United States District Court, D. Maine
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE
energy consulting company and its employee and managing
member challenge FERC's assessment of civil penalties
against them for violating FERC's anti-manipulation rule,
alleging that the action brought in this Court by FERC is
time-barred under the general statute of limitations, 28
U.S.C. § 2462. FERC maintains in a countervailing motion
for summary judgment that its civil action was timely filed.
the Court concludes that the Respondents did not waive their
statute of limitations argument. Next, the Court concludes
that FERC's disgorgement order is not subject to a
separate accrual date for purposes of the statute of
limitations. Finally, the Court rejects the Respondents'
argument that Gabelli v. SEC, 568 U.S. 442 (2013)
and Kokesh v. SEC, 137 S.Ct. 1635 (2017) eclipsed
United States v. Meyer, 808 F.2d 912 (1st Cir.
1987). Based on Meyer, which the Court views as
binding, the Court concludes that the FERC enforcement action
is not time-barred.
Proceedings in the District of Massachusetts
December 2, 2013, the Federal Energy Regulatory Commission
(FERC, the Commission) 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 July 18, 2014, Judge Woodlock
heard arguments on the motion to dismiss and 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).
case was effectively stayed pending resolution of related
issues in the United States Supreme Court and the United
States Bankruptcy Court for the District of
Maine. By April 5, 2016, both matters were
resolved, and the proceedings continued. On April 11, 2016,
Judge Woodlock denied the Respondents' motion to dismiss,
FERC v. Silkman, No. 13-13054-DPW, 2016 U.S. Dist.
LEXIS 48409 (D. Mass. April 11, 2016) (ECF No. 65) (Order
on Mot. to Dismiss), and transferred the cases to the
District of Maine. FERC v. Silkman, 177 F.Supp.3d
683 (D. Mass. 2016) (ECF No. 66) (Silkman I).
Proceedings in the District of Maine
April 21, 2016, following transfer to the District of Maine,
the Respondents answered FERC's petition.
Resp'ts' 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).
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 both parties. Id.
at 46:6-48:7. On January 26, 2017, the Court issued an order
regarding the procedures applicable to FERC's petition
and assigned the case to the complex track. Order
Regarding Procedures Applicable to Pet. for Order
Affirming Assessment of Civil Penalties (ECF No. 95).
February 15, 2017, the parties appeared telephonically for a
conference of counsel before this Judge, and the Court issued
an order staying the case pending a settlement conference. A
settlement conference was held before Magistrate Judge Rich
on March 31, 2017, but settlement was not achieved. Min.
Entry (ECF No. 104).
February 28, 2018, the Respondents filed a Motion for Summary
Judgment (ECF No. 133) (Resp'ts' Mot.) along
with an accompanying Statement of Fact (ECF No. 136) (DSMF).
FERC responded in opposition on March 30, 2018,
FERC's Resp. in Opp. to Mot. for Summ. J. (ECF
No. 140) (Pl.'s Opp'n), and filed a response
to the Respondents' statement of fact with a statement of
additional facts that same day. FERC's Resp. to
Statement of Fact with Statement of Additional Facts
(ECF No. 141) (PRDSMF; PSAMF). On April 20, 2018, the
Respondents replied to FERC's additional statement of
fact and responded to FERC's requests to strike made in
response to the Respondents' statement of fact.
Defs.' Reply to Resp. to Mot. for Summ. J. (ECF
No. 143) (Resp'ts' Reply); Defs.'
Reply Statement of Material Fact (ECF No. 144)
on February 28, 2018, FERC filed a cross-motion for partial
summary judgment on the issue of the statute of limitations.
Mot. for Partial Summ. J. regarding Statute of
Limitations (ECF No. 134) (Pl.'s Mot.). The
Respondents responded in opposition on March 30, 2018.
Defs.' Resp. in Opp'n to Mot. for Partial Summ.
J. (ECF No. 138) (Resp'ts' Opp'n).
FERC replied on April 20, 2018. Reply to Resp. to Mot.
for Partial Summ. J. (ECF No. 145)
September 25, 2018, FERC filed an unopposed motion for leave
to file supplemental authority. Mot. for Leave to File
Notice of Supple. Information (ECF No. 152). The Court
granted the motion on November 7, 2018. Order Granting
Mot. for Leave to File Notice of Supple. Information
(ECF No. 153). On November 8, 2018, FERC filed as
supplemental authority a copy of the Fourth Circuit Court of
Appeals' order granting interlocutory appeal in
Federal Energy Regulatory Commission v. Powhatan Energy
Fund., LLC, 286 F.Supp.3d 751, 754 (E.D. Va. 2017).
The Parties and Relevant Entities
an administrative agency of the United States, organized and
existing pursuant to the Federal Power Act (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
December 18, 2017). Based on its investigations, Enforcement
may submit reports to the Commission recommending that the
Commission institute administrative proceedings.
FERC's Opp'n to Resp'ts' Br. Concerning
Disc. (ECF No. 88) (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
England (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.
Competitive Energy Services (CES) is a limited liability
company organized under the laws of Maine with its principal
place of business in Portland, Maine. Id. ¶ 15.
It provides energy consulting and other services to clients
throughout North America. Id. ¶ 35. Respondent
Richard Silkman resides in Maine and is an employee and
managing member of CES. Id. ¶ 14.
STATEMENT OF FACTS
Statement of Facts: Respondents' Motion for Summary
alleges that the Respondents' wrongdoing occurred
“from July 2007 until February 2008.” DSMF ¶
1; PRDSMF ¶ 1. On December 2, 2013, FERC filed a
Petition for an Order Affirming the Federal Energy Regulatory
Commission's August 29, 2013 Orders Assessing Civil
Penalties Against Richard Silkman and Competitive Energy
Services, LLC. DSMF ¶ 2; PRDSMF ¶ 2. The
petition was filed at least five years, ten months, and two
days after the wrongdoing ceased. DSMF ¶ 3; PRDSMF ¶
began an inquiry in February 2008 following a telephone call
from the ISO-NE market monitoring unit regarding certain
market participants' conduct relating to their
participation in the ISO-NE Day Ahead Load Response Program
(DALRP). In March 2008, after receiving a written referral
from ISO-NE, Enforcement commenced a non-public investigation
pursuant to Part 1b of the Commission's regulations (18
C.F.R. Part 1b) to determine whether certain market
participants had engaged in fraudulent conduct in their
participation in the DALRP. In November 2009, Enforcement
commenced an investigation of Dr. Silkman individually,
pursuant to Part 1b of the Commission's regulations for
Dr. Silkman's conduct related to the DALRP, as
memorialized in a November 4, 2009 letter sent to Dr.
Silkman's counsel. DSMF ¶ 4; PRDSMF ¶ 4.
