JOHN A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE.
On July 17, 2012, the Federal Energy Regulatory Commission (FERC or Commission) issued orders to show cause to an energy consulting firm and its managing member (Respondents), requiring them to show cause why the Commission should not (1) find them in violation of section 222 of the Federal Power Act (FPA), 16 U.S.C. § 824v, and FERC's rule against energy market manipulation (the Anti-Manipulation Rule); (2) assess civil penalties against the firm and the managing member;
Pursuant to the FPA, the Respondents, upon receiving the orders to show cause, faced a choice of procedures. First, under 16 U.S.C. § 823b(d)(2), the Respondents could proceed to a hearing before an Administrative Law Judge (ALJ) and appeal any unsatisfactory decision to the Commission and, eventually, to the United States Court of Appeals in accordance with the Administrative Procedure Act (APA). Alternatively, under 16 U.S.C. § 823b(d)(3), the Respondents could bypass a hearing with an ALJ and request the Commission to make a prompt ruling on the proposed penalties. If the Commission imposed a penalty, and the Respondents failed to pay within sixty days, the Commission could institute an action in the district court for an order affirming the Commission's penalty assessment. The FPA states that, in ruling on the Commission's penalty assessment, the district court "shall have the authority to review de novo the law and the facts involved[.]"
In this case, the Respondents opted for an immediate ruling from the Commission under § 823b(d)(3), and on August 29, 2013, the Commission issued assessment orders imposing the proposed penalties. The Respondents failed to pay the penalties within sixty days. Accordingly, the Commission filed a petition for an order affirming its assessment orders.
In a matter of first impression in the District of Maine, this Court must determine the applicable procedures that govern the Court's de novo review of the Commission's assessment orders. After considering the compelling arguments and authorities both parties bring to bear on the issue, the Court has resisted the temptation to make a grand pronouncement about the scope of de novo review under § 823b(d)(3) and instead concludes, based on the specific circumstances of this case, that it will treat this matter as an ordinary civil action subject to the Federal Rules of Civil Procedure.
On December 2, 2013, FERC filed a petition in the District of Massachusetts for an order affirming its assessment orders. Pet. for Order Affirming FERC's Aug. 29, 2013 Orders Assessing Civil Penalties Against Richard Silkman and Competitive Energy Services, LLC (ECF No. 1) (FERC Pet.). On December 19, 2013, the Respondents filed a motion to dismiss, Resp'ts' Mot. to Dismiss (ECF No. 8), and a motion to transfer to the District of Maine. Resp'ts' Mot. to Transfer (ECF No. 9). On January 9, 2014, FERC filed oppositions to the motion to dismiss, FERC's Opp'n to Resp'ts' Mot. to Dismiss (ECF No. 18), and the motion to transfer. FERC's Opp'n to Resp'ts' Mot. to Transfer (ECF No. 19).
On March 3, 2014, Judge Douglas Woodlock notified the parties of an initial scheduling conference and ordered the parties to submit a joint statement regarding scheduling pursuant to Massachusetts Local Rule 16.1. Notice of Scheduling Initial Scheduling Conf., Order for Joint Statement and Certifications, and Order for Elec. Filing (ECF No. 20). The parties filed their joint statement on March 25, 2014, highlighting their disagreement about the nature and scope of the applicable procedures. Joint Rep. Pursuant to Fed. R. Civ. P. 26(f) and Loc. R. 16.1 (ECF No. 22) (Joint Rep.).
At the scheduling conference on April 3, 2014, Judge Woodlock denied the motion to transfer without prejudice and scheduled a hearing on the motion to dismiss.
On July 18, 2014, Judge Woodlock heard arguments on the motion to dismiss and the supplemental briefs on procedure, as well as additional arguments regarding transfer to the District of Maine. Elec. Clerk's Notes (ECF No. 43); Tr. of Mot. Hr'g (ECF No. 44). Following the hearing, on April 2, 2015, the Respondents filed a second supplemental brief on the applicable procedures. Resp'ts' Second Suppl. Brief on Pro. (ECF No. 52) (Resp'ts' Suppl. Br. II).
The case was effectively stayed pending resolution of related issues in the United States Supreme Court
On April 21, 2016, following transfer to the District of Maine, the Respondents filed an answer to FERC's petition. Defs.' Answer (ECF No. 72). That same day, the Respondents filed a motion requesting a scheduling conference and an order assigning the case to the complex track. Defs.' Mot. for Scheduling Order and Conf. (ECF No. 73) (Resp'ts' Mot.). Along with their motion, the Respondents filed a declaration from their attorney, Peter Brann,
On June 3, 2016, the Court held a scheduling conference. Minute Entry (ECF No. 84); Tr. of Proceedings (ECF No. 85). At the scheduling conference, the parties presented arguments concerning the procedures that should govern the Court's de novo review of the Commission's assessment orders. Tr. of Proceedings at 2:24-49:18. The Court ordered additional briefing from the Respondents' regarding (1) the additional documents they wish to obtain from the agency's investigative record, and (2) any additional discovery they require to present the Court with a complete record for de novo review. Id. at 46:6-47:2. The Court requested that FERC file a responsive brief to explain (1) why the Respondents are not entitled to discovery as a matter of law, and (2) why the Court should rely solely on FERC's administrative record in reviewing de novo the Commission's assessment orders. Id. at 47:25-48:7.
The Respondents filed their discovery brief on July 8, 2016. Defs.' Br. Concerning Disc. (ECF No. 86) (Resp'ts' Disc. Br.). On July 22, 2016, the Respondents filed a supplemental brief alerting the Court to FERC v. Maxim Power Corp., 196 F.Supp.3d 181 (D. Mass. 2016). Defs.' Notice of Suppl. Auth. (ECF No. 87). On July 29, 2016, FERC filed its brief in response. FERC's Opp'n to Resp'ts' Br. Concerning Disc. (ECF No. 88) (FERC's Disc. Resp.). The Respondents replied on August 8, 2016. Defs.' Reply Br. Concerning Disc. (ECF No. 89) (Resp'ts' Disc. Reply). On August 17, 2016, the Respondents filed a second supplemental brief to alert the Court to another recently-decided case, FERC v. City Power Marketing, LLC, 199 F.Supp.3d 218 (D.D.C. 2016). Defs.' Second Notice of Suppl. Auth. (ECF No. 90). FERC responded to the Respondents' notices of supplemental authority on August 29, 2016. FERC's Resp. to Resp'ts' Notices of Suppl. Auth. (ECF No. 93) (FERC's Resp. to Suppl. Auth.).
FERC is an administrative agency of the United States, organized and existing pursuant to the FPA, 16 U.S.C. § 791a et seq. FERC Pet. ¶ 13. FERC's Office of Enforcement (Enforcement) "initiates and executes investigations of possible violations of the Commission's rules, orders, and regulations relating to energy market structures, activities, and participants. Office of Enforcement (OE), FERC, https://www.ferc.gov/about/offices/oe.asp (last visited January 25, 2017). Based on its investigations, Enforcement may submit reports to the Commission recommending that the Commission institute administrative proceedings. FERC's Disc. Resp. at 4. Once the Commission authorizes an administrative proceeding, Enforcement's role shifts from investigator to litigator, and a "wall" goes up between the Commission and its Enforcement arm to prevent ex parte communication. Id.
