Filed: Sep. 20, 2012
Latest Update: Mar. 26, 2017
Summary: 11-2265-cv Simon v. Keyspan Corporation 1 2 UNITED STATES COURT OF APPEALS 3 FOR THE SECOND CIRCUIT 4 5 August Term 2011 6 (Argued: February 28, 2012 Decided: September 20, 2012) 7 Docket No. 11-2265-cv 8 -x 9 10 CHARLES SIMON, on behalf of himself and all others 11 similarly situated, 12 13 Plaintiff-Appellant, 14 15 - v. - 16 17 KEYSPAN CORPORATION, MORGAN STANLEY CAPITAL GROUP INC., 18 19 Defendants-Appellees. 20 21 22 -x 23 24 B e f o r e : WALKER, LYNCH, and DRONEY, Circuit Judges. 25 Plain
Summary: 11-2265-cv Simon v. Keyspan Corporation 1 2 UNITED STATES COURT OF APPEALS 3 FOR THE SECOND CIRCUIT 4 5 August Term 2011 6 (Argued: February 28, 2012 Decided: September 20, 2012) 7 Docket No. 11-2265-cv 8 -x 9 10 CHARLES SIMON, on behalf of himself and all others 11 similarly situated, 12 13 Plaintiff-Appellant, 14 15 - v. - 16 17 KEYSPAN CORPORATION, MORGAN STANLEY CAPITAL GROUP INC., 18 19 Defendants-Appellees. 20 21 22 -x 23 24 B e f o r e : WALKER, LYNCH, and DRONEY, Circuit Judges. 25 Plaint..
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11-2265-cv
Simon v. Keyspan Corporation
1
2 UNITED STATES COURT OF APPEALS
3 FOR THE SECOND CIRCUIT
4
5 August Term 2011
6 (Argued: February 28, 2012 Decided: September 20, 2012)
7 Docket No. 11-2265-cv
8 -----------------------------------------------------x
9
10 CHARLES SIMON, on behalf of himself and all others
11 similarly situated,
12
13 Plaintiff-Appellant,
14
15 -- v. --
16
17 KEYSPAN CORPORATION, MORGAN STANLEY CAPITAL GROUP INC.,
18
19 Defendants-Appellees.
20
21
22 -----------------------------------------------------x
23
24 B e f o r e : WALKER, LYNCH, and DRONEY, Circuit Judges.
25 Plaintiff-appellant Charles Simon appeals from an order of
26 the United States District Court for the Southern District of New
27 York (Shira A. Scheindlin, Judge), dismissing his federal and
28 state antitrust claims against defendants-appellees KeySpan
29 Corporation and Morgan Stanley Capital Group Inc. We agree with
30 the district court that plaintiff-appellant lacks standing to
31 pursue his federal claims because he was an indirect purchaser
1
1 and that his claims are otherwise barred by the filed rate
2 doctrine. AFFIRMED.
3 DANIEL J. SPONSELLER, Law Office of
4 Daniel J. Sponseller, Sewickley,
5 PA, (Karin E. Fisch, Judith L.
6 Spanier, Natalie S. Marcus, Abbey
7 Spanier Rodd & Abrams, LLP, New
8 York, NY, on the brief) for
9 Plaintiff-Appellant.
10
11 John H. Lyons, Tara S. Emory,
12 Skadden, Arps, Slate, Meagher &
13 Flom LLP, Washington, DC for
14 Defendant-Appellee KeySpan
15 Corporation.
16
17 JON R. ROELLKE, Bingham McCutchen
18 LLP, Washington, DC (Anthony R. Van
19 Vuren, Bingham McCutchen LLP,
20 Washington, DC, Jeffrey Q. Smith,
21 Laila Abou-Rahme, Bingham McCutchen
22 LLP, New York, NY, on the brief)
23 for Defendant-Appellee Morgan
24 Stanley Capital Group Inc.
25
26 J. DOUGLAS RICHARDS, Cohen
27 Milstein, New York, NY (Benjamin D.
28 Brown, Cohen Milstein, New York,
29 NY; Richard M. Brunell, American
30 Antitrust Institute, Washington,
31 DC; Christopher L. Sagers,
32 Cleveland-Marshall College of Law,
33 Cleveland State University,
34 Cleveland, OH) for amicus curiae
35 American Antitrust Institute.
36
37 JOHN M. WALKER, JR., Circuit Judge:
38 This appeal requires us to consider whether plaintiff-
39 appellant Charles Simon (“Simon”), a retail consumer of
40 electricity in New York City, can maintain an antitrust action
41 against defendant-appellee KeySpan Corporation (“KeySpan”), a
2
1 producer of electricity in New York that allegedly colluded with
2 one of its rivals to increase installed capacity prices, and
3 defendant-appellee Morgan Stanley Capital Group Inc. (“Morgan
4 Stanley”), a financial firm that allegedly facilitated KeySpan’s
5 anticompetitive conduct. The United States District Court for
6 the Southern District of New York (Shira A. Scheindlin, Judge)
7 dismissed plaintiff-appellant’s claims principally on the grounds
8 that he lacked antitrust standing and that his claims were barred
9 by the filed rate doctrine.1 We agree and conclude that
10 plaintiff-appellant, as an indirect purchaser, lacks standing to
11 bring his federal antitrust claims. We further hold that the
12 filed rate doctrine bars plaintiff-appellant’s state and federal
13 claims even though the allegedly supracompetitive rate was the
14 product of a market-based auction.