Roles of FERC Enforcement and the Commission
staff, in their role as the Commission staff tasked with
investigating potential violations of the FPA and the
Commission's regulations, communicated with the
Commission and certain members of its advisory staff during
the investigation of the Respondents. The Commission
initiated adversarial adjudicatory proceedings on July 17,
2012 when it issued Orders to Show Cause and Notice of
Proposed Penalty (“Proposed Penalty Orders”) to
each Respondent. Under FERC's Separation of Functions
Rule (18 C.F.R. § 385.2202), a “wall” went
up between agency decisional staff - the Commissioners and
the staff that may advise them - and the Enforcement staff
serving a prosecutorial role in the proceedings. In
accordance with the Commission's rule regarding ex parte
communications (18 C.F.R. § 385.2202), a prohibition on
ex parte communications between decisional staff and
Enforcement prosecutorial staff also went into effect at that
time. Pursuant to the Commission's Separation of
Functions Rule and ex parte rule, following issuance of the
Proposed Penalty Orders, the Commission issued a notice in
each proceeding on July 26, 2012 identifying decisional and
non-decisional staff. DSMF ¶ 5; PRDSMF ¶ 5.
the course of the investigation of the Respondents,
Enforcement communicated in writing and orally with the FERC
Commissioners and their staff concerning the investigation
outside the presence of the Respondents and their
counsel. DSMF ¶ 6; PRDSMF ¶ 6. During the
investigation, Enforcement considered FERC and the FERC
Commissioners to be their client. DSMF ¶ 7; PRDSMF
¶ 7. Enforcement's communications with the FERC
Commissioners and their staff concerning the investigation of
the Respondents have not been disclosed to the
Respondents. DSMF ¶ 8; PRDSMF ¶ 8.
Notice and Disclosure to the Respondents
litigation, FERC disclosed the identities of people with
“relevant knowledge” who had been interviewed as
part of the investigation, and who had not been disclosed to
the Respondents prior to the time FERC issued the Orders
Assessing Penalties. DSMF ¶ 87; PRDSMF ¶ 87. FERC
also disclosed documents that it claims were part of the
administrative record which had not been disclosed to the
Respondents prior to the time FERC issued the Orders
Assessing Penalties. DSMF ¶ 88; PRDSMF ¶ 88. FERC
disclosed additional documents that appear to have been
obtained as part of the investigation which had not been
disclosed to the Respondents prior to the time FERC issued
the Orders Assessing Penalties and which were not included in
what FERC claims were part of the administrative
record.DSMF ¶ 89; PRDSMF ¶ 89.
FERC's regulations, the Respondents were not notified in
advance of depositions conducted by Enforcement during its
investigation, other than the deposition of Dr.
Silkman. DSMF ¶ 9; PRDSMF ¶ 9. Other
than the deposition of Dr. Silkman, the Respondents and their
counsel were also not allowed to attend the depositions
conducted by Enforcement during its investigation, pursuant
to FERC's regulations. The Commission's regulations
require the sequestration of witnesses during testimony taken
in an investigation, and all information and documents
received during an investigation, as well as the existence of
an investigation, is treated as confidential, non-public
information. Disclosure of information during an
investigation is permitted only at the Commission's
direction or authorization, or as is otherwise required to be
disclosed. DSMF ¶ 10; PRDSMF ¶ 10.
Respondents and their counsel were not given copies of the
depositions conducted by Enforcement (other than the
deposition of Dr. Silkman) until after their depositions had
been taken-sometimes over a year later-and then only after
Respondents' counsel pressed Enforcement to provide such
copies. DSMF ¶ 11; PRDSMF ¶ 11. Under
FERC's regulations, deponents and their counsel in the
investigation were instructed by Enforcement not to give
copies of their deposition transcripts to the Respondents or
their counsel; deponents and their counsel were instructed
regarding the testimony of witnesses in accordance with the
requirements of section 1b.16 of the Commission's
regulations, requiring sequestration of
witnesses. DSMF ¶ 12; PRDSMF ¶ 12.
litigation concerning events that occurred in 2007 and 2008,
fact witnesses repeatedly testified in their 2017 depositions
that they did not remember or did not recall in response to
over forty questions asked during their depositions, and for
several witnesses, for over eighty questions asked during
their depositions, although some witnesses' lack of
memory was resolved by follow-up questions or the use of
exhibits to refresh their recollections. DSMF ¶
90; PRDSMF ¶ 90.
requested Dr. Silkman to come to Washington, D.C. for his
two-day deposition in February 2009. DSMF ¶ 13; PRDSMF
¶ 13. At the conclusion of Dr. Silkman's deposition
on February 27, 2009, Enforcement instructed Dr. Silkman not
to share a copy of his deposition transcript with anyone
else, including Mark Isaacson, who was a member and managing
partner of CES during the relevant period; Enforcement also
instructed Dr. Silkman that if he felt the need to share the
transcript with anyone else, to contact Enforcement and they
would discuss it.
¶ 14; PRDSMF ¶ 14. Dr. Silkman was instructed by
Enforcement not to share the questions or answers that were
given during the deposition with anyone else; Enforcement
issued these instructions to Dr. Silkman in accordance with
applicable regulations, 18 C.F.R. § 1b.12,
1b.16. DSMF ¶ 15; PRDSMF ¶ 15. In
accordance with applicable regulations, Enforcement also
instructed him not to disclose questions or answers that were
given in the course of the deposition to anyone from Rumford
Paper Company (Rumford). DSMF ¶ 16; PRDSMF ¶ 16.
does not have to obtain approval from a FERC administrative
law judge or any other independent entity or decisionmaker
concerning the scope of data requests or its investigation.
DSMF ¶ 21; PRDSMF ¶ 21. Despite numerous requests,
in accordance with the confidentiality provisions in the
Commission's regulations, Enforcement did not provide the
Respondents all the information it obtained during its
investigation from Rumford, Constellation NewEnergy, Inc.
(Constellation), and ISO-NE. DSMF ¶ 22; PRDSMF ¶
22. However, during the investigation, Enforcement staff
provided the Respondents with copies of all materials
Enforcement staff cited in the preliminary findings letters
to CES and Dr. Silkman except publicly-available information
already in the Respondents' possession. Id.
During the investigation, Enforcement staff provided the
Respondents with all potentially exculpatory information
regarding the Respondents in its investigative files.
Id. On July 17, 2012, the date of issuance of the
Commission's Proposed Penalty Orders, Enforcement
provided CES and Dr. Silkman copies of all documents cited in
the Enforcement Staff Reports attached to the Proposed
Penalty Orders except those documents already in
Respondents' possession or publicly
to FERC regulations, Enforcement did not give the Respondents
advance or contemporaneous notice of any document requests or
interrogatories (“data requests”) that
Enforcement served upon third parties during the
investigation. DSMF ¶ 17; PRDSMF ¶ 17.
However, Dr. Silkman and CES entered into a joint defense
agreement with Rumford Paper Company (Rumford) and drafted
responses for Rumford to Enforcement data requests.
Id. The Respondents were not entitled to object to
data requests served by Enforcement upon third parties during
the investigation. DSMF ¶ 18; PRDSMF ¶ 18.
According to FERC regulations, Enforcement did not give the
Respondents contemporaneous notice of third party responses
to any data requests served by Enforcement upon third parties
during the investigation. DSMF ¶ 19; PRDSMF ¶
19. However, Dr. Silkman and CES entered into a joint defense
agreement with Rumford Paper Company (Rumford) and drafted
responses for Rumford to Enforcement data requests.
Id. Enforcement determined what data requests to
submit as part of its investigation, determined when the
responses were due in the first instance, which could be in
as little as one week, determined whether to grant
enlargements of time, and determined whether the responses
were adequate. DSMF ¶ 20; PRDSMF ¶ 20.