ISO-NE is an independent, non-profit organization that works to ensure the day-to-day reliable operation of New England's bulk electric energy generation and transmission system by overseeing the fair administration of the region's wholesale energy markets. FERC Pet. ¶ 2. FERC regulates the markets that ISO-NE administers. Id.
According to FERC, ISO-NE administers "load response programs" that encourage large electricity users to reduce the amount of electricity they consume from the grid during periods of high or peak demand. FERC Pet. ¶ 3. This reduction in consumption helps ease stress on the electric grid and can also help lower electricity prices. Id. The specific load response program at issue here is ISO-NE's Day-Ahead Load Response Program (the DALRP). Id. ¶ 4. Under this program, a participant could offer to reduce its electricity consumption by a certain amount during the peak hours the following day in exchange for payment from ISO-NE.
In order to calculate how much a participant actually reduced its electricity consumption, ISO-NE first needed to establish a baseline to reflect the amount of electricity the participant normally demanded from the grid. Id ¶ 29. To do so, ISO-NE calculated the participant's average electricity demand between 7:00 AM and 6:00 PM over a five-day period before the participant agreed to reduce its electricity consumption. Id. ¶¶ 29-30. Once ISO-NE calculated the baseline, it was able to determine the participant's reduced demand by subtracting the actual electrical consumption from the grid during the hours in which ISO-NE accepted the participant's offer. Id. ¶ 29.
After establishing the participant's initial baseline, ISO-NE continued to adjust the baseline on a rolling basis in order to reflect changes in a participant's normal operations over time. Id. ¶ 30. However, ISO-NE could not adjust the baseline on days when it accepted a participant's offer to reduce consumption because the participant's consumption on those days would not reflect its normal operations. Id. ¶ 31. Consequently, if ISO-NE accepted a participant's offer every day, the participant could maintain its initial baseline indefinitely. Id.
In its Petition, FERC makes the following allegations regarding CES's and Dr. Silkman's supposed involvement in a scheme to defraud ISO-NE. According to FERC, CES and its managing member, Dr. Silkman, regularly provided energy consulting services to Rumford Paper Company (Rumford), a paper mill in Rumford, Maine. Id. ¶ 36. As a result, CES and Dr. Silkman knew that, although Rumford was connected to the electrical grid, it typically used a large, relatively inexpensive on-site generator to meet the substantial majority of its electricity needs to operate the paper mill. Id. In the spring of
Rumford enrolled in the DALRP with assistance from an Enrolling Participant, Constellation NewEnergy, Inc. (Constellation). Id. ¶ 46. An Enrolling Participant is a third-party that helps register participants in the DALRP and arranges for ISO-NE to receive load response and meter data from the participant. Id. Additionally, an Enrolling Participant serves as a middleman, receiving payments from ISO-NE and distributing the revenue to the participant. Id.
Dr. Silkman and another CES partner advised Rumford to reduce the amount of electricity the mill created with its generator during the initial five-day baseline calculation period and purchase unusually large amounts of more expensive replacement electricity from the grid. Id. ¶ 42. Dr. Silkman understood that this otherwise uneconomic short-term purchase of grid electricity would artificially inflate Rumford's baseline. Id. Dr. Silkman also understood that by designing daily offers to ISO-NE that were almost guaranteed to be accepted, Rumford could maintain its inflated baseline indefinitely. Id. ¶ 44. Dr. Silkman told Rumford personnel that if those bids were accepted, Rumford would receive substantial payments under the DALRP by simply resuming routine operation of its generator without reducing its electricity consumption from the grid. Id.
Although Rumford managers expressed concern about the scheme to Dr. Silkman and CES, noting that it appeared that they would be paid for doing nothing, Rumford nevertheless authorized CES to register Rumford in the DALRP and facilitate the scheme. Id. ¶ 45. CES, including Dr. Silkman, then communicated daily with ISO-NE regarding Rumford's availability to provide approximately 20 MW of electricity reduction. Id. This phantom reduction was roughly equal to the amount by which Rumford curtailed its electricity generation during the baseline period. Id. CES continued the scheme by making offers at a price that effectively guaranteed acceptance, thereby assuring that Rumford's baseline would remain unchanged. Id.
The scheme continued from late July 2007 through early February 2008. Id. ¶ 47. During this time, Rumford did not actually reduce electricity consumption below its normal levels. Id. Dr. Silkman and CES actively participated in the scheme and continually concealed Rumford's lack of demand reduction from ISO-NE and from Constellation, Rumford's Enrolling Participant. Id.
In January 2008, ISO-NE made a presentation notifying market participants that ISO-NE expected to make changes to the program because it had learned that some market participants had wrongly attempted to profit from intentionally establishing and then maintaining an inflated baseline. Id. ¶ 48. The presentation clearly described the scheme that Dr. Silkman and CES designed and executed in conjunction with Rumford. Id. Dr. Silkman was aware of the presentation and forwarded it to Rumford managers, but neither he nor anyone else at CES recommended that Rumford cease its involvement in the scheme. Id.
Also in January 2008, Dr. Silkman received a phone call and a letter from Constellation explaining its concern that certain program participants had artificially increased their electricity usage during their baseline periods and warned that an enrollee could be subject to sanctions if ISO-NE determined that the enrollee committed fraud to extract load response program payments. Id. ¶ 49. Despite these communications, Dr. Silkman, CES, and Rumford continued their involvement with the scheme. Id.
On February 8, 2008, ISO-NE altered the DALRP program to guard against baseline inflation. Id. ¶ 50. After analysis of electricity usage data, ISO-NE suspected that Rumford had committed fraud and referred the behavior to FERC for possible enforcement action. Id.
Enforcement commenced an investigation of Dr. Silkman and CES in February 2008. Id. ¶ 52. During the investigation, Enforcement obtained and reviewed thousands of pages of documents, including emails, internal memoranda, and electricity consumption and load response offer data. Id. Enforcement also deposed Dr. Silkman and several third-party witnesses, including Rumford and Constellation employees. Id. Enforcement determined from its investigation that Dr. Silkman and CES devised and implemented a scheme to inflate Rumford's DALRP baseline in violation of section 222 of the FPA and the Commission's Anti-Manipulation Rule. Id. ¶ 53.
Enforcement was unable to reach a settlement with either Dr. Silkman or CES and therefore issued letters notifying them of Enforcement's intent to seek action by the Commission. Id. ¶ 54. Dr. Silkman and CES submitted a joint 83-page response to these letters. Id. Enforcement provided this response to the Commission, along with a report detailing Enforcement's findings, and recommended that the Commission issue orders to show cause to CES and Dr. Silkman. Id.
On July 17, 2012, the Commission unanimously agreed to issue the orders to show cause to Dr. Silkman and CES. Id. ¶ 55. The orders required Dr. Silkman and CES to show cause why the Commission should not: (1) find them in violation of section 222 of the FPA, 16 U.S.C. 824v, and the Commission's Anti-Manipulation Rule; (2) assess a $1,250,000 civil penalty against Dr. Silkman; (3) assess a $7,500,000 civil penalty against CES; and (4) require CES to disgorge $166,841.13 in unjust profits. Id. ¶ 55.