15 BACKGROUND
16 In reviewing a motion to dismiss, we accept all factual
17 claims in the complaint as true and draw all reasonable
18 inferences in the plaintiff’s favor. Famous Horse Inc. v. 5th
19 Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010). Where
20 necessary, we take judicial notice of the regulatory structure
21 governing the New York City electricity market.
1
The district court also concluded that Simon’s state law claims
were preempted and insufficiently pled. Because we hold that the
state law claims are barred by the filed rate doctrine, we need
not consider whether the district court was correct on these
points.
3
1 I. The New York City Electricity Market
2 The market for electricity in New York City is overseen by
3 the New York Independent System Operator (“NYISO”).2 On the
4 wholesale side, the market is based on the producers’ “installed
5 capacity,” i.e. the amount of electricity that the producer can
6 supply at a given time. Retail sellers of electricity must
7 purchase enough installed capacity from producers to meet their
8 expected peak demand plus a share of reserve capacity. The
9 system is designed to ensure that the amount of electricity
10 eventually sold to consumers is consistent with the total
11 production capacity of the producers.
12 In order to determine the price at which producers can sell
13 their capacity, NYISO has established an auction system that
14 results in a market-based rate (“MBR”). Producers submit bids
15 indicating the amount of capacity they can produce and the lowest
16 per unit price at which they are willing to sell. The bids are
17 then “stacked” from lowest to highest price until the total
18 demand for capacity has been met. The point at which demand is
19 met determines the market price for installed capacity and every
2
NYISO is an Independent System Operator (“ISO”) created to
administer the retail electricity market in New York. See
generally Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services by Public Utilities;
Recovery of Stranded Costs by Public Utilities and Transmitting
Utilities, 61 Fed. Reg. 21,540 (Apr. 24, 1996) (codified at 18
C.F.R. pts. 35 & 385); see also Cal. Indep. Sys. Operator Corp.
v. FERC, 372 F.3d 395, 397 (D.C. Cir. 2004) (describing FERC’s
efforts to encourage public utilities to create ISOs).
4
1 producer stacked below that price point can sell its full
2 capacity for the market price. The producer whose bid set the
3 price can sell as much of its capacity as is necessary to meet
4 demand. The rest remains unsold. Any producer that bid higher
5 than the market price cannot sell its capacity.
6 The New York City capacity market is highly concentrated.
7 Three firms – defendant-appellee KeySpan, NRG Energy, Inc.
8 (“NRG”), and Astoria Generating Company (“Astoria”) – control a
9 substantial portion of the total generating capacity.3 The total
10 demand for installed capacity cannot be met without at least some
11 of the capacity from each of these three firms. Accordingly,
12 NYISO has imposed a price cap on these firms’ bids and barred
13 them from selling electricity outside of the auction process.
14 KeySpan’s bid cap is the highest of the three.
15
16 II. The Anticompetitive Agreement
17 As a result of the prevailing market conditions from June
18 2003 to December 2005, most of KeySpan’s capacity was necessary
19 to satisfy total demand. KeySpan therefore routinely bid at its
20 price cap and set the market price at that level. However,
3
These firms were created in 1998 when Consolidated Edison
Company of New York, Inc. (“Con Ed”) divested most of its
generating capacity. The three firms are known collectively as
Divested Generation Owners (“DGOs”). See Order Conditionally
Approving Proposal, 122 FERC ¶ 61,211, ¶ 3 (2008) (“2008 Market
Power Modification Order”).
5
1 because other producers would be bringing new plants online,
2 KeySpan anticipated that in 2006, supply would increase, leaving
3 KeySpan to either bid below its cap or risk selling only a small
4 amount of its capacity. To avoid these unappealing options,
5 KeySpan indirectly entered into an agreement with Astoria (“the
6 agreement”). Using Morgan Stanley as an intermediary, KeySpan de
7 facto agreed to pay Astoria a fixed income in exchange for any
8 potential profits (after a certain point) from Astoria’s
9 generating capacity.4
10 The agreement consisted of two separate deals: the “KeySpan
11 Swap” and the “Astoria Hedge.” The KeySpan Swap, executed on
12 January 18, 2006, provided that if the market price after auction
13 were set above $7.57 per KW-month (“the fixed price”), Morgan
14 Stanley would pay KeySpan the difference between the market price
15 and the fixed price multiplied by 1800 megawatts (“MW”). If the
16 market price were lower than the fixed price, KeySpan would pay
17 the difference (times 1800 MW) to Morgan Stanley. The “Astoria
18 Hedge,” executed on January 11, 2006, provided that if the market
19 price were higher than $7.07 per KW-month, Astoria would pay
20 Morgan Stanley the difference times 1800 MW. If the price were
21 below $7.07, Morgan Stanley would pay the difference (times 1800
22 MW) to Astoria. The net effect of the agreement was that Astoria
4
KeySpan had considered acquiring Astoria’s physical generating
assets, but did not pursue this approach due to antitrust
concerns.
