United States District Court, E.D. Virginia, Richmond Division
HANNAH LAUCK, UNITED STATES DISTRICT JUDGE
matter comes before the Court on cross-briefs filed by
Petitioner Federal Energy Regulatory Commission
("FERC" or the "Commission"), (ECF No.
39), and Respondents Powhatan Energy Fund, LLC
("Powhatan"), Houlian "Alan" Chen
("Chen"), HEEP Fund, Inc. ("HEEP Fund"),
and CU Fund, Inc. ("CU Fund") (collectively, the
"Respondents"), (ECF No. 38). Both briefs discuss,
as ordered by the Court, the meaning of this Court's
de novo review under Section 31 of the Federal Power
Act ("FPA"), codified at 16 U.S.C. §
823b(d)(3)(B). (ECF No. 36.) The parties also have
submitted supplemental briefs, (ECF Nos. 52, 53), filed
pursuant to this Court's January 8, 2016 Order, (ECF No.
44), and a great deal of supplemental authority. (ECF Nos.
55-1, 68, 69, 78, 83, 85, 88-1.) With the Court's leave,
a group of administrative law professors filed a Brief as
Amici Curiae, (ECF No. 82), and the Commission responded,
(ECF No. 84). The Court heard oral argument, and the matter
is ripe for disposition. The Court exercises jurisdiction
pursuant to 16 U.S.C. § 823b(d)(3)(B) and 28 U.S.C.
§ 1331. For the reasons that follow, the Court
concludes that the Respondents are entitled to a trial de
novo governed by the Federal Rules of Civil Procedure
and the Federal Rules of Evidence.
Factual and Procedural Background
2010, the Commission's Office of Enforcement
("Enforcement") began investigating
Respondents for engaging in allegedly manipulative and
fraudulent energy trading. (Compl. 2, ECF No. 1; Penalty O. at
13.) On August 25, 2010, the Commission issued an order
formalizing the investigation. (Penalty O. at 13.) On August
9, 2013, nearly three years later, Enforcement staff issued
letters of preliminary findings to Respondents, and
"invited Respondents to provide argument or evidence
suggesting [that] the preliminary conclusion was
incorrect." (Commission Br. 10, ECF No. 39.) Two months
later, Respondents replied. (Penalty O. at 14.) On August 5,
2014, the Commission issued a Notice of Alleged Violations.
(Penalty O. at 14.)
December 17, 2014, after failed attempts at settlement, the
Commission issued its Order to Show Cause ("OSC").
(Compl. at 3.) The OSC directed Respondents to show cause as
to why they should not be found to have violated the statute
and regulation forbidding the use of manipulative behaviors
in connection with the purchase or sale of electric
energy: 16 U.S.C. § 824v(a) and 18 C.F.R.
§ 1c.2,  respectively. (Penalty O. at 14.) The OSC
also ordered Respondents to elect either a formal hearing
before an administrative law judge prior to the assessment of
a penalty, pursuant to 16 U.S.C. § 823b(d)(2), or to
proceed under 16 U.S.C. § 823b(d)(3)(A), under which the
Commission would "promptly" assess penalties upon a
finding of violation. (Penalty O. at 15.) No further factfinding
occurred after the Commission issued the OSC. Accordingly,
the entire record before the Court-to which FERC refers as
the "administrative record"-consists of information
compiled before the Commission issued the OSC and before
Respondents made their penalty assessment election. On
January 12, 2015, after the Commission granted Respondents an
extension of time, the Respondents each opted for the more
immediate penalty assessment and elected to proceed in
accordance with § 823b(d)(3)(A). (Compl. ¶ 9;
Penalty O. at 16.)
cross-briefing and a review of the extensive record, the
Commission issued its eighty-nine-page Order Assessing Civil
Penalties (the "Penalty Order") on May 29, 2015. In
the Penalty Order, the Commission found that Respondents had
"violated section 222 of the [FPA] and section 1c.2 of
the Commission's regulations, which prohibit energy
market manipulation, through a scheme to engage in fraudulent
Up-To Congestion (UTC) transactions in [P]M's] energy
markets to garner excessive amounts of certain credit
payments to transmission customers." (Compl. ¶ 10;
see Penalty O. at 2.) The Commission also determined
that the trades engaged in by Respondents constituted "a
wash trading scheme in violation of the Commission's
prohibition of that practice." (Compl. ¶ 10.) As a
result of these findings, and pursuant to 16 U.S.C. §
823b(c),  the Commission assessed civil penalties
of $16, 800, 000 against Powhatan; $10, 080, 000 against CU
Fund; $1, 920, 000 against HEEP Fund; and, $1, 000, 000
against Chen." (Compl. ¶ 11.) The Commission also
directed disgorgement of unjust profits, plus interest, in
the amounts of $3, 465, 108 for Powhatan; $1, 080, 576 for CU
Fund; and, $173, 100 for HEEP Fund.