The orders also explained that Dr. Silkman and CES were required to elect either an administrative hearing before an ALJ pursuant to 16 U.S.C. § 823b(d)(2) or an immediate ruling by the Commission under 16 U.S.C. § 823b(d)(3). Id. ¶ 56. As FERC explained to Dr. Silkman and CES in the orders to show cause:
FERC Pet., Attach. 5, Order to Show Cause and Notice of Proposed Penalty at 3-4 (ECF No. 1); FERC Pet., Attach. 6, Order to Show Cause and Notice of Proposed Penalty at 3-4 (ECF No. 1). On July 27, 2012, CES and Dr. Silkman requested an immediate penalty assessment by the Commission under § 823b(d)(3). FERC Pet. ¶ 56.
On September 14, 2012, Dr. Silkman and CES submitted a joint answer to the orders
On August 29, 2013, after reviewing the briefs and the evidence that Enforcement provided, the Commission issued orders assessing civil penalties against CES and Dr. Silkman. Id. ¶ 60. The Commission unanimously found:
The Commission issued assessment orders in accordance with Enforcement's recommendations. Id. ¶ 62. Dr. Silkman and CES both failed to pay their penalties within sixty days; therefore, pursuant to § 823b(d)(3)(B), the Commission filed a petition with this Court for an order affirming the assessment of the civil penalties. Id. ¶ 12.
The question before the Court is what procedures should govern the Court's de novo review of the Commission's assessment orders. As the procedural history of this case demonstrates, the parties have thoroughly briefed and argued their positions. In general, the Respondents argue that the FPA requires this Court to treat the matter as an ordinary civil action governed by the Federal Rules of Civil Procedure. As such, the Respondents assert that they are entitled to discovery, including information relating to FERC's investigation. Further, the Respondents contend that the Court must hold a trial if factual disputes persist following discovery.
By contrast, FERC insists that this is not a normal civil action and that the text of the FPA does not compel the Court to grant discovery or hold a trial. Instead, FERC contends that the statute grants the Court broad discretion to design appropriate procedures in its review of the Commission's assessment orders. FERC believes that in order for the Court to determine the scope of its review, the Court should first examine the assessment orders themselves. Once the Court examines the orders, the Court may decide that it is able to immediately rule on the Commission's orders, or the Court may wish to supplement its review with documents from the administrative record, which FERC defines as "[a]ll communications with the Commission and all materials considered by the Commission in the adjudication — including submissions by Enforcement and Respondents and the documents relied upon therein[.]" FERC's Disc. Resp. at 4. FERC acknowledges that the statute permits the Court to order discovery and a trial but argues that, given the extensive adversarial proceedings at the agency level in this case, the Court's review should "begin ... and end ... with the Assessment Orders, supplemented as necessary by the administrative record[.]" Joint Rep. at 4. FERC predicts that "no discovery will prove necessary and, if discovery is
The FPA states that in reviewing the Commission's assessment orders, the district court "shall have the authority to review de novo the law and the facts involved." 16 U.S.C. § 823b(d)(3)(A). The Respondents characterize this de novo review as an ordinary civil action that requires the application of the Federal Rules of Civil Procedure — including rules concerning discovery — and the Federal Rules of Evidence. Resp'ts' Suppl. Br. at 6. The Respondents note that Federal Rule of Civil Procedure 81 identifies certain instances in which the Federal Rules do not apply to civil actions and that penalty enforcement actions under the FPA are not among the list of exceptions. Id. More generally, the Respondents assert that if "`de novo' review is to be given any meaning, both sides should be permitted to develop the evidence through the usual tools of discovery, and both sides should be permitted to participate in a trial to determine the facts." Id.
To underscore their argument, the Respondents contrast the FPA's two procedural options. Id. at 8-9. Under the first option (Option 1), the targets of FERC investigations are entitled to a hearing in front of an ALJ and may appeal any unsatisfactory decision to the Commission and, eventually, to the United States Court of Appeals in accordance with the APA. Id. at 8 (citing 16 U.S.C. § 823b(d)(2)(A)). Under the second option (Option 2), the Commission "promptly" issues a penalty and may seek de novo review of the law and the facts in a district court to enforce the penalty assessment. Id. at 8-9 (citing 16 U.S.C. § 823b(d)(3)(B)).
The Respondents argue that if de novo review under Option 2 did not include discovery and, if necessary, a trial, then it would not provide a meaningful alternative to Option 1. Id. at 9-10. Option 1 entitles the targets of FERC investigations to full discovery, a hearing, review by the Commission, and judicial review by a United States Court of Appeals. Without discovery and the possibility of a trial, then the district court's review in Option 2 would accomplish nothing more than the Court of Appeals' review in Option 1, yet the target of the investigation would not have the concomitant benefit of discovery or a hearing. According to the Respondents, "[i]t strains credulity to claim, as FERC has, that [Respondents] are entitled to discovery and due process only if they choose an administrative proceeding over a district court proceeding." Resp'ts' Mot. at 3-4.
Relatedly, the Respondents argue that the Court should not limit its de novo review to the administrative record, as FERC suggests, because no proper administrative record exists in this case. Resp'ts' Suppl. Br. at 7. The Respondents claim that because they selected Option 2, there was no administrative proceeding in front of an ALJ, and thus no administrative record. Id. The Respondents insist that what the Commission refers to as an "administrative record" is actually a subset of documents that Enforcement "cherry-picked" from among "thousands of pages" of investigative materials and provided to the Commission to serve as the basis of the Commission's assessment orders. Resp'ts' Disc. Br. at 4.
The Respondents assert that they do not have access to the majority of evidence that FERC collected in the course of its investigation. Resp'ts' Suppl. Br. at 7. This alone, the Respondents contend, warrants additional discovery to supplement the record in this case. Id. (citing
To underscore their lack of access to FERC's investigatory materials, the Respondents point out that FERC's initial disclosures in this litigation revealed a list of individuals with "relevant knowledge"; however, the Respondents allege that they do not even recognize some of the listed names. Resp'ts' Disc. Br. at 8. As further proof, the Respondents provide a series of Bates numbers that the Respondents assert correspond to documents that formed part of FERC's investigation but were never produced to the Commission or the Respondents. Id. at 4-5. Apart from these documents, the Respondents continue to "believe that FERC conducted depositions that have not been identified to [the Respondents]." Id. at 5.
The Respondents maintain that "[s]ince discovery was unavailable, or one-sided, in the investigation in this case, the weight of authority ... supports discovery and the introduction of new evidence in de novo proceedings." Resp'ts' Suppl. Br. at 11 (quoting Saunders v. United States, 507 F.2d 33, 36 (6th Cir. 1974) ("Since the procedures followed at the administrative level do not provide for discovery or testing of evidence of [an agency] by cross-examination, it is particularly important that an aggrieved person who seeks judicial review in a trial de novo not be deprived of these traditional tools..."); Renegotiation Board v. Bannercraft Clothing Co., 415 U.S. 1, 23, 94 S.Ct. 1028, 39 L.Ed.2d 123 (1974); Broad St. Mkt., Inc. v. United States, 720 F.2d 217, 220 (1st Cir. 1983)).