6
1 was assured of always receiving exactly $7.07 per KW-month for
2 its capacity while KeySpan received any profits (if the market
3 price were above $7.57) and subsidized any losses (if the market
4 price were below $7.07) from the sale of Astoria’s capacity. The
5 combination of the KeySpan Swap and the Astoria Hedge enabled
6 Morgan Stanley to receive a fixed rate of fifty cents per KW-
7 month in exchange for facilitating the deal.
8 As a result of the agreement, it remained lucrative for
9 KeySpan to continue to bid as high as its cap permitted and set
10 the market price at that level. If it then sold only a small
11 amount of its own capacity, it would still receive substantial
12 profits from Astoria’s capacity. Since either all of KeySpan’s
13 or all of Astoria’s capacity would be required by the market,
14 KeySpan stood to make a substantial profit by setting the price
15 as high as possible, i.e., at its cap. In the absence of the
16 agreement, KeySpan would likely have had to bid competitively,
17 which might have lowered the market price of capacity. This was
18 borne out by experience: KeySpan continued to bid at its cap,
19 setting the market price and leaving a significant portion of its
20 capacity unsold. Thus the market price of capacity did not drop
21 despite an industry-wide increase in generating capacity.
22
7
1 III. Investigations of the Agreement
2 In May 2007, the United States Department of Justice (“DOJ”)
3 began an investigation into the KeySpan agreement based on its
4 anticompetitive effect. In February 2010, it filed a civil
5 complaint alleging that KeySpan had unlawfully restrained trade.
6 KeySpan entered into a stipulation with the DOJ to settle the
7 case. Pursuant to a consent decree, KeySpan paid the United
8 States $12 million and the case was resolved “without trial or
9 adjudication of any issue of fact or law.”5
10 FERC also conducted an investigation of the agreement. Its
11 enforcement office issued a detailed report concluding that
12 KeySpan had not violated FERC’s regulations prohibiting market
13 manipulation. The report noted that
14 Market participants in the in-city ICAP [installed
15 capacity] market have always known that KeySpan,
16 pursuant to the applicable market mitigation rules, was
17 permitted to offer at its cap and set the market-
18 clearing price. In addition, as noted, KeySpan’s
19 offering behavior was consistent with market rules and
20 the Commission’s announced expectations that DGOs, such
21 as KeySpan, would (in the absence of sufficient
22 capacity additions) offer their capacity at their caps.
23
24 FERC Enforcement Staff Report, Feb. 28, 2008, at 17; Joint
25 Appendix (“J.A.”) 89. FERC agreed with the enforcement staff’s
5
The United States also recently settled a civil suit with
Morgan Stanley arising from these same facts. See United States
v. Morgan Stanley, --- F. Supp. 2d ---, 2012 WL 3194969 (S.D.N.Y.
Aug. 7, 2012). There, the consent decree required Morgan Stanley
to disgorge to the United States Treasury $4.8 million of the net
revenues that it had earned from the agreement. Id. at *2-*3.
8
1 report and noted that it had expected KeySpan’s cap to set the
2 market price.
3
4 IV. The Complaint
5 Plaintiff-appellant Simon purchased electricity as a retail
6 customer from Con Ed between 2006 and 2009. Con Ed in turn
7 purchased electricity in the form of installed capacity through
8 the previously described New York City auction process. On July
9 16, 2010, Simon filed this complaint in the district court
10 alleging that the defendant-appellees’ conduct had caused him to
11 be unlawfully overcharged for electricity. He sought to
12 represent a class of customers who had purchased electricity from
13 Con Ed between 2006 and 2009. The complaint claimed violations
14 of federal antitrust law as well as New York law.
15 On March 22, 2011, the district court dismissed all of
16 Simon’s federal and state claims with prejudice. Simon v.
17 KeySpan Corp., 785 F. Supp. 2d 120 (S.D.N.Y. 2011). The district
18 court concluded that Simon lacked standing to bring his federal
19 claims because he was an indirect purchaser. Id. at 134-37. It
20 further found that all of his claims were barred by the filed
21 rate doctrine, which precludes legal challenges to rates set or
22 approved by federal agencies, because the rate he sought to
23 challenge was authorized by FERC. Id. at 138-39. The district
24 court also held that Simon’s state law claims were preempted and
9
1 denied leave to amend on the basis of futility. Id. at 139-41.
