and for all and thereafter would govern numerous tax sale cases. Id. at 2137. The Court was persuaded that the contract interpretation at issue in Empire was sufficiently fact-bound and situation-specific that it did not fall within the very narrow category of cases Grable exemplifies. Id.
In sum, an embedded federal issue in a state law claim will qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment about the sound division of labor between state and federal courts governing the application of § 1331. Indeed, the Supreme Court has been careful not to articulate a “single, precise, all-embracing” test for jurisdiction over federal issues embedded in state-law claims between non-diverse parties. Rather, the Court has instructed that when addressing this issue, a number of factors are to be considered.
Ultimately, however, it is clear that unless a state law claim necessarily raises
First, the lack of a private right of action, as explained above, speaks in part to whether Congress envisioned that claims arising under a particular piece of federal legislation would properly be heard in a federal forum.
Merrell Dow,
With respect to the substantial nature of the federal interests at stake, they do not rise to the level of warranting federal question jurisdiction. The federal tariffs that have been incorporated by reference into the contracts at issue are to be interpreted and governed solely by California law rather than by federal law. Specifically, the ISO tariff provides as follows: “This ISO Tariff shall be governed by and construed in accordance with the laws of the State of California.” ISO Tariff, § 20.7. The PX Tariff provides substantially the same. Given that the very language at issue, the contract terms provided by the federal tariffs, is to be expressly construed in accord with California law rather than federal law, the Court finds the federal interests to be considerably muted. Any interpretation by a federal court of the language of the tariffs will only speak to how those tariffs should be construed in this state. Accordingly, the reach of any such adjudication will not have federal reverberation. In addition, to the extent federal interests are implicated, the state court is quite competent to apply the language of the tariffs and is certainly well positioned to do so where, as here, the tariff language is to be construed in accord with state law.
In sum, the Court concludes both that the lack of a private right of action evinces congressional intent to foreclose a federal forum and that the federal interests at stake are muted given that the federally imported language is to be accorded meaning consistent with this state’s laws. However, even had the Court found the presence of a substantial disputed federal issue and the ostensible importance of a federal forum, those finding are not necessarily
In assessing the potential disruption of the sound division of labor between state and federal courts envisioned by Congress, it is instructive to once again consider the seminal Supreme Court cases of
Grable
and
Merrell Dow.
In
Grable,
the Court saw little danger in accepting jurisdiction of the state title dispute because it would “portend only a microscopic effect on the federal-state division of labor.”
Id.
at 315,
The Court views the circumstance presented by this case as more parallel to the paradigm expressed in Merrell Dow than the paradigm articulated in Grable. Specifically, excepting diversity cases from the equation, the bulk of contract disputes in the United States are conducted by the state courts. This balance would be upset drastically if state contract claims could become a matter of substantial federal interest by the simple expedient of incorporating by reference the terms of a federal law or regulation. The Court believes such a dramatic shift would distort the division of judicial labor assumed by Congress under section 1331.
Given the foregoing concerns, and following the analytical methodology laid down by recent Supreme Court precedent, the Court finds that this state-law contract action incorporating by reference federal tariffs does not present a sufficient federal question over which this Court may exercise “arising under” jurisdiction pursuant to 28 U.S.C. § 1331.
B. Sparta/Dynegy Exclusive Jurisdiction Exception
The Parties vigorously argue over the applicability of an exception to the general rule that state law claims cannot be alchemized into federal causes of action by incidental reference.
See Sparta Surgical Corp. v. NASD,
This exception was first set out in the seminal case of
Sparta Surgical Corp. v. NASD (“Sparta”)
and later examined in
Lockyer et al. v. Dynegy, et al.
In
Sparta,
the Ninth Circuit confronted the question of subject matter jurisdiction over a variety of state common-law claims that alleged, in part, a violation of the rules contained in the Securities and Exchange Act (“Exchange Act”).
Later, in
Lockyer v. Dynegy,
the Ninth Circuit confronted a similar case where the plaintiffs sought federal jurisdiction over a state law unfair competition claim, Cal. Bus. & Prof.Code § 17200,
et seq.,
alleging an underlying violation of the precise tariffs at issue here.