The Respondents point out that "FERC's position of summary review of the existing `record'" is contrary to FERC's approach in Federal Energy Regulatory Commission v. MacDonald, 862 F.Supp. 667 (D.N.H. 1994), another case interpreting "review de novo" in the context of the FPA. Resp'ts' Suppl. Br. at 10. According to the Respondents, "FERC appropriately filed a complaint against a defendant in the MacDonald case, rather than a petition against respondents in this case, and in MacDonald, the parties engaged in discovery, including depositions." Id. at 10-11 (emphasis in original). The Respondents surmise that "FERC's change in position is due to its attempt to avoid the otherwise dispositive statute of limitations defense available if this case is treated as a civil action subject to the general five-year statute of limitations." Id. at 11.
Furthermore, the Respondents highlight that FERC itself previously recognized that § 823b(d)(3) provides for a de novo "trial." Id. at 10 (citing Procedures for the Assessment of Civil Penalties Under Section 31 of the Federal Power Act, 53 Fed. Reg. 32,035, 32,039 (Aug. 23, 1988) (noting that "the assessment of civil penalties by the Commission" under Option 2 "merely triggers the process leading to a de novo trial")). Moreover, the Respondents point out that, even in the present case, FERC agrees that the Court has discretion to order a full trial. Resp'ts' Disc. Br. at 1.
Finally, the Respondents identify two recent cases that discuss, for the first time, the procedures applicable to a district court's review of FERC's assessment of civil penalties under the FPA. Notice of Suppl. Auth. at 1 (citing Maxim Power, 196 F.Supp.3d 181); Second Notice of Suppl. Auth. at 1 (citing City Power, 199 F.Supp.3d 218). According to the Respondents, these cases hold that a district court performing a review de novo of FERC's penalty assessments must treat the matter as an ordinary civil action subject to the Federal Rules of Civil Procedure.
The Respondents argue that FERC's preferred procedural approach — namely, to limit the Court's de novo review to the assessment orders and the administrative record — would deprive the Respondents of due process. Resp'ts' Suppl. Br. at 13. The Respondents argue that notions of fundamental fairness compel the Court to grant the Respondents discovery and, if necessary, a trial in accordance with the Federal Rules of Civil Procedure. Id. at 13-17.
The Respondents submit that "[t]he fundamental requirement of due process is the opportunity to be heard `at a meaningful time and in a meaningful manner.'" Id. at 13 (citing Mathews v. Eldridge, 424 U.S. 319, 322, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976)). They explain that Mathews articulated a three-factor test to determine what process is due. Id. Applying the Mathews test, the Respondents conclude that FERC's preferred approach would not provide adequate process. Id.
The first factor concerns the private interests at stake. Id. at 13. The Respondents insist that the stakes are "enormous since FERC is attempting to assess millions in penalties that would bankrupt both Dr. Silkman and CES." Id. The second factor relates to the risk of error given the established procedures. Id. The Respondents argue that the risk of error is high because "FERC engaged in a one-sided investigation, and it has denied Respondents the opportunity to engage in even limited discovery or to review the entire record." Id. The final factor deals with the governmental interest in maintaining the established procedures. Id. at 14. The Respondents argue that "FERC has not asserted any government interest in prohibiting Respondents from taking discovery, confronting the evidence and witnesses against them, and presenting evidence in a district court hearing, much less one that could override Respondents' rights to due process." Id.
Additionally, the Respondents claim that "[c]ourts time and again have noted that limitations on discovery implicate the fundamental fairness of the adjudicative process" Id. at 15 (citing McClelland v. Andrus, 606 F.2d 1278, 1286 (D.C. Cir. 1979) ("[D]iscovery must be granted if in the particular situation a refusal to do so would prejudice a party as to deny him due process")). Likewise, the Respondents contend that it is "elementary that due process within administrative procedures requires the opportunity to be heard at a meaningful time and in a meaningful manner." Id. (quoting Raper v. Lucey, 488 F.2d 748 (1st Cir. 1973) (internal quotation marks omitted)). "[D]ue process demands more than simply an opportunity to offer one's side of the story[.]" Resp'ts' Mot. at 8 (citing King v. Higgins, 370 F.Supp. 1023,
The Respondents seek discovery and a trial in the district court in part because they perceive the Commission's procedures at the agency level to be fundamentally unfair. Id. at 15-17. For instance, the Respondents argue that agency rules permit Enforcement to speak directly to the Commissioners responsible for assessing the penalties up until the Commission issue orders to show cause. Id. at 15. According to the Respondents, this meant that Enforcement and the Commission were able to communicate and work together for more than two and a half years in this case. Id. Moreover, the Respondents question the impartiality of the "captive ALJs" employed by FERC. Resp'ts' Mot. at 2. They indicate that "[i]n every civil penalty proceeding that a FERC ALJ has decided since 2005, save one, the ALJ that FERC has assigned has agreed with the Commissioners and imposed the Commission's proposed penalties." Id. at 3. The Respondents assert that this procedural unfairness drove their decision to bypass a hearing with an ALJ under Option 1 and pin their hopes instead on de novo review at the district court under Option 2. Id. at 3, 6.
The Respondents seek the following discovery in this case:
Joint Rep. at 8-9. In addition, the Respondents anticipate deposing and issuing document subpoenas to ISO-NE, Constellation, Rumford Paper Company, and possibly other third parties. Id. at 9.
The Respondents further request that the Court assign the case to the complex track pursuant to Local Rule 16.1(c). Resp'ts' Mot. at 1. The Respondents assert that the case is appropriate for the complex track given the complexity of the DALRP, the number of potential witnesses, and the amount of data and other documents. Id. at 9-10.
FERC argues that the language of the FPA does not require the Court to order discovery or hold a trial as part of its
FERC contends that the Respondents' argument that the Federal Rules of Civil Procedure must apply ignores the words "shall have the authority," thereby violating the rule of statutory interpretation that "every word in a statute is to be given meaning whenever possible." FERC's Suppl. Resp. at 22 (citing U.S. v. Ven-Fuel, Inc., 758 F.2d 741, 751-52 (1st Cir. 1985)). FERC states that "[h]ad Congress intended to require a trial, it could have done so simply by saying ... that the court `shall' conduct a `trial.'" Id. at 24. Indeed, FERC points out, Congress explicitly provides for a "trial de novo when a district court reviews civil penalties relating to employee health benefit plans." Id. at 24 (citing 42 U.S.C. § 300e-9(d)(3)). Thus, according to FERC, the plain language of the FPA indicates that the Court does not need to order discovery or hold a trial to review the Commission's assessment orders.
FERC characterizes the Court's task as a "judicial review of administrative orders issued by the Commission[.]" Joint Rep. at 3. This, in FERC's view, does not require discovery or a trial. FERC's Suppl. Resp. at 9. In support of this characterization, FERC points to the text of the FPA, caselaw, and Judge Woodlock's earlier statements in this case. First, FERC highlights that in § 823b(d)(3)(B), Congress directed the Commission to file an action seeking to "affirm" the penalties it levied. Id. at 25. FERC contends that "[t]he result of a `trial' is not an affirmation, the result of a `review' often is." Id. at 25.