2 On May 27, 2011, it denied Simon’s motion for reconsideration.
3 Simon v. KeySpan Corp., No. 10 Civ. 5437 (SAS), 2011 WL 2135075
4 (S.D.N.Y. May 27, 2011). It reiterated its holding that Simon’s
5 claims were barred by the filed rate doctrine even though it
6 acknowledged that those rates were set at a market-based auction
7 rather than filed directly with FERC. See generally id. Simon
8 appeals.
9
10 DISCUSSION
11 We review a district court’s decision to grant a motion to
12 dismiss under Rule 12(b)(6) de novo, accepting all factual claims
13 in the complaint as true and drawing all reasonable inferences in
14 the plaintiff’s favor. Famous Horse Inc., 624 F.3d at 108. “To
15 survive a motion to dismiss, a complaint must contain sufficient
16 factual matter, accepted as true, to ‘state a claim for relief
17 that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S.
18 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S.
19 544, 570 (2007)). “A claim has facial plausibility when the
20 plaintiff pleads factual content that allows the court to draw
21 the reasonable inference that the defendant is liable for the
22 misconduct alleged.” Id. We hold that Simon’s complaint fails
23 to state a plausible antitrust claim both because he lacks
10
1 federal antitrust standing and because all of his claims are
2 barred by the filed rate doctrine.
3
4 I. Antitrust Standing
5 Simon’s federal claims are barred because he was an indirect
6 purchaser and therefore lacks standing to sue under section 4 of
7 the Clayton Act, 15 U.S.C. §§ 12, et seq.6 Generally, only
8 direct purchasers have standing to bring civil antitrust claims.
9 See Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977); Hanover
10 Shoe, Inc. v. United Shoe Mach. Corp.,
392 U.S. 481 (1968). This
11 rule has two rationales. First, defendants may otherwise face
12 multiple liability. Ill. Brick, 431 U.S. at 730. Second, there
13 are too many “uncertainties and difficulties in analyzing price
14 and out-put decisions in the real economic world rather than an
15 economist’s hypothetical model.” Id. at 731-32 (internal
16 quotation marks omitted); see also id. at 741-44. In other
17 words, it is nearly impossible for a court to determine which
18 portion of an overcharge is actually borne by the direct
19 purchaser and which portion is borne by a subsequent indirect
20 purchaser. The Supreme Court has therefore established a general
6
We need not determine whether Simon qualified for antitrust
standing under New York law, see generally Ho v. Visa U.S.A.
Inc., 787 N.Y.S.2d 677 (Table) (N.Y. Sup. Ct. 2004), because we
conclude that his state claims are barred by the filed rate
doctrine.
11
1 rule that the direct purchaser is the only appropriate antitrust
2 plaintiff.
3 An indirect purchaser may have standing, however, if it had
4 a pre-existing cost-plus contract with the direct purchaser,
5 meaning that the indirect purchaser has agreed in advance to
6 purchase a fixed quantity, paying the direct purchaser’s costs
7 plus a predetermined additional fee. Id. at 736.
8 In such a situation, the purchaser is insulated from
9 any decrease in its sales as a result of attempting to
10 pass on the overcharge, because its customer is
11 committed to buying a fixed quantity regardless of
12 price. The effect of the overcharge is essentially
13 determined in advance, without reference to the
14 interaction of supply and demand that complicates the
15 determination in the general case.
16
17 Id. In this type of situation, there is no difficulty
18 apportioning the overcharge because the indirect purchaser paid
19 the direct purchaser’s entire cost. There is no chance that the
20 indirect purchaser decreased its demand because it had previously
21 agreed to purchase a fixed quantity. Finally, there is no risk
22 of duplicative liability; the defendant would have a valid pass-
23 on defense against the direct purchaser because the latter
24 suffered no injury. See id. at 735-36.
25 The cost-plus contract exception to the indirect purchaser
26 bar is a narrow one that is only appropriate when the contract
27 has removed all doubts about who bore the antitrust injury. For
28 the exception to apply, the contract quantity must be determined
12
1 prior to the overcharge to avoid uncertainty about “what effect a
2 change in a company’s price will have on its total sales.”
3 Hanover Shoe, 392 U.S. at 493. A direct purchaser that passes on
4 all of its costs may still suffer an antitrust injury if passing
5 on increased costs decreased its sales and therefore its profits.
6 Additionally, there must be no possibility that the direct
7 purchaser would have “raised his prices absent the overcharge.”
8 Id.
9 Simon contends that he qualifies for the cost-plus contract
10 exception because Con Ed passed on 100% of its installed capacity
11 costs to its consumers. The complaint alleges:
12 Each month from at least May 2006 through February
13 2008, Con Ed passed through 100% of Con Ed’s costs for
14 the purchase of installed capacity in the NYC Capacity
15 Market to its customers. Its customers, including
16 Plaintiff, were contractually required to pay and did
17 pay 100% of such costs as “supply charges” on their
18 monthly billing statements. The quantity of installed
19 capacity for which Plaintiff was required to pay Con Ed
20 was contractually fixed prior to the time the price for
21 such capacity was known and charged to Plaintiff.