November 23, 2009, Enforcement provided CES with a 32-page
letter, which included 179 footnotes, titled
“Preliminary Findings Letter, ” and initially
gave CES three weeks to respond, which Enforcement later
extended to January 8, 2010. DSMF ¶ 23; PRDSMF ¶
23. Prior to the time that CES was directed to respond to
Enforcement's preliminary findings and analysis,
Enforcement did not provide all the materials obtained in its
investigation but claimed it had provided the materials that
it had relied upon in making its preliminary findings and
analysis. DSMF ¶ 24; PRDSMF ¶ 24.
Enforcement staff agreed to provide all documents referenced
in Enforcement staff's November 23, 2009 Preliminary
Findings Letter to CES that were not either (a) publicly
available or (b) already within Respondents'
possession.”DMSF ¶ 25; PRDSMF ¶ 25.
January 8, 2010, CES provided its response to the preliminary
findings and conclusions in a thirty page, single-spaced
letter, asserting that Enforcement had not provided
exculpatory evidence in its possession, including copies of
depositions that Enforcement had taken outside the presence
of the Respondents and counsel, and that Enforcement had
seriously misstated the factual record in order to reach its
preliminary findings and conclusions. DSMF ¶
26; PRDSMF ¶ 26.
April 19, 2010, Enforcement provided its preliminary findings
and analyses concerning Dr. Silkman in a twenty-nine-page
letter with 176 footnotes, and initially gave Mr. Silkman two
weeks to respond. DSMF ¶ 27; PRDSMF ¶ 27.
Enforcement staff later extended the response date an
additional seventeen days, until May 20, 2010. Id.
Enforcement's preliminary findings and analyses
concerning Dr. Silkman were virtually identical to
Enforcement's preliminary findings and analyses
concerning CES and did not directly respond to any factual or
legal argument in the thirty-page response CES previously
submitted. DSMF ¶ 28; PRDSMF ¶ 28.
FERC's corporate designee was not aware of any
substantive fact or substantive conclusion that was changed
in light of the thirty-page response CES previously
submitted. DSMF ¶ 29; PRDSMF ¶ 29.
FERC's corporate designee was not aware of any
substantive conclusion of Enforcement's preliminary
findings and analyses concerning Dr. Silkman that was changed
in light of the thirty-page response CES previously
submitted. DSMF ¶ 30; PRDSMF ¶ 30.
April 26, 2010, Enforcement informed Respondents for the
first time that Rumford's “enrolling participant,
” Constellation, had changed its response to a data
request concerning a meeting between Constellation and
Respondents. DSMF ¶ 31; PRDSMF ¶ 31. Constellation
had changed its answer from an answer that had originally
been exculpatory for the Respondents to an answer now
inculpatory, which attempted to deflect responsibility from
Constellation to the Respondents. DSMF ¶ 32; PRDSMF
April 29, 2010, Enforcement proposed to disclose what it
deemed to be additional relevant depositions, affidavits, and
data responses of Constellation to Dr. Silkman and Mark
Isaacson of CES, and to Respondents' counsel, provided
that they agreed not to disclose the information to anyone
else. DSMF ¶ 33; PRDSMF ¶ 33. On May
20, 2010, Dr. Silkman responded to Enforcement's
preliminary findings and analyses concerning Dr. Silkman in a
thirty-four-page, single-spaced letter. DSMF ¶ 34;
PRDSMF ¶ 34.
2010, pursuant to Commission regulations, Enforcement had a
closed meeting with a quorum of the FERC Commissioners
outside the presence of the Respondents and their counsel in
which Enforcement's investigation of the Respondents was
discussed. DSMF ¶ 35; PRDSMF ¶ 35. On
November 15, 2010, The Petitioner denies the Respondents'
paragraph 32, stating that “the statements and
assertions of ‘fact' in the Brann Declaration and
in Respondents' SMF ¶ 32 as unsupported by
admissible record evidence.” The Court agrees with the
Petitioner that portions of the Respondents' paragraph 32
put forth legal arguments in the guise of statements of fact.
Also, the views of Respondents' counsel about the timing
of disclosure are not material to the undisputed facts
undergirding the resolution of this motion. The Court grants
the Petitioner's denial and removes the impermissible
legal argument from the Respondents' paragraph 32.
Enforcement served additional data requests on CES, initially
giving CES two weeks to respond. DSMF ¶ 36; PRDSMF
¶ 36. Other than considering Dr. Silkman's response
to the data requests and sending a new data request,
FERC's corporate designee was either not aware of or
unable to reveal anything else that Enforcement did as part
of its investigation between May and November 2010 without
violating attorney-client privilege. DSMF ¶ 37; PRDSMF
¶ 37. Whether to do anything during that period, as well
as during the entire investigation, was up to Enforcement.
DSMF ¶ 38; PRDSMF ¶ 38.
November 2010 and March 2013, i.e., both before and
after FERC issued its Orders to Show Cause in July 2012,
Enforcement communicated with FERC Commissioners and their
staff outside the presence of the Respondents or their
counsel concerning a possible settlement with Rumford
regarding Rumford's participation in the
DALRP. DSMF ¶ 39; PRDSMF ¶ 39. In
this action, FERC withheld the communications between
Enforcement and FERC Commissioners and their staff outside
the presence of the Respondents or their counsel concerning a
possible settlement with Rumford between November 2010 and
March 2013 on the grounds of attorney-client privilege, among
other reasons. DSMF ¶ 40; PRDSMF ¶ 40. FERC
produced to the Respondents a privilege log describing those
communications pursuant to Magistrate Judge Nivison's
September 8, 2017 Order on Discovery Issues (ECF No.
117). Id. The same lawyers from
Enforcement who communicated between November 2010 and March
2013 with the FERC Commissioners and their staff outside the
presence of the Respondents or their counsel concerning a
possible settlement with Rumford were conducting the
investigation of the Respondents. DSMF ¶ 41; PRDSMF
February 2011, Enforcement made a settlement proposal orally
to Respondents' counsel at a meeting in Washington, D.C.
DSMF ¶ 42; PRDSMF ¶ 42. On March 11, 2011, the
Respondents requested seven categories of material not
previously disclosed in order to respond to Enforcement's
settlement proposal, including a deposition of Rumford's
expert; all communications with and data provided by
Constellation; all communications with and data provided by
ISO-NE; all other information considered, evaluated, or
relied upon by FERC to assess the claims against the
Respondents; and the methodology behind its settlement
proposal. DSMF ¶ 43; PRDSMF ¶ 43. On March 31,
2011, Enforcement responded to the Respondents' request,
declining to produce such additional information because it
“does not believe that further disclosures of
non-public investigative information are warranted, ”
DSMF, Attach 1., FERC Dep. Ex. 18, (ECF No. 136-16),
given the Commission's disclosure policies, the fact that
the Commission already provided CES and Dr. Silkman copies of
all documents the Commission relied upon for their
preliminary conclusions, and that the Commission had already
provided CES and Dr. Silkman all potentially exculpatory
material consistent with longstanding Commission practice.
DSMF ¶ 44; PRDSMF ¶ 44. Additionally, in a letter
sent to Respondents' counsel on May 9, 2011, Enforcement
staff provided a detailed explanation of its calculation of
the proposed penalties against CES and Dr. Silkman that
formed the basis of its settlement proposal. Id.
Enforcement determines whether to provide information in the
possession of Enforcement staff to the subject of an
investigation based on the law, the Commission's
regulations, policy statements, and statutes governing the
confidentiality of information gathered during
investigations. DSMF ¶ 45; PRDSMF ¶ 45.