Second, FERC cites Doe v. United States, 821 F.2d 694 (D.C. Cir. 1987), which stated that "de novo review, in diverse contexts, does not necessarily require any trial-type hearing ..." FERC's Resp. to Suppl. Auth. at 2 n.2 (citing Doe, 821 F.2d at 697-98 n.10). Finally, FERC relies on a passage in Judge Woodlock's order on the Respondents' motion to dismiss. According to FERC, Judge Woodlock determined that the Commission "conducted an adjudication" and that this Court's task was to "review" the agency action resulting from that adjudication: "Although this court's de novo review may gain some procedural richness in the context of an action seeking enforcement of an administrative order, that potential does not change the fundamental nature of this court's task — which is to `review' agency action ..." Id. at 1 (citing Silkman, 2016 U.S. Dist. LEXIS 48409 at *26). In FERC's view, Judge Woodlock's pronouncement indicates that the Respondents are not entitled to a trial:
Id. at 2.
FERC acknowledges that the FPA permits the Court to order discovery and hold a full trial. Joint Rep. at 4-5. However,
Finally, FERC acknowledges its previous statement that when "district court procedures are followed, the assessment of civil penalties by the Commission merely triggers the process leading to a de novo trial." FERC's Suppl. Resp. at 32 (quoting Procedures for the Assessment of Civil Penalties Under Section 31 of the Federal Power Act, 53 Fed. Reg. 32, 035, 32, 039 (Aug. 23, 1988)). However, FERC insists that the Respondents place "far more weight on [the Commission's prior statements] than is proper." Id. FERC points out that the Commission made the statement in 1988, and that since then, the Commission has amended its procedures and has made other, more recent statements referring to de novo review, not de novo trial. Id. at 33.
FERC maintains that the Commission's enforcement process gave the Respondents a full and fair opportunity to present exculpatory evidence and argument in support of their positions, and therefore the Court does not need to order further discovery and hold a trial to protect the Respondents' due process rights. Id. at 34. FERC alleges that Enforcement solicited evidence and argument from the Respondents on two occasions and that the Respondents availed themselves of both opportunities. Id. However, FERC asserts that the Respondents were "unable to make a convincing case in the face of strong evidence against them" even though the evidence demonstrating the Respondents' fraud "came from their own data, their own files, their own conduct, and the mouths of their own employees." Id. at 35-36.
FERC also contends that the Respondents "are wrong when they claim that they were not given the opportunity for written or oral discovery, hearing, or cross examination of witnesses." Id. at 38 (emphasis omitted). FERC explains that if the Respondents selected Option 1 — that is, a hearing in front of an ALJ — then they would have had full access to discovery and the ability to present and cross-examine witnesses. Id. at 30. However, the Respondents opted to have the Commission directly assess the penalty. Id. at 38. Thus, according to FERC, the Respondents had an opportunity for a hearing, but "they chose not to exercise" it. Id.
FERC also distinguishes the Respondents' due process cases. Id. at 36-38. For instance, FERC argues that McClelland acknowledges that "the extent of permissible discovery in an agency proceeding `is primarily determined by the particular agency.'" Id. at 36 (citing McClelland, 606 F.2d at 1286). Additionally, FERC argues that the three-factor test from Mathews is inapposite because the Respondents had the opportunity "to present evidence, witnesses,
Finally, FERC addresses the Respondents' concerns about ex parte communication between the Commission and FERC leading up to the orders to show cause. Id. at 34 n. 41. FERC insists that such contact is permissible, id. at 34 n. 41 (citing Withrow v. Larkin, 421 U.S. 35, 95 S.Ct. 1456, 43 L.Ed.2d 712 (1975)), and that the Commission is an unbiased adjudicator. FERC's Disc. Resp. at 2. FERC maintains that no contact took place after the Commission issued the orders to show cause, and that Commission regulations require the erection of an ethical wall during the remainder of the adversarial provisions. FERC's Suppl. Resp. at 34 n. 41.
Although FERC acknowledges that the FPA grants reviewing courts the authority to order discovery, FERC asserts a number of reasons why discovery is not appropriate here. First, FERC argues that the Respondents waived their rights to discovery in this case. Second, FERC contends that the Respondents have not shown that discovery is required. Finally, FERC argues that the Respondents seek to discover confidential information.
First, FERC asserts that the Respondents in this case waived their rights to additional documents or testimony because they failed to request these materials in front of the Commission. FERC's Disc. Resp. at 4. FERC argues that "[o]rderly procedure and good administration require that objections to the proceedings of an administrative agency be made while it has opportunity for correction in order to raise issues reviewable by the courts[.]" Id. at 5 (quoting U.S. v. LA Tucker Truck Lines, 344 U.S. 33, 36-37, 73 S.Ct. 67, 97 S.Ct. 54 (1952)). FERC asserts the Respondents did not notify the Commission of the need for additional facts for their defense or for specific documents or testimony. Id. at 5-6. Thus, FERC believes that the Respondents have waived any right to these materials. FERC argues that its position accords with Judge Woodlock's earlier statement regarding waiver: "the fundamental nature of this court's task ... is to `review' agency action[.] ... [This] does not alter the basic rule that an argument may be waived by the failure to raise it at an appropriate time — such as at the time required by the agency's rules." Id. at 5 n. 18 (quoting Silkman, 2016 U.S. Dist. LEXIS 48409 at *26).
Additionally, FERC argues that the Respondents waived any right to discovery by electing to forgo a formal hearing in front of an ALJ. Id. at 6. FERC points out that the Respondents bypassed a hearing in favor of prompt Commission adjudication. Id. Because the Respondents chose to forgo a hearing at the agency level, and because they failed to request specific documents or testimony before the Commission, FERC contends that the Respondents "waived any argument that additional facts are needed to adjudicate this matter." Id. at 7.
Next, FERC argues that the Respondents have not shown that they require discovery. Id. at 7-8. First, FERC argues that the Respondents actually possess a number of documents they claim the Commission
FERC insists that the Respondents are not entitled to Enforcement's investigative materials because "Enforcement's investigations are confidential by law ... to protect the integrity of the investigative process." Id. at 3 (citing 18 C.F.R. § 1b.9). FERC explains that in 2009, the Commission adopted a policy that requires Enforcement to "scrutinize materials it receives from sources other than the investigative subject(s) for materials that would be required to be disclosed under Brady." Id. at 3 n. 11. Under the policy, "[a]ny such materials or other information that are not known to be in the subject's possession shall be provided to the subject." Id. FERC states that it "long ago produced all documents obtained from any source that were arguably exculpatory pursuant to Commission policy." Id. This, FERC asserts, satisfies its obligations to produce documents from Enforcement's investigative file. Id. at 3-4.
FERC argues that even if the Court orders a trial in this case, the Court should not assign it to the complex track for three reasons. FERC's Resp. at 7. First, the case does not involve a large number of parties. Id. Second, the Respondents' alleged fraud does not involve complex issues. Id. Finally, the scope of discovery would be limited because the Commission has already collected the relevant evidence, and any discovery would be supplemental. Id.
The Court must determine what procedures govern its de novo review of the Commission's assessment orders under the FPA. The Court first analyzes the text of the statute and the Commission's past interpretations and practices in relation to the FPA.