Plaintiffs in the present action rely heavily on the Dynegy case. That is, Plaintiffs rely on the Ninth Circuit’s conclusion that the tariffs promulgated by FERC pursuant to its authority under the FPA are the equivalent of a federal regulation and, therefore, an examination of those tariffs to assess the merits of the present claim raises a federal question. See Id. at 840. Plaintiffs further contend that this case is analogous to Dynegy where the Ninth Circuit plainly found federal jurisdiction because, as in Dynegy itself, here the merits of the claim turn, in part, on an examination of the tariffs. Defendants contend, rather convincingly, that the Dynegy case is distinguishable from the case at bar. The Court agrees.
As an initial matter, the
Dynegy
plaintiffs were seeking relief on the ground that the defendants violated California’s unfair competition law.
See Cal. Bus. & Prof. Code
§ 17200
et seq.
Generally, that law proscribes unlawful business practices by borrowing violations of other laws and treating them as independently actionable under Section 17200.
Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co.,
Here, in contrast, the Plaintiffs are seeking to enforce a private contract between private parties which will afford relief only if the contract terms, from wherever drawn, are found to have been breached. Unlike in Dynegy, it is not the federal tariff itself, standing as the law, that will give life to the merits of Plaintiffs’ claim. It is the contract language, standing only as a representation of the agreement between the Parties, that will inform the resolution of this matter.
While the Court believes the foregoing to be the correct analysis of the jurisdictional issue at bar,. an argument may be advanced that the subject matter of the contract, i.e. the sale of Energy from the Defendants to the Plaintiffs, is the exclusive domain of federal jurisdiction irrespective of the sweeping exception for these Defendants. At first blush, this averment appears meritorious. Indeed, a broad reading of the
Dynegy
case arguably supports this argument to the extent that
Dynegy
finds an interpretation of the federal tariffs at issue a matter committed exclusively to federal jurisdiction.
See
375
To be sure, the FPA applies to “the transmission of electric energy in interstate commerce and to the sale of electric energy at wholesale.” 16 U.S.C. § 824(b). More importantly, however, the FPA provides:
The District Courts of the United States ... shall have exclusive jurisdiction of violations of this chapter or the rules, regulations, and orders thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any violation of, this chapter or any rule regulation or order thereunder.
16 U.S.C. § 825p. In contrariety, the FPA provides the following exemption:
No provision in this subchapter shall apply to, or be deemed to include, the United States, a State or any political subdivision of a State, or any agency, authority, or instrumentality of any one or more of the foregoing, ... unless such provision makes specific reference thereto.
16 U.S.C. § 824(f).
The
Dynegy
plaintiffs sought to directly enforce the federal tariffs as they applied to public utilities. Based on the exclusive jurisdiction provision, the court found relief was “predicated on a subject matter committed exclusively to federal jurisdiction.”
The
Bonneville
court made clear that while the subject matter of wholesale sales of Energy under the FPA is committed to FERC’s exclusive federal governance, the more narrow exclusionary provision carves an exception to that general authority to govern the sale of Energy at least with respect to these Defendants.
See
Finally, the exclusive jurisdiction provision of the FPA provides that the District Courts shall have jurisdiction over violations of the FPA, and of all suits in equity and actions at law brought to enforce the FPA or the rules promulgated thereunder. These Defendants are simply not subject to the relevant provisions of the FPA as a federal regulation. Rather, these Defendants may only be bound to comply with the language of the tariffs purely as a matter of contract law. On that same note, this is not a suit alleging violations of the FPA itself or of any rule or regulation thereunder. Instead, this is a suit to enforce a contract between private parties that has merely incorporated by reference terms that are contained in a federal regulation.
In sum, to the extent FERC has no federal authority to order refunds of these Defendants, Plaintiffs seek to substantive
C. Diversity Jurisdiction
There are three Parties to the present action that are arguably non-diverse. Accordingly, as to those three Defendants, the lack of federal question jurisdiction would not be fatal in and of itself as jurisdiction could arguably be based on diversity.
The principal federal statute governing diversity jurisdiction, 28 U.S.C. § 1332, gives federal district courts original jurisdiction of all civil actions “between ... citizens of different States” where the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a)(1). The statutory formulation “between ... citizens of different States” has been construed to require complete diversity between all plaintiffs and all defendants.
Lincoln Prop. Co. v. Roche,
In the present action, fifteen (15) of the seventeen (17) Defendants in this action are citizens of the State of California while the remaining three (3) are not. Accordingly, complete diversity does not exist and jurisdiction cannot, therefore, be conferred as to any of the remaining Defendants.
CONCLUSION
For the reasons set forth above, the Defendants’ Motion to Dismiss based on a lack of subject matter jurisdiction is GRANTED.
IT IS SO ORDERED.