April 26, 2011, the Respondents submitted an eight-page
response to FERC's oral settlement proposal. DSMF ¶
46; PRDSMF ¶ 46. On May 9, 2011, Enforcement rejected
the Respondents' settlement proposal, did not make a
counterproposal, and initially gave the Respondents two days
to submit a revised settlement proposal. DSMF ¶ 47;
PRDSMF ¶ 47. On May 9, 2011, Enforcement staff sent an
email and attached letter to Respondents' counsel, which
stated “[w]e carefully considered your response, but
disagree with your analysis, ” and provided an
explanation of the Commission's Penalty Guidelines and
Enforcement's calculations of the proposed penalties
articulated during the February 2011 settlement
conference. Id. The Respondents'
counsel stated in an email to Enforcement staff on May 9,
2011 that he would be meeting with his clients on May 11, and
that he anticipated getting back to Enforcement staff on May
12. Id. Enforcement staff responded by email and
agreed to delay any further action until after the close of
business on May 12, 2011. Id. On May 12, 2011, the
Respondents responded to Enforcement's settlement letter
but did not make a revised settlement proposal or accept
Enforcement's prior unchanged settlement demand. DSMF
¶ 48; PRDSMF ¶ 48. On May 13, 2011, Enforcement
responded to the Respondents' settlement letter, stating:
“[i]t appears at this time that we will be unable to
reach a settlement regarding this
matter.” DSMF ¶ 49; PRDSMF ¶ 49. In the
same letter, Enforcement informed the Respondents that their
“preliminary conclusions have not materially
changed” and it intended to recommend that FERC issue
Orders to Show Cause but allowed the Respondents to submit a
response to Enforcement. DSMF ¶ 51; PRDSMF ¶ 51.
27, 2011, CES and Dr. Silkman submitted a joint
seventy-nine-page response to Enforcement's 1b.19
Letters. DSMF ¶ 52; PRDSMF ¶ 52. As required by 18
C.F.R. § 1b.19, Enforcement submitted the
Respondents' response to the Commission together with
Enforcement staff's report and recommendation that the
Commission initiate adversarial on-the-record
order-to-show-cause proceedings against the Respondents. In
their 1b.19 response, which Enforcement staff provided to the
Commission, the Respondents restated the settlement positions
they asserted in the April 26, 2011 letter. DSMF ¶
50; PRDSMF ¶ 50.
Orders to Show Cause
February 16, 2012, Enforcement submitted drafts of FERC's
Orders to Show Cause and Enforcement's Reports concerning
the Respondents to FERC Chairman Wellinghoff's Chief of
Staff, which have been withheld in this litigation on the
grounds of attorney-client privilege, among other
reasons. DSMF ¶ 53; PRDSMF ¶ 53.
Enforcement did not provide its reports to the Respondents
when Enforcement submitted them to the FERC Commissioners and
did not disclose what specific evidence it provided the FERC
Commissioners. DSMF ¶ 54; PRDSMF ¶ 54. There is no
entry on FERC's privilege log that indicates that when
Enforcement submitted the draft Orders to Show Cause and
Enforcement's Reports concerning the Respondents to the
FERC Commissioners and their staff, but Enforcement conveyed
to the FERC Commissioners or their staff the Respondents'
seventy-nine-page response concerning Enforcement's
intention to recommend that FERC issue Orders to Show
Cause. DSMF ¶ 55; PRDSMF ¶ 55.
February 16, 2012, when Enforcement submitted drafts of
FERC's Orders to Show Cause and Enforcement's Reports
concerning the Respondents to the Chairman Wellinghoff's
Chief of Staff, and July 17, 2012, when FERC issued the
Orders to Show Cause and Reports, there were written
communications between Enforcement and the Commission and the
FERC Office of the Secretary outside the presence of the
Respondents and their counsel that have been withheld in this
litigation on the grounds of attorney-client privilege, among
other reasons. DSMF ¶ 56; PRDSMF ¶ 56. The
FERC corporate designee was instructed not to answer whether
he knew if the FERC Commissioners made any changes to the
draft Orders or Reports submitted by Enforcement to
them. DSMF ¶ 57; PRDSMF ¶ 57.
17, 2012, FERC issued a four-page Order to Show Cause against
Dr. Silkman, which attached Enforcement's thirty-one-page
report that “describes the background of
[Enforcement's] investigation, findings and analysis, and
proposed sanctions.” DSMF ¶ 58; PRDSMF ¶ 58.
FERC initially gave the Respondents thirty days to respond to
the Order to Show Cause, and to “elect (a)
administrative hearing before an ALJ at the Commission
[‘Option 1'] or (b) if the Commission finds a
violation, an immediate penalty assessment by the Commission
which a United States district court is authorized to review
de novo [‘Option 2'].” Id. On the
same day, FERC issued a four-page Order to Show Cause against
CES, which attached Enforcement's thirty-one-page Report
that “describes the background of [Enforcement's]
investigation, findings and analysis, and proposed
sanctions.” DSMF ¶ 59; PRDSMF ¶ 59.
initially gave the Respondents thirty days to respond to the
Orders to Show Cause, and to “elect (a) administrative
hearing before an ALJ at the Commission [‘Option
1'] or (b) if the Commission finds a violation, an
immediate penalty assessment by the Commission which a United
States district court is authorized to review de novo
[‘Option 2']. DSMF ¶ 59; PRDSMF ¶ 59.
Neither FERC nor Enforcement ever made statements to the
Respondents concerning the two options other than what was
contained in the Orders to Show Cause. DSMF ¶ 60; PRDSMF
¶ 60. In other words, neither FERC nor Enforcement ever
stated to the Respondents that they could only get discovery
or a hearing if they selected Option 1, or that Option 2 was
an “informal adjudication, ” an
“administrative penalty assessment process, ” or
a “show cause proceeding” being conducted by
same time, the statutes and regulations applying to contested
on-the-record show cause proceedings are publicly available
and were available to the Respondents. Id. The
Proposed Penalty Orders expressly stated that Respondents
could “elect (a) an administrative hearing before an
ALJ at the Commission or (b) if the Commission finds a
violation, an immediate penalty assessment by the Commission
which a United States district court is authorized to review
de novo.” Id. That a proceeding
before the Commission would be different than a proceeding
before an ALJ is apparent both from the language of the
Proposed Penalty Orders issued to Respondents on July 17,
2012 (“if the Commission finds a violation, an
immediate penalty assessment” by a Commission
“order assessing a penalty”) and the governing
statute, which provides for a “prompt assessment”
by Commission “order” if a violation is found
without mention of discovery or a live hearing. Id.
27, 2012, Enforcement provided the Respondents with
additional information “specifically referenced”
in Enforcement's Report and Recommendation to FERC that
had not been previously provided to the Respondents. DSMF
¶ 61; PRDSMF ¶ 61. That same day, the Respondents
filed a written election of option two-to have an immediate
penalty assessment by FERC if it found a violation- which a
district court could then review de novo. DSMF ¶ 62;
PRDSMF ¶ 62.