Before FERC may issue "an order assessing a civil penalty against any person," the FPA requires the Commission to "inform such person of his opportunity to elect" one of two procedural routes. 16 U.S.C. § 823b(d)(1). The default option (Option 1) is set forth in 16 U.S.C. § 823b(d)(2). Under Option 1:
16 U.S.C. § 823b(d)(2)(A)-(B).
In this case, the Respondents chose to proceed under 16 U.S.C. § 823b(d)(3) (Option 2). Under Option 2:
16 U.S.C. § 823b(d)(3)(A)-(B).
As an initial matter, Option 2 does not dictate the procedures the Commission should use to assess the civil penalties. The only statutory directive is promptness. There is nothing in the language of the statute that requires the Commission to provide the targeted parties any procedural protections, such as access to discovery, a hearing, or the ability to confront evidence. Thus, the procedures that the Respondents allege governed FERC's penalty assessment in this case — namely, inviting the Respondents to present evidence and submit written arguments, but prohibiting the Respondents from engaging in discovery — arose from FERC's own policies, and are not derived from the express language of the statute.
Similarly, the language of Option 2 does not specify what procedures should guide the district court's de novo review. Instead, the statute merely states, "[t]he court shall have authority to review de novo the law and the facts involved." 16 U.S.C. § 823b(d)(3)(B). The statute does not explicitly state whether the district court should order a full trial governed — both before and during trial — by the Federal Rules of Civil Procedure, or whether the district court should fashion procedural protections unique to this process and to the circumstances of the case before it.
FERC argues that the statute's use of the words "shall have the authority" signals that the Court has the power to conduct a review but that the Court does not need to perform any particular type of review. FERC's Suppl. Resp. at 22. The Court disagrees with this interpretation of "authority." The Court reads the phrase "shall have the authority" as indicating Congress' intent to designate the district court — as opposed to the United States Court of Appeals — as the proper initial reviewing court under Option 2. At times, the United States Court of Appeals directly reviews administrative decisions and the process bypasses the district courts. Indeed, if the Respondents had selected Option 1 and proceeded to a hearing in front of an ALJ, they could have appealed any unsatisfactory decision to the Commission and, ultimately, to the United States Court of Appeals. In the context of § 823b(d)(3), however, Congress specifically determined that the district court should review FERC's order. That is, Congress authorized ("shall have the authority") the district court to review the order. However, the Court's interpretation still does not answer the question of what procedures should govern the Court's review. On that score, the statutory language remains ambiguous. See Maxim Power, 196 F.Supp.3d at 190-91.
Because the Court is unable to divine the applicable procedures from the text of the statute, the Court turns for insight to the Commission's past interpretations and practices. In 1988, FERC issued final rules that set forth procedures for assessing civil penalties under the FPA. In connection with those rules, FERC published an order that stated that when "district court procedures are followed, the assessment of civil penal[ties] by the Commission merely triggers the process leading to a de novo trial." Procedures for the Assessment of Civil Penalties Under Section 31 of the Federal Power Act, 53 Fed. Reg. 32035-01, 32038 (1988). Again in 1994, FERC stated that the FPA requires "the opportunity for a hearing on the record before an Administrative Law Judge or a trial de novo in federal court[.]" Consumers Power Co., 68 FERC 61077, 61380 (1994).
As FERC points out, however, the Commission has more recently referred to "de novo review" as opposed to a "trial de novo." See Statement of Administrative Policy Regarding the Process for Assessing Civil Penalties, 117 FERC 61317 (2006). Significantly, FERC's recent references to "de novo review" simply restate the statutory language and do not provide any insight into the procedures that should govern the Court's review. Thus, these later statements do not necessarily contradict the Commission's earlier, more specific statements indicating that the FPA requires the Court to hold a trial de novo.
Moreover, in 2007, FERC issued an order in a case involving the Natural Gas Policy Act (NGPA), another statute that FERC administers. Energy Transfer Partners, L.P., 121 FERC 61282 (2007) (NGPA Order). The NGPA contains enforcement procedures that are nearly identical to Option 2 of the FPA. That is, once the target of the enforcement receives notice of the proposed penalty, the "Commission shall, by order, assess such penalty." 15 U.S.C. § 3414(b)(6)(E). If the target fails to pay the penalty within sixty days, "the court shall have authority to review de novo the law and the facts involved[.]" 15 U.S.C. § 3414(b)(6)(F).
FERC's 2007 order enforcing the NGPA often refers to "de novo review." Notably, however, the order also states that the party facing the penalty is entitled to a trial at the district court level: "Congress created an affirmative right for the [party facing a penalty] to receive review of the Commission's assessment in a trial de novo in district court." NPGA Order ¶ 34. Later in the order, FERC again states that "the recipient of the penalty has an affirmative right to receive review of the Commission's assessment in a trial de novo in district court." Id. ¶ 77. Although the NGPA and the FPA are different statutes, FERC administers both, and the NGPA's enforcement procedures mirror the procedures available under Option 2 of the FPA.
In addition to its prior statements about the FPA, FERC's past practices under the FPA indicate that the Commission previously accepted that Option 2 required a trial de novo. In MacDonald, 862 F.Supp. 667, a party facing a penalty assessment under the FPA chose to proceed under Option 2. FERC issued an assessment order and brought an action in district court seeking to enforce its order. Id. at 669; see Maxim Power, 196 F.Supp.3d at 192-95. Unlike the present case, the parties in MacDonald did not dispute the procedures the district court should use to review the Commission's assessment orders. MacDonald, 862 F.Supp. at 669. Rather, the case proceeded an ordinary civil action: the Commission filed a complaint, the parties engaged in discovery, and the parties
In ruling on the motions for summary judgment, the district court in MacDonald described its task:
Id. at 672. The district court denied the motions for summary judgment and set the case for trial before the parties eventually settled. It is notable that the MacDonald court applied the Federal Rules of Civil Procedure to its de novo review of FERC's assessment order, and there is no indication that FERC objected.
FERC's past interpretations and practices provide some support for the Respondents' position that the FPA requires a trial de novo. However, these historical understandings and applications — although somewhat insightful — are not dispositive. First, the Court credits FERC's argument that the Commission's previous statements regarding "de novo trial" are not regulations themselves but merely dicta commentaries that are not binding on this Court. FERC's Suppl. Resp. at 32-33. Moreover, the Commission made the comments over two decades ago, and the Court accepts FERC's argument that "since the time the rules were promulgated, the Commission has added numerous procedures to its investigations that provide subjects with greater transparency, additional opportunities to respond to Enforcement's findings, and due process protections during the Order to Show Cause stage[.]" Id. at 33.
Furthermore, FERC's actions in MacDonald do not necessarily mean that the Commission interpreted the FPA to always require a trial de novo in accordance with the Federal Rules of Civil Procedure. Rather, FERC's practice in that case was consistent with its position that the Court has "great latitude in determining how to conduct its review[.]" Joint Rep. at 5. Indeed, the Commission has recognized that, at times, a trial may be appropriate under the FPA. Id. FERC may have acquiesced to the trial procedures in MacDonald simply because the Commission concluded that a trial was appropriate under the circumstances of that case.
In any event, even if FERC assumed a particular legal position in a case, FERC is not forever bound to hew to the same legal positions in the future. The Respondents' argument would have the Court apply an unusual form of estoppel against FERC. Notwithstanding of the fact that the Court in MacDonald did not actually rule on the issue of whether "review de novo" under the FPA requires a trial, the Supreme Court has held that nonmutual offensive collateral estoppel "is not to be extended to the United States." See United States v. Mendoza, 464 U.S. 154, 158-60, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984) (reasoning that asserting nonmutual collateral estoppel against the government would "thwart the development of important
While FERC's views of the issue may provide guidance as to the appropriate construction of the statute, it is not the task before the Court to evaluate the accuracy or consistency of FERC's interpretation of this Court's authority under 16 U.S.C. § 823b(d)(3); rather, it is the Court's duty to determine what this Court's authority actually is under the law.