Respondents failed to pay the penalties within 60 days,
pursuant to § 823b(d)(3)(B),  the Commission filed the
action in this Court. FERC demands a jury trial, if the Court
finds that the statute allows such a trial. (Compl.
¶¶ 1, 29.)
FERC filed this action, Respondents filed motions to dismiss
pursuant to Federal Rule of Civil Procedure
12(b)(6). Respondent Powhatan argued that it did
not receive "fair notice" that the Commission would
consider the trades at issue illegal because the Commission
had not previously listed the specific types of
trades engaged in as unlawful. (ECF No. 20.) Respondents
Chen, HEEP Fund, and CU Fund posed a similar argument in
their motion to dismiss, but further focused on: whether the
Complaint alleges fraud with specificity; whether the statute
of limitations bars much of the Commission's claims; and,
whether the Commission could bring such an action and penalty
against Chen, an individual. (ECF No. 22.)
memoranda in support of its motion to dismiss failed to
address the procedural requirements of this case,
specifically, what procedures the Court must follow in
conducting the "review de novo [of] the law and the
facts involved" required by § 823b(d)(3)(B).
(See ECF Nos. 20, 21, 33.) Likewise, FERC's
response to Powhatan's motion neglected to take up that
threshold issue. (See ECF No. 28.) The memoranda in
support of and opposition to Chen, HEEP Fund, and CU
Fund's motion only briefly addressed the Court's
procedure and the standard of review. (Chen Mem. Supp. Mot.
Dismiss 4-7, ECF No. 23; FERC Resp. Chen Mot. Dismiss 29, ECF
No. 29; Chen Reply Mot. Dismiss 3 n.l, 4-8, ECF No. 34.)
Because the procedure the Court follows in conducting its
"review de novo [of] the law and the facts
involved" necessarily will impact the lens through which
it views the motions to dismiss, the Court ordered the
parties to submit briefing "detailing the respective
party's position regarding the procedure mandated by 16
U.S.C. § 823b(d)(3)(B)." (ECF No. 36.)
the parties submitted cross-briefs discussing the meaning of
this Court's de novo review procedure under
§ 823b(d)(3)(B), the Court denied the motions to dismiss
without prejudice and ordered additional briefing. (ECF No.
44.) The parties then filed their respective supplemental
briefs. (ECF Nos. 52, 53.)
matter presents an issue of first impression in this
District, and one which neither the Supreme Court of the
United States nor the United States Court of Appeals for the
Fourth Circuit has addressed. The Court must determine
whether, as Respondents contend, 16 U.S.C. § 823b(d)(3)
entitles Respondents to a de novo trial governed by
the Federal Rules of Civil Procedure and the Federal Rules of
Evidence,  or whether, as FERC contends, §
823b(d)(3) merely grants the Court the "discretion to
craft the procedure that will best facilitate its review,
" (FERC Br. 2, ECF No. 39). The Court concludes,
consistent with other district courts to decide this issue,
that the language and structure of the statute and principles
of due process entitle Respondents to a de novo
trial governed by the Federal Rules of Civil Procedure and
the Federal Rules of Evidence.
Principles of Statutory Interpretation Must Guide the
Court must employ traditional principles of statutory
interpretation to determine what procedure is required when
conducting a "review de novo" under §
823b(d)(3)(B). The purpose of statutory interpretation is
"to try to determine congressional intent."
Dole v. United Steelworkers of Am., 494 U.S. 26, 35
(1990). The analysis must "begin, as always, with the
language of the statutory text, " and "[i]n the
absence of a definition from Congress, [the Court] accord[s]
words in a statute their ordinary, contemporary, common
meaning." United States v. Midgett, 198 F.3d
143, 145-46 (4th Cir. 1999) (internal citation and quotation
marks omitted). "The plainness or ambiguity of statutory
language is determined by reference to the language itself,
the specific context in which that language is used, and the
broader context of the statute as a whole." Robinson
v. Shell Oil Co., 519 U.S. 337, 341 (1997). Thus, the
Court must look to the statute as a whole in determining the
meaning of individual words because "the meaning of
statutory language, plain or not, depends on context."