September 14, 2012, the Respondents submitted their written
response to the Orders to Show Cause. DSMF ¶
63; PRDSMF ¶ 63. On November 13, 2012, Enforcement filed
a reply with FERC to the Respondents' response to the
Orders to Show Cause, the last filing before FERC issued the
Orders Assessing Penalties. DSMF ¶ 64; PRDSMF ¶
64. On November 14, 2012, Enforcement provided the
Respondents with additional information “specifically
referenced” in Enforcement's Reply that had not
been previously provided to the Respondents. DSMF ¶ 65;
PRDSMF ¶ 65.
than these written submissions, there were no communications
to or from FERC and the Respondents after FERC issued the
Orders to Show Cause until FERC issued its Orders Assessing
Penalties. DSMF ¶ 66; PRDSMF ¶ 66. Other than
making its written declaration of Option 2 and submitting a
written response to the Orders to Show Cause, the Respondents
did not participate in any proceeding after FERC issued the
Orders to Show Cause. DSMF ¶ 67; PRDSMF ¶ 67.
After FERC issued Orders to Show Cause, the Respondents were
not automatically entitled to obtain or conduct discovery;
however, the Respondents could have made a request for
discovery to the Commission via motion, pursuant to the
Commission's Rules of Practice and Procedure, 18. C.F.R.
Part 385. DSMF ¶ 68; PRDSMF ¶ 68. During
the investigation and the Order to Show Cause Proceedings,
the Respondents did not take any depositions, although
defense counsel was permitted to ask questions of Dr. Silkman
when Enforcement took his deposition. DSMF ¶
84; PRDSMF ¶ 84. FERC and Enforcement did not conduct
additional fact-finding after FERC issued the Orders to Show
Cause. DSMF ¶ 69; PRDSMF ¶ 69.
Subsequently, the Commission conducted additional
fact-finding after FERC issued Orders to Show Cause cited by
FERC in the Orders Assessing Penalties. Id.
There was no live hearing, as opposed to a paper hearing,
conducted before the FERC Commissioners or a decisionmaker
who in the Respondents' view was neutral and impartial
either before or after FERC issued Orders to Show Cause
concerning the merits of the allegations against the
Respondents. DSMF ¶ 70; PRDSMF ¶ 70. The
Respondents were not permitted to meet ex parte with the FERC
Commissioners and their staff concerning the merits of the
claims asserted against Respondents after the commencement of
the order-to-show-cause proceedings as the Commission's
regulations prohibit any party to a contested on-the-record
proceeding, including an order-to-show-cause proceeding, from
engaging in ex parte contacts with the
Commission. DSMF ¶ 71; PRDSMF ¶ 71.
their written submissions, the Respondents could only cite
evidence from the investigation that had been developed by
Enforcement to prosecute the case against the Respondents and
that had been disclosed by Enforcement, and could only cite
answers to deposition questions asked by Enforcement outside
the presence of the Respondents or their counsel or witnesses
who had incentive to deflect responsibility from themselves
to the Respondents. DSMF ¶ 72; PRDSMF ¶
Orders Assessing Penalties
August 29, 2013, FERC issued Orders Assessing Penalties
against the Respondents. DSMF ¶ 74; PRDSMF ¶ 74.
FERC had control over its docket and could decide how long to
take to issue a decision, and thus it was within its control
whether to take over a year from July 17, 2012, when FERC
issued the Orders to Show Cause, until August 29, 2013, when
FERC issued the Orders Assessing Penalties. DSMF ¶ 75;
PRDSMF ¶ 75. During that period, the Respondents and
Enforcement each moved for an enlargement of time of
approximately thirty days, and each extension was granted by
the Commission. Id. Other than requesting and
receiving additional time to respond to Enforcement's
Preliminary Findings and Proposed Penalty Orders, the
Respondents did not have any control or input over when FERC
issued its Orders Assessing Penalties, or when FERC issued
its earlier Orders to Show Cause, or when Enforcement issued
its earlier preliminary findings and conclusions, or when
Enforcement recommended to FERC that it issue its Orders to
Show Cause. DSMF ¶ 76; PRDSMF ¶ 76.
did not provide the Respondents with all the information it
obtained as part of its investigation of the Respondents
before FERC issued the Orders Assessing
Penalties. DSMF ¶ 77; PRDSMF ¶ 77.
Although the Respondents could have requested discovery, the
Respondents did not have the right to conduct discovery at
any point prior to the time FERC issued the Orders Assessing
Penalties. DSMF ¶ 78; PRDSMF ¶ 78.
Although the Respondents could have requested discovery, the
Respondents also did not have the right to serve document
requests on FERC or to compel Enforcement to disclose what it
had obtained as part of its investigation at any time before
FERC issued the Orders Assessing Penalties.DSMF ¶
79; PRDSMF ¶ 79. Both before and after FERC issued its
Orders to Show Cause, the Respondents did not serve any
interrogatories on FERC. DSMF ¶ 80; PRDSMF ¶ 80.
Although the Respondents could have requested discovery, the
Respondents did not have the right to serve interrogatories
on FERC at any time before FERC issued the Orders Assessing
Penalties. DSMF ¶ 81; PRDSMF ¶ 81.
Although the Respondents could have requested discovery, they
did not have the right to serve third party subpoenas at any
time before FERC issued the Orders Assessing
Penalties. DSMF ¶ 82; PRDSMF ¶ 82.
Although the Respondents could have requested discovery, the
Respondents did not have the right to compel the production
or preservation of any documents from any third parties at
any time before FERC issued the Orders Assessing
Penalties. DSMF ¶ 83; PRDSMF ¶ 83. The
Respondents did not have the right to notice testimony of any
third-party witness at any time before FERC issued the Orders
Assessing Penalties. DSMF ¶ 85; PRDSMF ¶ 85.
Although the Respondents could have requested discovery, the
Respondents did not have the right to compel testimony or an
interview with any third-party witness before FERC issued the
Orders Assessing Penalties. DSMF ¶ 86; PRDSMF ¶
around February 2009, Enforcement staff requested the
testimony of Dr. Richard Silkman in its investigations of
certain DALRP participants. PSAMF ¶ 2; DRPSAMF ¶ 2.
Enforcement staff could have compelled Dr. Silkman's
testimony only after (a) receiving the Commission's
authorization to convert its investigation to formal status
under 18 C.F.R. § 1b.5, (b) issuing a subpoena for Dr.
Silkman's testimony, and (c) if Dr. Silkman refused to
comply with the subpoena, successfully seeking to have the
subpoena enforced by a federal judge, 18 C.F.R. § 1b.15,
none of which FERC Enforcement staff did in this instance.
Id. The Commission was neither asked to pay, nor
paid, Dr. Silkman's travel expenses in appearing to
testify. Id. FERC Enforcement set the location for
the deposition in Washington, D.C., rather than Maine, and
then informed Dr. Silkman's counsel on several occasions
that the Defendants' “cooperation” would be
taken into account in determining how to
Respondents produced in discovery in this litigation a joint
defense agreement entered into between CES and Rumford
effective March 19, 2009, concerning FERC's investigation
of Rumford's participation in the ISO-NE DALRP. PSAMF
¶ 3; DRPSAMF ¶ 3.
Silkman provided draft answers to Rumford or its counsel to
data requests served on Rumford by Enforcement staff during
Enforcement's investigation of Rumford's
participation in the DALRP. PSAMF ¶ 4; DRPSAMF ¶
the Respondents question whether the so-called preliminary
findings were in fact preliminary, Enforcement staff sent a
Preliminary Findings Letter to CES on November 23, 2009,
explaining Enforcement's preliminary conclusion that CES
had committed fraud in violation of the Commission's
Anti-Manipulation Rule, as well as the factual and legal
bases for this conclusion. PSAMF ¶ 5; DRPSAMF ¶
5. In the letter, Enforcement staff initially asked for a
response within three weeks from the date of the letter.