22
23 J.A. 10. Further, he argues that “[r]etail distribution
24 utilities like Con Ed typically are not permitted to make a
25 profit on the sale of electricity or capacity.” Appellant’s Br.
26 33-34.
27 The Supreme Court has previously addressed the applicability
28 of the cost-plus contract exception to regulated utilities and
29 their retail customers. In Kansas v. UtiliCorp United, Inc., 497
13
1 U.S. 199 (1990), natural gas wholesalers were sued by several
2 public utilities as well as Kansas and Missouri, acting as parens
3 patriae for their citizens. The Court held that only the
4 utilities, as direct purchasers, were proper plaintiffs. It
5 declined to create an exception to the indirect purchaser rule
6 for situations where regulated public utilities pass on 100% of
7 their costs to consumers. Id. at 208-17. The Court noted that a
8 utility might still suffer an antitrust injury because it might
9 be unable to effect a rate increase that would have otherwise
10 been possible. Id. at 209. Moreover, the Court viewed the
11 presence of government regulation as a complicating, rather than
12 simplifying, factor. This was so because a reviewing court would
13 have to examine whether the regulator would have allowed a rate
14 increase in the absence of the overcharge in addition to
15 determining whether the utility would have sought an increase.
16 Id. at 209-10.
17 The Kansas Court also rejected the states’ argument, even
18 without a general exception, they qualified for the cost-plus
19 exception because the utilities had passed on 100% of their costs
20 to their retail customers. The Court noted that
21 [t]he utility customers made no commitment to purchase
22 any particular quantity of gas, and the utility itself
23 had no guarantee of any particular profit. Even though
24 the respondent raised its prices to cover its costs, we
25 cannot ascertain its precise injury because . . . we do
26 not know what might have happened in the absence of an
27 overcharge.
28
29 Id. at 218.
14
1 Simon’s attempts to differentiate this case from Kansas are
2 unavailing. We credit the complaint’s claim that Con Ed passed
3 on 100% of its installed capacity costs to consumers each month
4 as “supply charges,” a portion of the overall bill.7 The Kansas
5 Court’s central concern, however, remains applicable: We cannot
6 say with any certainty what would have occurred in the absence of
7 an overcharge. If the price for capacity had been lower, Con Ed
8 might have requested and received permission to increase its
9 rates. Additionally, increased supply charges might have driven
10 down Con Ed’s customers’ electricity usage, diminishing its
11 profits. Even though Con Ed does not make a profit on its retail
12 sale of electrical capacity, it does make a profit on its
13 distribution of electricity. Like any business, Con Ed has
14 overhead costs, and the rates it charges reflect a variety of
15 factors in addition to its supply costs. Even if Con Ed
16 increased its rates by exactly the amount it was overcharged for
17 installed capacity, it does not follow that Con Ed’s sales and
18 profits were unaffected. In short, Con Ed may have suffered an
7
We share the district court’s skepticism that the markets for
installed capacity and retail electricity are similar enough to
allow a seamless pass-through in this way, but we nevertheless
assume for the present that Simon could prove this to be the case
at trial. See Simon, 785 F. Supp. 2d at 137 (“[T]he proposition
that Con Ed is able to pass through one hundred percent of any
overcharge to its consumers in the form of retail price increases
is suspect given the differing nature of the two markets.”).
15
1 antitrust injury as a result of the agreement, and therefore
2 under Hanover Shoe and Illinois Brick, it is the only proper
3 plaintiff.
4 Simon points to the allegation in his complaint that “[t]he
5 quantity of installed capacity for which Plaintiff was required
6 to pay Con Ed was contractually fixed prior to the time the price
7 for such capacity was known and charged to Plaintiff.” J.A. 10.
8 Although Simon is further attempting to analogize his situation
9 to that of a cost-plus contract, this argument fails. Simon
10 neglects to account for the fact that he was not contractually
11 obligated in advance to purchase a fixed quantity of electricity
12 each month, we reject this contention as implausible. Con Ed,
13 like all electrical utilities of which we are aware, charges its
14 customers a metered fee based on their actual electricity usage.
15 See Simon, 785 F. Supp. 2d at 137 n.123 (taking judicial notice
16 of Judge Scheindlin’s Con Ed bill, which bases the monthly charge
17 on electricity used). Therefore, Simon was free to decrease his
18 electricity usage, and thereby his payments, if supply costs
19 became too high. Further, even if Simon had contracted to buy a
20 fixed quantity of electricity in advance, a contention that is
21 implausible, see Iqbal, 556 U.S. at 678, it would not alter our
22 conclusion because we would still be unable to determine whether
16
1 Con Ed could have sought and received a rate increase in the
2 absence of the overcharge.