King v. St. Vincent's Hosp., 502 U.S. 215, 221
(1991); see also Dole, 494 U.S. at 35 ("[I]n
expounding a statute, we are not guided by a single sentence
or member of a sentence, but look to the provisions of the
whole law, and to its object and policy.") (internal
citation and quotation marks omitted).
"the terms of a statute are unambiguous on their face,
or in light of ordinary principles of statutory
interpretation, " judicial inquiry normally ends.
United States v. Morison, 844 F.2d 1057, 1064 (4th
Cir. 1988). But if the "terms of a statutory provision
are ambiguous [the Court may] consider other evidence to
interpret the meaning of the provision, including the
legislative history and the provision's heading or
title." United States v. Hatcher, 560 F.3d 222,
226 (4th Cir. 2009) (citing Ratzlaf v. United
States, 510 U.S. 135, 147-48 (1994); Bhd. of R.R.
Trainmen v. Bait. & Ohio R.R. Co., 331 U.S. 519,
528-29 (1947)). At base,
[i]f the language is ambiguous, in that it lends itself to
more than one reasonable interpretation, [the court's]
obligation is to find that interpretation which can most
fairly be said to be imbedded in the statute, in the sense of
being most harmonious with its scheme and the general
purposes that Congress manifested.
United States v. Joshua, 607 F.3d 379, 384 (4th Cir.
2010). Finally, under the doctrine of constitutional
avoidance, if a statute is susceptible to more than one
reasonable construction, courts should choose an
interpretation that avoids raising constitutional problems.
United States v. Jin Fuey Moy, 241 U.S. 394, 401
(1916) ("A statute must be construed, if fairly
possible, so as to avoid not only the conclusion that it is
unconstitutional, but also grave doubts upon that
The Language of the Statute
Court begins, as it must, "with the language of the
statutory text, " and gives those words undefined by
Congress "their ordinary, contemporary,
common meaning." See Midgett, 198 F.3d at
145-46. In interpreting the statute's text, the Court
does not rely on "a single sentence or member of a
sentence, but look[s] to the provisions of the whole law, and
to its object and policy, " Dole, 494 U.S. at
35 (internal citation and quotation marks omitted), and
determines the language's meaning "by reference to
the language itself, the specific context in which the
language is used, and the broader context of the statute as a
whole, " Robinson, 519 U.S. at 341. The
language of the statute, taken as a whole and interpreted in
light of the context in which it is used makes plain that
this Court should conduct a trial de novo on this
matter governed by the Federal Rules of Civil Procedure and
the Federal Rules of Evidence.
The Two Procedural Pathways in Section
Section 31(d), which governs the assessment of penalties in
this case, creates two procedural pathways by which a penalty
may be imposed. In both cases, the Commission first issues a
notice of the proposed penalty to the alleged wrongdoer. 16
U.S.C. § 823b(d)(1). Under the first pathway, to which
the Court will refer as the "Default Option, "
the Commission shall assess the penalty, by order, after a
determination of violation has been made on the record after
an opportunity for an agency hearing pursuant to [5 U.S.C.
§ 554, the Administrative Procedure Act, ] before an
administrative law judge appointed under section [5 U.S.C.
§ 3105]. Such assessment order shall include the
administrative law judge's findings and the basis for
16 U.S.C. §823b(d)(2)(A).
the formal hearing before the administrative law judge
("ALJ"), "[a]ny person against whom a penalty
is assessed" under the Default Option may
"institute an action in the United States court of
appeals for the appropriate judicial circuit for judicial
review of such order in accordance with chapter 7 of Title 5,
" which governs the procedures for judicial review of
agency actions. 16 U.S.C. § 823b(d)(2)(B); see also
5 U.S.C. §§ 701 et seq. (setting
forth the procedures governing judicial review of agency
action). Under the Default Option, the court of appeals has
"jurisdiction to enter a judgment affirming, modifying,
or setting aside in whole or in [p]art, the order of the
Commission." 16 U.S.C. § 823b(d)(2)(B) (footnote
omitted). The court of appeals may also "remand the
proceeding to the Commission for such further action as the
court may direct." Id. If "any person
fails to pay an assessment of a civil penalty after it has
become a final and unappealable order" under the Default
Option, "the Commission shall institute an action to
recover the amount of such penalty in any appropriate
district court of the United States." 16 U.S.C. §
823b(d)(5). In that action, the "validity and
appropriateness of such final assessment order or judgment
shall not be subject to review." Id. And in
proceedings under the Default Option, "[t]he Commission
shall be represented by the Attorney General, or the
Solicitor General, as appropriate." 16 U.S.C. §
Default Option "thus describes a traditional form of
judicial review of agency action, based on the record
developed in an agency proceeding, " City
Power, 199 F.Supp.3d at 230, governed at each step by
the relevant section of the Administrative Procedures Act,
utilizing appellate lawyers to conduct the litigation, and
relying on federal district courts to enforce final
second pathway, to which the Court will refer as the
"Alternate Option, " requires the alleged wrongdoer
to "elect in writing within 30 days after"
receiving the notice of proposed penalty to have the
Alternate Option procedures-rather than the Default Option
procedures- apply. 16 U.S.C. § 823b(d)(1). Under the
Alternate Option, "the Commission shall promptly assess
such penalty, by order." 16 U.S.C. § 823b(d)(3)(A).