Id. Enforcement staff subsequently provided CES
additional time, until January 8, 2012, to respond to the
November 23, 2009 Preliminary Findings Letter to CES.
although the Respondents question whether the so-called
preliminary findings were in fact preliminary, Enforcement
staff sent a Preliminary Findings Letter to Dr. Silkman on
April 19, 2010, explaining Enforcement's preliminary
conclusion that Dr. Silkman had committed fraud in violation
of the Commission's Anti-Manipulation Rule, as well as
the factual and legal bases for this conclusion. PSAMF ¶
6; DRPSAMF ¶ 6. In the letter, Enforcement staff
initially asked for a response by May 3, 2010. Enforcement
staff subsequently provided Dr. Silkman with additional time,
until May 20, 2010, to respond to the April 19, 2010
Preliminary Findings Letter to Dr. Silkman. Id.
stated in the May 2008 Policy Statement on Enforcement, the
purpose of preliminary findings issued by Enforcement staff
is to allow the subject of an investigation to understand
Enforcement staff's position and to provide an
opportunity for the subject to respond with argument or
evidence if it believes Enforcement staff's position is
incorrect, thereby allowing Enforcement staff to change its
position before reaching its final conclusions should they be
persuaded by the subject's response. PSAMF ¶
7; DRPSAMF ¶ 7.
April 29, 2010, Enforcement staff sent Respondents'
counsel a letter that was later countersigned by the
Respondents and their counsel, which, in part, stated: (a)
“Staff believes that disclosure of certain documents
will facilitate CES's understating of the investigation
and Constellation NewEnergy, Inc.'s (CNE) purported
knowledge of Rumford's baseline period generation
curtailment, ” (b) “However, all of the
information was obtained as part of a non-public
investigation and the information is confidential in nature
under section 1b.9 of the Commission's regulations. 18
C.F.R. § 1b.9 (2009), ” (c), “CNE also
believes that the information includes non-public and
confidential commercial information, ” (d)
“Nevertheless, Enforcement has obtained permission from
CNE and counsel to Ms. Amy Richard, Mr. Peter Kelly-Detwiler,
and Mr. Bruce McLeish to release relevant portions of all
deposition transcripts and affidavits of CNE employees as
well as other narrative data request responses from CNE
involving CNE's knowledge of Rumford's operations,
subject to the restrictions in this letter, ” and (e),
In order to maintain the non-public nature of this
investigation and the materials obtained as part of the
investigation, we will require CES to agree that these
documents, and this letter, will be used only by the CES
attorneys working on this matter, and, for purposes of
review, shown only to fellow signatories to the attachment.
PSAMF ¶ 8; DRPSAMF ¶ 8. The letter contained
signature lines for Dr. Silkman, Mark Isaacson, Attorney
Brann, and any Brann & Isaacson attorneys or employees
working on the matter. Id. Respondents' counsel
could have asked that other signatories be added to the
letter. Id. The letter stated that both the
documents and the letter “will be used only by the CES
attorneys working on this matter, ” and that
“[a]t no time shall CES or the other signatories to the
attachment permit further dissemination of these documents,
including to any other subject of the investigation.
Id. The letter only came after the Respondents
specifically requested that principals of CES and co-counsel
be permitted to see the materials FERC had initially
forbidden them to see. Id.
November 15, 2010, Enforcement staff served a second set of
data requests on CES via counsel for CES. The second set of
data requests consisted of five request items and asked for a
response by November 29, 2010. PSAMF ¶ 9; DRPSAMF ¶
9. CES, through counsel, provided a four-page written
response to the second set of data request on November 29,
2010. Id. In addition, certain attachments to the
response were sent on disk and received by Enforcement staff
on December 1, 2010. Id.
Commission issued an Order to Show Cause and Notice of
Proposed Penalty to Rumford on July 17, 2012 and commenced a
proceeding against Rumford.PSAMF ¶ 10; DRPSAMF ¶
10. In accordance with the Commission's Separation of
Function Rule, 18 C.F.R. § 385.2202, and the
Commission's ex parte rule, 18 C.F.R. § 385.2201,
following issuance of the Order to Show Cause and Notice of
Proposed Penalty to Rumford, the Commission issued a notice
in the docketed proceeding on July 26, 2012 identifying
decisional and non-decisional staff. PSAMF ¶ 11; DRPSAMF
September 6, 2012, Enforcement staff who participated in the
investigation of Rumford and received a settlement offer from
Rumford obtained a written waiver from Rumford of the
provisions of 18 C.F.R. § 385.2202 and 18 C.F.R. §
385.2201 to consult with the Commission and Commission
decisional staff for purposes of exploring potential
settlement with Rumford. PSAMF ¶ 12; DRPSAMF ¶ 12.
Enforcement staff neither asked for or received waivers from
Respondents to engage in what Respondents view as ex parte
discussions with the FERC Commissioners regarding
Rumford's DALRP participation, an issue that the
Respondents view as being at the heart of the pending claims
against them. Id.
Respondents believe otherwise, consistent with the
Commission's Policy Statement on Disclosure of
Exculpatory Materials, 129 FERC ¶ 61, 248 (2009),
Enforcement staff provides subjects of Enforcement
investigations under Part 1b of the Commission's
regulations with all potentially exculpatory materials
obtained during Enforcement's
investigation. PSAMF ¶ 13; DRPSAMF ¶ 13.
staff submitted to the Commission in paper form
Enforcement's Staff Report and Recommendations together
with Respondents' joint seventy-nine-page written
response provided by Respondents to Enforcement staff
pursuant to 18 C.F.R. § 1b.19. PSAMF ¶ 14; DRPSAMF
Statement of Facts: FERC's Partial Motion for Summary
Organization, Powers, and Rulemaking Authority
Commission is an administrative agency of the United States,
organized and existing as an independent, bipartisan
Commission. PSMF ¶ 1; DRPSMF ¶ 1. A majority of the
Commission determines its actions, with three members of the
Commission constituting a quorum for the transaction of
business. PSMF ¶ 2; DRPSMF ¶ 2. The
Federal Power Act (FPA) §§ 307 et seq.
authorizes the Commission to conduct investigations. PSMF
¶ 3; DRPSMF ¶ 3. Section 307(a) provides that
“[t]he Commission may permit any person, electric
utility, transmitting utility, or other entity to file with
it a statement in writing under oath or otherwise, as it
shall determine, as to any or all facts and circumstances
concerning a matter which may be the subject of
investigation.” PSMF ¶ 4; DRPSMF ¶ 4. FPA
§ 307(b) provides that:
For the purpose of any investigation or any other proceeding
under this Act, any member of the Commission, or any officer
designated by it, is empowered to administer oaths and
affirmations, subpoena witnesses, compel their attendance,
take evidence, and require the production of any books,
papers, correspondence, memoranda, contracts, agreements, or
other records which the Commission finds relevant or material
to the inquiry.
PSMF ¶ 5; DRPSMF ¶ 5. Section 308 authorizes the
Commission to conduct hearings but does not require the
Commission to do so, and no hearing was conducted in this
case. PSMF ¶ 6; DRPSMF ¶ 6.
described the Commission's authority:
In carrying out any of its functions, the Commission shall
have the powers authorized by the law under which such
function is exercised to hold hearings, sign and issue
subpoenas, and receive evidence at any place in the United
States it may designate The Commission may, by one or more of
its members or by such agents as it may designate, conduct
any hearing or other injury necessary or appropriate to its
functions, except that nothing in this subsection shall be
deemed to supersede the provisions of section 556 of title 5
relating to hearing examiners.