3 Simon’s other attempts to distinguish this case from Kansas
4 are similarly unavailing. He notes that, in Kansas, the
5 utilities were actually present in the lawsuit, making allocation
6 issues unavoidable. This may be true, but the Supreme Court
7 rested its holding on the possibility of allocation difficulties,
8 not their imminence or likelihood. The fact that Con Ed would be
9 a proper plaintiff to sue KeySpan for the same conduct implicates
10 Illinois Brick’s concerns about duplicative recovery and
11 apportionment. Simon also points to the fact that the certified
12 question in Kansas stated that the utility “passed on most or all
13 of the price increase” to its customers. 497 U.S. at 205-06
14 (internal quotation marks omitted). His complaint, in contrast,
15 expressly alleges that all of the cost was passed on. However,
16 the Kansas Court did not leave open the possibility that the
17 plaintiffs could maintain a suit by proving as a matter of fact
18 that the utilities passed on 100% of the overcharge.
19 Additionally, for the reasons discussed earlier, the allegation
20 here that 100% of the costs were passed on is not sufficient to
21 establish standing because it does not negate the possibility
22 that Con Ed might have sought and received a rate increase in the
23 absence of the overcharge.
17
1 For all of these reasons, we hold that Simon cannot qualify
2 for federal antitrust standing as an indirect purchaser. He did
3 not contract to buy a fixed monthly quantity of electricity from
4 Con Ed in advance, and we cannot determine whether Con Ed would
5 have been able to seek and obtain a rate increase in the absence
6 of the overcharge. The cost-plus contract exception to the bar
7 on indirect purchaser standing is therefore not applicable in
8 this case.
9
10 II. Filed Rate Doctrine
11 Simon’s state and federal claims are also foreclosed by the
12 filed rate doctrine. “Simply stated, the doctrine holds that any
13 ‘filed rate’ – that is, one approved by the governing regulatory
14 agency – is per se reasonable and unassailable in judicial
15 proceedings brought by ratepayers.” Wegoland Ltd. v. NYNEX
16 Corp., 27 F.3d 17, 18 (2d Cir. 1994). This Circuit has not
17 previously addressed whether the filed rate doctrine applies to
18 rates set at market-based auctions as opposed to those set or
19 approved directly by the regulatory agency. There is no need for
20 us to decide whether the filed rate doctrine always applies to
21 market-based auction rates. But we do hold that it applies in
22 the circumstances of this case, where the auction process was
23 circumscribed, and the MBR process was reviewed by the regulatory
18
1 body which determined the resulting rate to be reasonable. In
2 these circumstances, the filed rate doctrine forecloses Simon’s
3 claims.
4 The filed rate doctrine originated in the context of the
5 Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 1, et seq. In
6 Keogh v. Chicago & N.W. Ry. Co., 260 U.S. 156, 160-65 (1922), the
7 Supreme Court addressed an antitrust claim against an association
8 of railroad companies that had colluded to set rates rather than
9 competing with one another. These rates, although the product of
10 collusion, were filed with and approved by the Interstate
11 Commerce Commission (“ICC”). In an opinion by Justice Brandeis,
12 the Court held that because the ICC had determined the rates to
13 be lawful, they could not be challenged in court. The Court
14 posited three rationales for the filed rate doctrine: the lack of
15 need for antitrust remedies in regulated industries (that
16 inherently involve some level of government oversight); the per
17 se legality of rates approved by a regulator; and the difficulty
18 of proving that an alternative lower rate would have been
19 approved by the regulator. Central to the Court’s reasoning was
20 the ICA’s requirement that rates be nondiscriminatory; if
21 customers were allowed to challenge the rate in court, varying
22 litigation outcomes might result in non-uniform rates.
19
1 Since Keogh, the filed rate doctrine has “been extended
2 across the spectrum of regulated utilities.” Ark. La. Gas Co. v.
3 Hall, 453 U.S. 571, 577 (1981) (“Arkla”). It applies even when a
4 claim is based on fraud or impropriety in the method by which the
5 rate is determined. See Square D Co. v. Niagara Frontier Tariff
6 Bureau, Inc.,
476 U.S. 409, 415 (1986) (filed rate doctrine bars
7 claim that shippers colluded to fix rate subsequently approved by
8 ICC). The Supreme Court discussed the filed rate doctrine in the
9 context of wholesale electricity rates when it held that rates
10 filed with FERC are binding on state utilities. Entergy La.,
11 Inc. v. La. Pub. Serv. Comm’n,
539 U.S. 39, 47-51 (2003).
12 When the filed rate doctrine applies, it is rigid and
13 unforgiving. Indeed, some have argued that it is unjust. See,
14 e.g., Fax Telecommunicaciones Inc. v. AT&T,
138 F.3d 479, 491 (2d
15 Cir. 1998); Ting v. AT&T,
319 F.3d 1126, 1131 (9th Cir. 2003).
16 It does not depend on “the culpability of the defendant’s conduct
17 or the possibility of inequitable results,” nor is it affected by
18 “the nature of the cause of action the plaintiff seeks to bring.”