Because neither the language of the statute nor FERC's past interpretations and practices provide clear guidance regarding the procedures that govern the Court's de novo review under the FPA, the Court turns next to the nature of de novo review more generally. The Court explores whether Congress' decision to provide "review de novo" necessarily requires a trial in accordance with the Federal Rules of Civil Procedure or whether a district court has discretion to craft its own procedures short of a full trial.
In general, de novo review means that a "court should make an independent determination of the issues." United States v. First City Nat. Bank of Houston, 386 U.S. 361, 368, 87 S.Ct. 1088, 18 L.Ed.2d 151 (1967); see also Doe, 821 F.2d at 697-98 ("De novo means here, as it ordinarily does, a fresh, independent determination of `the matter' at stake"); MacDonald, 862 F.Supp. at 672. Although these pronouncements make clear that a court engaged in de novo review must determine the issues with a fresh eye, questions remain regarding the scope of material that should fall under its gaze and the extent of required process. This case asks whether the Court may limit the scope of its de novo review to the administrative record compiled below, or whether the court must treat the matter as any other civil action subject to the Federal Rules.
To begin, the structure of the FPA suggests that the Court's de novo review is not limited to the administrative record alone. The Court finds it significant that Congress established two procedural choices under the FPA. Parties who elect Option 1 proceed to a hearing in front of an ALJ and may seek "judicial review" from the Court of Appeals in accordance with the APA, 5 U.S.C. §§ 701-06. 16 U.S.C. § 823b(d)(2)(B). Under Option 2, parties bypass a hearing in front of an ALJ and receive a prompt penalty assessment from the Commission. The Commission can then "institute an action in the appropriate district court" for "review de novo" of the Commission's assessment order. 16 U.S.C. § 823b(d)(3).
If the district court's de novo review in Option 2 was limited to the administrative record, it would be fulfilling essentially the same task as the appellate courts under Option 1 — namely, "judicial review." Yet the district court's task under Option 2 is not "judicial review"; Option 2 plainly states that the district court is to provide "de novo" review. More generally, it strikes the Court that if Congress intended to establish a standard akin to "judicial review" for Option 2 as well as Option 1, Congress would have designated the Court of Appeals as the reviewing court in both instances. The Court can perceive no reason why Congress would designate two different courts to serve a nearly identical function within the same statute.
There are some instances in which Congress has specifically designated the district
Two district courts, including one in this Circuit, recently held that de novo review under Option 2 of the FPA requires the district court to treat the matter as a standard civil action. See Maxim Power Corp., 196 F.Supp.3d 181; City Power, 199 F.Supp.3d 218. The District of Massachusetts' decision in Maxim Power focused primarily on due process concerns:
Maxim Power, 196 F.Supp.3d at 190-91. In order to safeguard a penalized party's due process rights, the Court determined that de novo review under Option 2 of the FPA required a trial subject to the Federal Rules. Id. at 196-98.
Similarly, in City Power, the District Court for the District of Columbia reasoned that the Federal Rules were the "logical procedures to govern" the district court's de novo review under Option 2. City Power, 199 F.Supp.3d at 231. The Court noted that a "clear expression" of congressional intent was necessary before departing from the Federal Rules and that there was no such clear expression with respect to the FPA. Id. at 231. The Court further explained:
Id. at 231. The Court determined that it would treat the case like a "normal civil action governed by the Federal Rules" but permitted FERC to file a motion for summary judgment right away to argue that the agency record already contained all of the relevant evidence. Id. at 232.
This Court takes a somewhat different view. As an initial matter, the Court recognizes that the term "de novo" appears in a host of statutory contexts beyond the
Pursuant to 28 U.S.C. § 636, a district court may designate a magistrate judge to "conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed findings of fact and recommendations" of certain motions and applications for relief. 28 U.S.C. § 636(b)(1)(B). A party may file objections to the magistrate judge's proposed findings and recommendations, and the statute instructs the district court to "make a de novo determination" of the portions of the findings or recommendations relating to the objection. Id. The Supreme Court has made clear that a "de novo determination" in the context of § 636 does not require the district court to rehear the testimony that formed the basis of the magistrate's findings and recommendations. United States v. Raddatz, 447 U.S. 667, 674, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). However, if the district court reviews the magistrate's findings and recommendations and "finds there is a problem as to the credibility of a witness ... or for other good reasons," the court may choose to rehear certain testimony or take additional evidence "in the exercise of sound judicial discretion." Id. at 676, 100 S.Ct. 2406 (quoting H.R. Rep. No. 94-1609, at 3-4). In other words, a district court performing a "de novo determination" has flexibility to adjust the scope of its review based on its assessment of the record compiled below.
The Privacy Act, 5 U.S.C. § 552a, provides another example. Under the Act, an individual may bring a civil action in federal district court to challenge an agency's determination not to amend an individual's record. § 552a(g)(1)(A). In such a case, "the court shall determine the matter de novo." § 552a(g)(2)(A). Then-Judge Ruth Bader Ginsburg, writing for the majority of the Court of Appeals for the District of Columbia Circuit, concluded that the district court's de novo inquiry "is not limited to or constricted by the administrative record[.]" Doe 821 F.2d at 698. Judge Ginsburg cited secondary authority for the proposition that a court "engaged in de novo review ... may pursue whatever further inquiry it finds necessary or proper to the exercise of the court's independent judgment." Id. (quoting 5 B. Mezines, J. Stein, & J. Gruff, Administrative Law § 51.04 (rev. ed. 1985)). This again suggests that district courts have discretion to determine the scope of de novo review and may, depending on the circumstances, constrict the review to the administrative record or supplement the record with additional fact-finding.
Yet the First Circuit's decision still left room for district judges to use their discretion to expand the scope of de novo review to include extra-administrative record evidence. The Court recognized that "there may be times when it is appropriate for courts to hear new evidence" but that "some very good reason is needed to overcome the strong presumption that the record on review is limited to the record before the administrator." Id. at 520 (quoting Liston v. Unum Corp. Officer Severance Plan, 330 F.3d 19, 23 (1st Cir. 2003)). Notably, the First Circuit pointed out that the claimant in Orndorf did not allege that the administrator denied him the opportunity to present evidence. Id. Rather, the claimant had "ample time to collect records and had two administrative appeals reviews of his claims[.]" Id. at 519. Although the First Circuit did not have cause to resolve the issue, Orndorf suggests that a district court may use its discretion to expand the scope of its de novo review when a party alleges that it did not have a satisfactory opportunity to present evidence to the administrator in an ERISA case.
In sum, courts tend to agree that the term "de novo" requires a district court to make a fresh, independent determination of a matter. However, there are no rigid parameters on the scope of the district court's review that apply across statutes. Instead, when tasked with performing de novo review, district courts appear to have discretion to adjust the scope of the de novo review based on the needs of the case. Accordingly, this Court is reluctant to make a grand pronouncement about the required scope of de novo review under § 823b(d)(3) in every case and instead concludes that it should assess the individualized circumstances of this case, paying particular attention to the details surrounding the administrative proceedings below, to determine whether it should allow for additional fact-finding.