42 U.S.C. §7171(g) (2012). PSMF ¶ 7; DRPSMF ¶
§ 308(b) requires that:
All hearings, investigations, and proceedings under this Act
shall be governed by rules of practice and procedure to be
adopted by the Commission, and in the conduct thereof the
technical rules of evidence need not be applied. No.
informality in any hearing, investigation, or proceeding or
in any manner of taking testimony shall invalidate any order,
decision, rule, or regulation issued under the authority of
16 U.S.C. § 825g(b) (2012). PSMF ¶ 8; DRPSMF ¶
§ 309 further grants the Commission:
The power to perform any and all acts, and to prescribe,
issue, make, amend, and rescind such orders, rules, and
regulations as it may find necessary or appropriate to carry
out the provisions of this chapter. Among other things, such
rules and regulations may define accounting, technical, and
trade terms used in this Act; and may prescribe the form or
forms of all statements, declarations, applications, and
reports to be filed with the Commission, the information they
contain, and the time within which they shall be filed.
Unless a different date is specified therein, rules and
regulations of the Commission shall be effective thirty days
after publication in the manner which the Commission shall
prescribe. Orders of the Commission shall be effective on the
date and in the manner which the Commission shall
16 U.S.C. § 825h (2012). PSMF ¶ 9; DRPSMF ¶ 9.
provided the Commission with the authority to establish rules
The Commission is authorized to establish such procedural and
administrative rules as are necessary to the exercise of its
functions. Until changed by the Commission, any procedural
and administrative rules applicable to particular functions
over which the Commission has jurisdiction shall continue in
effect with respect to such particular functions.
42 U.S.C. § 7171. PSMF ¶ 10; DRPSMF ¶ 10. The
Commission codified Rules Relating to Investigations at 18
C.F.R. Part 1b and Rules of Practice and Procedure at 18
C.F.R. Part 385. PSMF ¶ 11; DRPSMF ¶ 11.
Civil Penalty Authority
§ 316A authorizes the Commission to levy civil penalties
for violations of Part II of the Act-which includes the
prohibition of energy market manipulation, § 222, 16
U.S.C. § 824v(a)-or “of any rule or order
thereunder.” 16 U.S.C. § 825o-1
(2012). PSMF ¶ 12; DRPSMF ¶ 12. The
FPA requires that the Commission assess such penalties, after
“notice and opportunity for public hearing, in
accordance with the same provisions as are applicable under
section 823b(d) in the case of civil penalties assessed under
section 823b.” PSMF ¶ 13; DRPSMF ¶ 13. FPA
§ 31(d) sets out two applicable provisions, or paths
that the proceeding can take at the election of the
respondent: (1) the “default” procedure
enunciated in § 31(d)(2), under which the Commission
shall provide a hearing before an ALJ, or (2) an alternative
process under § 31(d)(3), whereby the Commission shall
assess a penalty, and then institute an action in the
appropriate U.S. district court for an order of affirmance,
during which resulting proceeding the district court is able
to review de novo the law and facts involved. 16 U.S.C.
§ 823b(d)(1) (2012). PSMF ¶ 14; DRPSMF ¶ 14.
Regardless of whether a respondent elects the procedures
under § 31(d)(2) or under § 31(d)(3), the
Commission is required by statute to assess a penalty
“by order.” 16 U.S.C. §§ 823b(d)(2)(A)
& 823b(d)(3)(A). PSMF ¶ 15; DRPSMF ¶ 15.
assessing and imposing penalties, the Commission must
consider and apply statutorily-prescribed criteria, namely,
“the seriousness of the violation and the efforts of
such person to remedy the violation in a timely
manner.” PSMF ¶ 16 (quoting 16 U.S.C. §
825o-1(b)(2012)); DRPSMF ¶ 16. If a civil penalty has
not been paid within 60 calendar days after an order
assessing the civil penalty has been made under §
31(d)(3)(A), “the Commission shall institute an action
in the appropriate district court of the United States for an
order affirming the assessment of the civil penalty. The
court shall have authority to review de novo the law and the
facts involved, and shall have jurisdiction to enter a
judgment enforcing, modifying, and enforcing as so modified,
or setting aside in whole or in [p]art such
assessment.”PSMF ¶ 17 (quoting 16 U.S.C. §
823b(d)(3)(B)); DRPSMF ¶ 17. Pursuant to the FPA, this
Court has authority to “review de novo the law and the
facts involved and . . . jurisdiction to enter a judgment
enforcing, modifying, and enforcing as so modified, or
setting aside in whole or in [p]art, such assessment.”
Id. PSMF ¶ 18 (quoting 16 U.S.C. §
823b(d)(3)(B)(2012)); DRPSMF ¶ 18.
Commission Regulations Regarding Investigations
Commission's rules relating to investigations are set
forth in Part 1b of the Commission's regulations. PSMF
¶ 19; DRPSMF ¶ 19. Enforcement is authorized to
initiate and conduct investigations relating to any matter
subject to the Commission's jurisdiction. PSMF ¶ 20
(citing 18 C.F.R. § 1b.3 (2008) & 18 C.F.R. §
375.311 (2008)); DRPSMF ¶ 20. Section 1b.7 of the
Commission's regulations provides:
Where it appears that there has been or may be a violation of
any of the provisions of the acts administered by the
Commission or the rules, opinions or orders thereunder, the
Commission may institute administrative proceedings, initiate
injunctive proceedings in the courts, refer matters, where
appropriate, to the other governmental authorities, or take
other appropriate action.
PSMF ¶ 21 (quoting 18 C.F.R. § 1b.7 (2012)); DRPSMF
¶ 21. All information and documents received during an
investigation, as well as the existence of an investigation,
are treated by regulation as non-public and confidential,
“except to the extent that (a) the Commission directs
or authorizes the public disclosure of the investigation; (b)
the information or documents are made a matter of public
record during the course of an adjudicatory proceeding; or
(c) disclosure is required by the Freedom of Information Act,
5 U.S.C. 552.” PSMF ¶ 22 (quoting 18 C.F.R. §
1b.9 (2008)); DRPSMF ¶ 22.
Commission's regulations provide: “There are no
parties, as that term is used in adjudicative proceedings, in
an investigation under this part and no person may intervene
or participate as a matter of right in any investigation
under this part.” PSMF ¶ 23 (quoting 18 C.F.R.
§ 1b.11 (2008)); DRPSMF ¶ 23. Section 1b.16 of the
Commission's regulations addresses the rights of
witnesses during an investigation. Id. This section
provides that a witness or subject of an investigation may be
accompanied, represented, and advised by counsel.
Id. However, 18 C.F.R. §1b.16(c)(4) states:
The Investigating Officer shall take all necessary action to
regulate the course of the proceeding to avoid delay and
prevent or restrain obstructionist or contumacious conduct or
contemptuous language. Such officer may report to the
Commission any instances where an attorney or representative
has refused to comply with his directions, or has engaged in
obstructionist or contumacious conduct or has used
contemptuous language in the course of the proceeding. The
Commission may thereupon take such further action as the
circumstances may warrant, including suspension or disbarment
of counsel from further appearance or practice before it, in
accordance with § 385.2101 of this chapter, or exclusion
from further participation in the particular investigation.
