On February 11, 2020, the U.S. Court of Appeals for the Fourth Circuit (“Fourth Circuit”) held that FERC’s claim for civil penalties under the Federal Power Act (“FPA”) against Powhatan Energy Fund, LLC and certain of its traders and affiliates (“Powhatan”) was not barred by the statute of limitations. In doing so, the Fourth Circuit held that FERC’s claim in federal district court did not accrue for statute of limitation purposes until all of the legal prerequisites for filing the suit had been met, including failure by Powhatan to pay its assessed penalties.
In December 2014, FERC issued an Order to Show Cause directing Powhatan to demonstrate why they should not be penalized over $29 million in civil penalties and $4 million in disgorgement for alleged market manipulation violations involving fraudulent Up-To Congestion transactions in the PJM Interconnection, L.L.C. market between June 1, 2010 and August 3, 2010 (see October 3, 2018 edition of the WER). Powhatan elected to have its case proceed via the FPA “Alternative Option”—under which FERC assesses penalties after finding a violation has occurred and then must institute an action in federal district court if the defendant fails to pay the penalty within sixty days—rather than the FPA “Default Option”—which involves a formal hearing before an administrative law judge. After Powhatan failed to pay the penalty within 60 days, FERC filed to enforce the penalty in the U.S. District Court for the Eastern District of Virginia (“District Court”) in July 2015. Powhatan moved for dismissal, arguing that most of the conduct underlying FERC’s action, which concluded August 3, 2010, fell outside the five year statute of limitations, since FERC filed in the District Court in July 2015. FERC argued its enforcement claims did not accrue until it had fulfilled each of the FPA’s prerequisites to suing in district court. The District Court agreed with FERC but stayed further proceedings so that Powhatan could file an interlocutory appeal to the Fourth Circuit.
The Fourth Circuit affirmed the District Court’s ruling, explaining that although there are instances in which a claim accrues instantly upon a statutory violation because the agency can proceed directly to federal district court to assess the penalty, the Supreme Court has also recognized that claims do not accrue in other circumstances until other statutory prerequisites for filing suit in federal district court have been met. The Fourth Circuit determined that, in this case, Congress plainly conditioned FERC’s right to bring an action in district court on the occurrence of a number of statutorily-mandated events, including waiting for sixty days of nonpayment of penalties, which must occur before FERC’s claim begins to accrue. Moreover, the Fourth Circuit found that applying Powhatan’s view would put a suspected violator in control of the enforcement timeline, provide a powerful incentive for procrastination, and potentially deprive FERC the time needed to thoroughly investigate each alleged instance of market manipulation before filing suit. Therefore, the Fourth Circuit concluded that FERC’s suit in the District Court was not time barred because it was filed within five years from when the final prerequisite for filing suit—Powhatan’s failure to pay—was met.
Lastly, Fourth Circuit rejected Powhatan’s arguments that its holding would potentially leave companies forever exposed to liability, and instead concluded that the FPA’s enforcement scheme effectively requires FERC to issue an Order to Show Cause within five years of the alleged misconduct. In doing so, the Fourth Circuit stated that the overall enforcement scheme requires FERC to issue an Order to Show Cause and commence its administrative process within five years of the alleged misconduct.
A copy of the order is available here.