19 Marcus v. AT&T Corp.,
138 F.3d 46, 58 (2d Cir. 1998). It applies
20 whenever a claim would implicate its underlying twin principles
21 of “preventing carriers from engaging in price discrimination as
22 between ratepayers” and “preserving the exclusive role of federal
23 agencies in approving rates.” Id. And when the doctrine
20
1 applies, it bars both state and federal claims. Arkla, 453 U.S.
2 at 584-85 (1981).
3 FERC has exclusive authority over wholesale electricity
4 rates. See 16 U.S.C. § 824e (establishing FERC’s power to fix
5 rates); Nantahala Power & Light Co. v. Thornburg,
476 U.S. 953,
6 966 (1986) (“FERC clearly has exclusive jurisdiction over the
7 rates to be charged . . . [to] wholesale customers.”). The
8 parties do not dispute that Simon’s claims are based on the
9 premise that he paid a supracompetitive price for electricity.
10 The only issue we must decide is whether the filed rate doctrine
11 can apply beyond rates set directly by an agency to MBRs set by a
12 regulatory auction scheme.8
13 Although we have not previously addressed whether the filed
14 rate doctrine applies to MBRs, other circuits that have addressed
15 the issue have concluded that the doctrine applies with equal
16 force to MBRs. See Town of Norwood, Mass. v. New Eng. Power Co.,
17
202 F.3d 408, 419 (1st Cir. 2000) (applying filed rate doctrine
18 to prices that FERC “left to the free market” because FERC is
19 “still responsible for ensuring ‘just and reasonable’ rates”);
20 Utilimax.com, Inc. v. PPL Energy Plus, LLC,
378 F.3d 303 (3d Cir.
8
Simon also argues in his brief that the filed rate doctrine is
limited to certain statutes and does not apply to rates set under
the Federal Power Act, 16 U.S.C. §§ 796, et seq. This argument
is unavailing, as Supreme Court precedent makes clear that the
doctrine applies in all instances where rates are set by federal
agencies. See Arkla, 453 U.S. at 577-78.
21
1 2004) (applying filed rate doctrine when market based rates were
2 “in conformity with the requirements of the FERC and [local
3 authority]-approved market model”); Tex. Commercial Energy v. TXU
4 Energy, Inc. 413 F.3d 503, 509-10 (5th Cir. 2005) (applying filed
5 rate doctrine to MBR tariff in context of state agency that
6 regulated electric utilities); Pub. Util. Dist. No. 1 of Grays
7 Harbor Cnty. Wash. v. IDACORP Inc.,
379 F.3d 641, 650-52 (9th
8 Cir. 2004) (rejecting argument that filed rate doctrine does not
9 apply to FERC MBR tariff on the basis that FERC takes steps to
10 ensure that the MBR complies with the statutory mandate that
11 rates be just and reasonable); see also Simon,
2011 WL 2135075,
12 at *2 n.21 (collecting other similar cases from these circuits as
13 well as district courts). We are not aware of any court holding
14 that the doctrine does not apply to MBRs.9
15 In affirming the application of the filed rate doctrine in
16 this case, we need not announce a per se rule and, in a case that
17 does not require it, are reluctant to do so. It is not clear to
18 us that the filed rate doctrine, and the rationales underlying
9
Simon’s reliance on Morgan Stanley Capital Grp. Inc. v. Pub.
Util. Dist. No. 1 of Snohomish Cnty., 554 U.S. 527, 546 (2008),
is misplaced. Morgan Stanley dealt with the Mobile-Sierra
doctrine, which applies to “market based tariffs,” i.e.,
bilateral contracts between wholesalers and purchasers that are
not directly submitted for rate approval. Id. at 537-38. It
does not implicate the filed rate doctrine. See Simon, 2011 WL
2135075, at *2-3 (describing and distinguishing Morgan Stanley
opinion).
22
1 it, should preclude all court scrutiny of alleged anti-
2 competitive behavior affecting the setting of MBRs. The Supreme
3 Court’s three rationales from Keogh do not apply with equal force
4 to rates set by MBRs when the only involvement by a regulator is
5 creating the process ultimately corrupted by parties in the
6 market. This is so because antitrust remedies become more
7 necessary as markets become increasingly deregulated by the MBR
8 system. Indeed, some of our sister circuits who have held that
9 the filed rate doctrine applies have taken into account factors
10 such as the level of FERC review. See, e.g., Town of Norwood,
11 202 F.3d at 418 (noting that the tariffs at issue were “actively
12 at issue in the FERC proceedings”); Pub. Util. Dist. No. 1 of
13 Snohomish Cnty. v. Dynegy Power Mktg., Inc., 384 F.3d 756, 760-61
14 (9th Cir. 2004) (discussing three specific steps taken by the
15 FERC to exercise oversight over the MBR process).
16 Simon urges us to limit the filed rate doctrine to cases
17 where the regulatory agency itself chose or approved the rate.