18 C.F.R. § 1b.16 also requires the sequestration of
witnesses during an investigation. It further states that
“[n]o witness or the counsel accompanying any such
witness shall be permitted to be present during the
examination of any other witness called in such
proceeding.” PSMF ¶ 24; DRPSMF ¶ 24.
Commission's regulations provide that “[a]ny person
may, at any time during the course of an investigation,
submit documents, statements of facts or memoranda of law for
the purpose of explaining said person's position or
furnishing evidence which said person considers relevant
regarding the matters under investigation.” PSMF ¶
25; DRPSMF ¶ 25. The Commission noted in a May 2008
Policy Statement on Enforcement that the Commission's
regulations allow the subject of an investigation to submit,
in writing, any information or evidence directly to the
Commissioners themselves at any time during the
investigation. PSMF ¶ 26; DRPSMF ¶ 26. Neither the
policy statement nor the rule regarding investigations places
a page limit on such submissions nor requires any rules of
evidence to apply. Id.
Enforcement preliminarily concludes that a subject committed
a violation, Enforcement's practice pursuant to official
Commission policy is to inform the subject of its preliminary
conclusions, including both the relevant facts and legal
theories, explain the evidence on which it relied, and invite
the subject to respond. PSMF ¶ 27; DRPSMF ¶ 27. If
Enforcement determines to recommend to the Commission that an
entity be made the subject of a proceedings governed by part
385 of this chapter, or that an entity be made a defendant in
a civil action to be brought by the Commission, Enforcement
shall, unless extraordinary circumstances make prompt
Commission review necessary in order to prevent detriment to
the public interest or irreparable harm, notify the entity
that Enforcement intends to make such a
recommendation. PSMF ¶ 28; DRPSMF ¶ 28. As
provided by § 1b.19, an enforcement subject may submit
its own statement to Enforcement, in the form of a non-public
response to the 1b.19 Letter, which “may consist of a
statement of fact, argument, and/or memorandum of law, with
such supporting documentation as the entity chooses.”
PSAMF ¶ 29 (quoting 18 C.F.R. § 1b.19 (2011));
DRPSAMF ¶ 29. Enforcement is required to submit the
subject's statement, if timely made, to the Commission
together with Enforcement's recommendation. Id.
Such statements from Enforcement subjects have no page limits
and are subject to no rules of evidence. Id.
Commission Regulations Regarding Proceedings
201 through 218 of Part 385 apply, inter alia, to any
“pleading” or “order to show cause.”
18 C.F.R. § 385.201. PSMF ¶ 30; DRPSMF ¶ 30.
Under the Commission's regulations, issuance of an Order
to Show Cause commences a contested on-the-record proceeding,
known as a “show cause proceeding, ” which is
subject to the Commission's Rules of Practice and
Procedure. PSMF ¶ 31; DRPSMF ¶ 31. The
Commission's regulations provide that the statement of
matters set forth in an order to show cause “is
tentative and sets forth issues to be considered by the
Commission.” PSMF ¶ 32 (citing 18 C.F.R. §
385.209(b)(2012)); DRPSMF ¶ 32.
the initiation of a show cause proceeding, the
Commission's Separation of Functions Rule requires that
“no officer, employee, or agent assigned to work upon
the proceeding or to assist in the trial thereof, in that or
any factually related proceeding, shall participate or advise
as to the findings, conclusion or decision, except as a
witness or counsel in public
proceedings.” PSMF ¶ 33 (18 C.F.R. §
3985.2202 (2012)); DRPSMF ¶ 33. Upon the initiation of a
show cause proceeding, the Commission's ex parte rule
prohibits any off-the-record communications between (i)
Commissioners and the staff that may advise them (decisional
staff) and (ii) Enforcement prosecutorial staff involved in
the investigation or show cause proceeding. PSMF ¶ 34
(citing 18 C.F.R. § 385.2201(c)(1)(i) (2012)); DRPSMF
¶ 34. However, the rule does not on its face preclude
Enforcement from communicating with the Commission regarding
related matters, which, in this case, included the settlement
negotiations with Rumford concerning its participation in the
DALRP, which is the subject of this action. Id.
Nor does the rule prohibit ex parte communications, so long
as they are put “on the record, ” or prohibit
FERC from making the record “non-public.”
person who is ordered to show cause is required under the
Commission's regulations to submit a formal
answer. PSMF ¶ 35; DRPSMF ¶ 35. The
Commission's regulations require that an answer
“[a]dmit or deny, specifically and in detail, each
material allegation” and “[s]et forth every
defense relied on” “to the extent
practicable.” PSMF ¶ 36; DRPSMF ¶ 36. The
failure to submit an answer can give rise to a default
judgment or summary disposition. PSMF ¶ 37; DRPSMF
¶ 37. An answer must also include “documents that
support the facts in the answer in possession of, or
otherwise attainable by, the respondent, including, but not
limited to, contracts and affidavits.” PSMF ¶ 38;
DRPSMF ¶ 38. Under the Commission's Rules of
Practice and Procedure, a party to a contested on-the-record
proceeding may file a motion for relief to the Commission at
any time during the proceeding. PSMF ¶ 39; DRPSMF
Enforcement's Investigation of Respondents
a referral from ISO-NE's market monitoring unit, in March
2008, Enforcement commenced a non-public investigation
pursuant to Part 1b of the Commission's regulations to
determine whether certain market participants had engaged in
fraudulent conduct in their participation in ISO-NE's
DALRP. PSMF ¶ 40; DRPSMF ¶ 40.
Enforcement notified CES by letter dated August 1, 2009 that
it commenced a non-public investigation of CES pursuant to
Part 1b of the Commission's regulations concerning
CES's conduct related to the DALRP. PSMF ¶ 41;
DRPSMF ¶ 41. On February 26 and 27, 2009, Enforcement
took investigative testimony of Dr. Richard Silkman as a
witness in the investigation. PSMF ¶ 42; DRPSMF ¶
November 2009, Enforcement commenced an investigation of Dr.
Silkman, individually, pursuant to Part 1b of the
Commission's regulations of Dr. Silkman's conduct
related to the DALRP, as memorialized in a November 4, 2009
letter sent to Dr. Silkman's counsel. PSMF
¶ 43; DRPSMF ¶ 43. After CES and Dr. Silkman were
identified as subjects of the investigation, Enforcement
served data requests (the equivalent of interrogatories,
requests for admission, and requests for production of
documents) on CES and Dr. Silkman. PSMF ¶ 44; DRPSMF
November 23, 2009, Enforcement staff sent CES a Preliminary
Findings Letter explaining Enforcement's preliminary
conclusion that CES had committed fraud in violation of the
Commission's Anti-Manipulation Rule, 16 U.S.C. §
824v and 18 C.F.R. § 1c.2 (Anti-Manipulation Rule), as
well as the factual and legal bases for this
conclusion. PSMF ¶ 45; DRPSMF ¶ 45. On
December 1, 2009, Enforcement staff sent CES copies of the
documents cited in the Preliminary Findings Letter to CES
except publicly-available information and information already
in the possession of CES. PSMF ¶ 46; DRPSMF
January 8, 2010, CES submitted a response to the Preliminary
Findings Letter to CES. PSMF ¶ 47; DPRSMF ¶ 47. CES
was not required to comply with any page limit nor any rules
of evidence in drafting this ...