In this case, the Respondents raise a number of concerns regarding the procedures that FERC employed during the penalty assessment stage. The Respondents assert that they were unable to seek discovery, to gain access to the results of FERC's investigations, or to question potential witnesses. Resp'ts' Suppl. Br. at 2-3, 7, 12. They assert that FERC deposed numerous entities and individuals but that the Respondents did not receive advanced notice of these depositions, nor were they allowed to attend the depositions, cross-examine the deponents, or review the deposition transcripts. Id. at 2. Further, the Respondents allege that based on the "parsimonious" portions of the documentary material that FERC permitted them to review, the Respondents identified numerous factual misrepresentations in Enforcement's conclusions. Id. at 4. The Respondents allege that FERC's petition "includes a number of scurrilous allegations," and that to protect their rights and adequately respond to these accusations, the Respondents "must
For purposes of this motion only, the Court accepts the Respondents' assertions regarding the proceedings at the agency level. Furthermore, the Court shares the Respondents' concerns that the Commission's procedures deprived the Respondents of an adequate opportunity to present their case and defend against Enforcement's accusations. Although FERC insists that the Respondents had an opportunity to submit evidence to the agency, it does not appear that FERC's procedures afforded the Respondents a full opportunity to obtain it. These procedural concerns are especially salient in this case because the Respondents' private interests are sizeable. The Commission's assessment orders imposed a $1,250,000 civil penalty against Dr. Silkman and a $7,500,000 civil penalty against CES. FERC Pet. ¶ 62. The assessment orders also required CES to disgorge $166,841.13 in unjust profits. Id. According to the Respondents, these penalties would bankrupt both Dr. Silkman and CES. Resp'ts' Suppl. Br. at 13. Moreover, the Respondents allege that the administrative energy program at issue — the DALRP — is arcane and confusing. The Court anticipates that a fuller evidentiary record with input from the Respondents will likely assist the Court's understanding of the program and aid the Court's de novo review.
The Court is therefore unwilling to constrict its de novo review to the existing administrative record compiled by the Commission. Rather, the Court concludes that it is appropriate, given the particular circumstances of this case, to expand the scope of its de novo review and treat this case as an ordinary civil action governed by the Federal Rules. Applying the Federal Rules will address the procedural concerns described above and will provide a more complete factual record upon which to base the Court's de novo review. Indeed, once the Respondents have access to discovery, they "might be able to show that the factual landscape is meaningfully different from what FERC's [assessment orders] indicate[]." City Power, 199 F.Supp.3d at 232.
FERC correctly points out that "the extent of permissible discovery in an agency proceeding `is primarily determined by the particular agency.'" FERC's Resp. at 36 (quoting McClelland, 606 F.2d at 1285). That is, an agency proceeding does not necessarily need to adhere to the Federal Rules, id., and agency decisions regarding discovery are entitled to "extreme deference." EchoStar Commc'ns Corp. v. FCC, 292 F.3d 749, 756 (D.C. Cir. 2002) (quoting Hi-Tech Furnace Sys., Inc. v. FCC, 224 F.3d 781, 789 (D.C. Cir. 2000)).
It is important to note that although agency proceedings do not need to adhere strictly to the Federal Rules, an agencies' procedures must still accord with due process. See McClelland, 606 F.2d at 1286 ("[T]he agency is bound to ensure that its procedures meet due process requirements"); see generally Mathews, 424 U.S. at 322, 96 S.Ct. 893. Ultimately, however, this Court need not decide whether the procedures that FERC employed in this case violated the Respondents' due process rights because the Court may use its own discretion, based on a variety of factors, to determine whether to expand the scope of its de novo review. Here, the Court's discomfort with the agency's procedures, combined with the high stakes of the penalties and the potential complexity of the energy program at issue, cause the Court to expand the scope of its review and determine that the Federal Rules apply.
FERC argues that the Respondents waived any rights to discovery because they did not raise the need for additional facts in front of the Commission. Yet in their response to the Commission's orders to show cause, the Respondents complained to the Commission that "the FERC procedures have been fundamentally unfair and nontransparent. Although the Commission authorized the Staff to disclose information obtained during the investigation, the Staff has refused even to identify whom it deposed, much less provide copies of the requested depositions or other documents it obtained." Resp'ts' Disc. Reply, Attach. 1, CES and Richard Silkman Resp. to Orders to Show Cause at 5 (ECF 89). Moreover, the Respondents submitted a sworn declaration that they repeatedly requested, and were denied, materials in the proceedings before the Commission. See Brann Decl. ¶¶ 5-6, 19, 27, 30. Based on this evidence, the Court concludes that the Respondents did notify the Commission of their need for more documents, and thus the Respondents have not waived their rights to discovery.
FERC also argues that the Respondents waived their right to discovery when they opted for a prompt penalty assessment from the Commission instead of a hearing in front of an ALJ. Yet in the Court's view, there is no reason why "the fact that discovery is available under Option 1 suggests that it is not available under Option 2." City Power, 199 F.Supp.3d at 232. (emphasis omitted).
FERC also asserts that the Respondents have not shown that discovery is warranted in this case. For instance, FERC alleges that the Respondents already possess many of the documents they seek to discover, that they have not explained why the information they seek is relevant, and that internal communications between Enforcement and the Commission are not discoverable. Finally, FERC argues that the Respondents are not entitled to FERC's investigative files because they are confidential.
These arguments do not alter the Court's holding that, in this case, the Federal Rules of Civil Procedure apply to the Court's de novo review of the Commission's assessment orders. The Court concludes that it can better address potential discovery disputes as they arise and tailor the discovery process accordingly.
Local Rule 16.1 reserves the complex track for "those cases that require special attention because of the number of parties, complexity of issues, scope of discovery, and/or other comparable factors. D. ME. LOC. R. 16.1(3). This case does not involve a large number of parties — there is one petitioner and two respondents. FERC argues that this is an ordinary fraud case that does not involve complex issues. By contrast, the Respondents argue that the DALRP — the underlying program in this case — was so convoluted and complicated that even the program participants did not understand how it worked. With respect to the scope of complexity, FERC argues that it has already collected all the relevant evidence and any discovery would be supplemental. The Respondents contend that the case involves numerous witnesses and "reams of data and other documents."
The Court will assign this case to the complex track. The Court credits the Respondents' assertion that the issues relating to the DALRP may become convoluted. Moreover, FERC's claim that it has already collected all the relevant evidence is grounded in assumption that the Respondents are not entitled to discovery.
The Court GRANTS Competitive Energy Services LLC and Dr. Richard Silkman's request for assignment to the complex track (ECF No. 73). The Court will treat its de novo review of the Federal Energy Regulatory Commission's orders assessing civil penalties against Competitive Energy Services and Dr. Richard Silkman as an ordinary civil action subject to the Federal Rules of Civil Procedure. The Court will tailor discovery as needed to promote an efficient resolution to the case. The Court ORDERS the parties to develop a discovery plan for the Court's approval that balances the Respondents' need for discovery with the goals of avoiding duplicative efforts.
SO ORDERED.