18 We acknowledge that Simon’s approach has some appeal. Because
19 FERC did not directly set the rate at issue here, it did not
20 specifically determine that the rate was reasonable. Moreover,
21 KeySpan’s alleged conduct undermined the competitive market
22 scheme FERC and NYISO had created. One could therefore conclude
23 that the rate arrived at was not the one envisioned by FERC.
23
1 However, we find that the MBR process established by the
2 FERC in this case was sufficiently safeguarded such that the
3 filed rate doctrine should apply. A central underpinning of the
4 filed rate doctrine is the desire to “preserv[e] the exclusive
5 role of federal agencies in approving rates . . . by keeping
6 courts out of the rate-making process.” Marcus, 138 F.3d at 58.
7 FERC has chosen to exercise its rate-setting authority in this
8 market by establishing an MBR auction process. Despite leaving
9 the final price to auction, FERC exercised tight control over the
10 rate by imposing price caps on the major producers. Tellingly,
11 when FERC capped these producers’ bids, it was aware that the
12 producers were “pivotal” (i.e., at least some of their capacity
13 would be required to meet demand), and therefore the market would
14 clear at their cap. 2008 Market Modification Order at ¶ 4.
15 KeySpan’s bid cap, specifically approved by FERC, in fact set the
16 market price from 1998 until 2006. See id. As the Ninth Circuit
17 has observed,
18 the market-based rate regime established by FERC
19 continues FERC’s oversight of the rates charged. FERC
20 only permits power sales at market-based rates after
21 scrutinizing whether the seller and its affiliates do
22 not have, or have adequately mitigated, market power in
23 generation and transmission and cannot erect other
24 barriers to entry.
25
26 Grays Harbor, 379 F.3d at 651 (internal quotation marks omitted).
24
1 Importantly, FERC tightly controls the auction process and
2 has mechanisms in place to remedy the kind of misconduct that
3 allegedly occurred here. FERC has promulgated a rule barring
4 fraud or deceit in connection with the sale of energy. 18 C.F.R.
5 § 1c.2(a). It has the authority to investigate market
6 manipulation in the energy market, and exercised that authority
7 in this case when it investigated the KeySpan agreement for
8 unlawful manipulation. FERC’s enforcement division’s
9 investigation determined that KeySpan’s conduct did not
10 constitute fraudulent market manipulation. FERC Enforcement
11 Staff Report, Docket Nos. IN08-2-000 & EL07-39-000, at 24 (Feb.
12 28, 2008). FERC adopted this report and concluded that KeySpan’s
13 continued bids at its cap were “not only permissible under the
14 NYISO’s [tariff] but consistent with the Commission’s
15 expectations when the Commission approved [the 1998 divestiture
16 plan].” 2008 Market Power Modification Order at ¶ 145; see Order
17 Establishing Paper Hearing and Referring Certain Matters for
18 Investigation, 120 FERC ¶ 61,024, at ¶ 17 (July 6, 2007).
19 The rationale behind the filed rate doctrine applies with
20 equal force to an MBR auction system such as NYISO’s in which the
21 regulating agency tightly controls the auction process and has
22 exercised its ability to undertake individual review of the MBR
23 to ensure that anti-competitive practices did not undermine the
25
1 process it created. FERC employed a bid cap to curb the market
2 power of large firms and created a mechanism to investigate and
3 rectify fraudulent market manipulation. For a federal court to
4 intrude into FERC’s carefully constructed system would directly
5 undermine the rationale of the filed rate doctrine. It would
6 permit courts “to grant . . . greater relief than [plaintiffs]
7 could obtain from the Commission itself.” Arkla, 453 U.S. at
8 579. FERC’s auction process was plainly designed to result in a
9 reasonable rate, and we are not willing to say that KeySpan’s bid
10 cap, specifically approved by FERC, was not reasonable. We
11 conclude that the filed rate doctrine applies on these facts –
12 where the regulator created a process for setting rates, reviewed
13 the resulting rates, and, after investigation, determined that
14 the anti-competitive behavior did not undermine its process and
15 that the resulting rates were reasonable. There is no need for
16 us to reach the question of whether the filed rate doctrine would
17 apply to all MBRs irrespective of the oversight of the regulator,
18 and we leave that question for another day.
19 CONCLUSION
20 Because we conclude that Simon lacks standing to bring his
21 federal antitrust claims and his state and federal claims are
22 barred by the filed rate doctrine, we need not consider his
23 challenges to the district court’s other holdings. Accordingly,
26
1 for the reasons described above, the judgment of the district
2 court is AFFIRMED.
3
4
27