After the penalty has been assessed, if it
has not been paid within 60 calendar days . .., 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.
16 U.S.C. § 823b(d)(3)(B) (emphasis added) (footnote
"any person fails to pay an assessment of a civil
penalty" after the "district court has entered
final judgment in favor of the Commission" under the
Alternate Option, "the Commission shall institute an
action to recover the amount of such penalty in any
appropriate district court of the United States." 16
U.S.C. § 823b(d)(5). In that action, the "validity
and appropriateness of such final assessment order or
judgment shall not be subject to review." Id.
In proceedings under the Alternate Option, "the
Commission may be represented by the general counsel of the
Commission (or any attorney or attorneys within the
Commission designated by the Chairman) who shall supervise,
conduct, and argue any civil litigation to which [the
Alternate Option applies] in a court of the United States or
in any other court, except the Supreme Court." 16 U.S.C.
Alternate Option thus "sets out a less familiar
path" than the Default Option. City Power, 199
F.Supp.3d at 230. Under the Alternate Option, no procedural
requirements apply to the order assessing penalties except
that it be "promptly assessed, " 16 U.S.C. §
823b(d)(3)(A); proceedings are not governed by the
Administrative Procedures Act; the district court has no
authority to remand the proceeding to the Commission; and the
"civil litigation" may be conducted by "any
attorney or attorneys within the Commission, " 16 U.S.C.
discussed, Respondents chose the Alternate Option and did not
pay the assessment within sixty days. The Court now must
determine what specific procedures govern this "action
in the appropriate district court" instituted by FERC.
The Relevant Statutory Phrases in the Alternate
Court must determine what procedures it should employ to
"review de novo the law and the facts involved" in
this case. Respondents claim entitlement to a de
novo trial, while FERC contends that the Court has the
flexibility to craft a limited but effective procedure to
conduct its review. The Court begins its analysis by
examining the governing statutory phrases.
"Institute an Action"
the Alternate Option, after the Commission has "promptly
assess[ed]" a penalty by order, and the alleged
wrongdoer has not paid the assessment within sixty days, the
Commission "shall institute an action" in a
district court for an order affirming the assessment. 16
U.S.C. § 823b(d)(3)(B). The Court looks first to the
phrase "institute an action" to see what, if any,
light it sheds on the procedures the Court must utilize in
Federal Rules of Civil Procedure "govern the procedure
in all civil actions and proceedings in the United States
district courts, except as stated in Rule 81. Fed.R.Civ.P.
1. "[T]he Federal Rules of Civil Procedure provide the
normal course for beginning, conducting, and determining
controversies." N.H. Fire Ins. Co. v. Scanlon,
362 U.S. 404, 406 (1960) (internal citation omitted).
Although summary disposition "of controversies over
property and property rights is the exception in [the United
States'] method of administering justice, "
id, Congress, through "express statutory
authorization, " has the power to "allow
proceedings more summary than the full court trial, "
id at 407 n.6. To do so, however, there must be a
"clear expression of congressional intent to exempt
actions ... from the operation of the Federal Rules of Civil
Procedure." Califano v. Yamasaki, 442 U.S. 682,
700 (1979). No such clear exemption exists here.
Congress's mere use of the word "action" in
§ 823b(d)(3) does not, in itself, require that this
Court apply the Federal Rules of Civil Procedure to this
case. The Supreme Court of the United States, and even the
Federal Rules themselves, contemplate that the Civil Rules
may not always "apply to summary proceedings created by
statute." Fed.R.Civ.P. 1 advisory committee's note
to 2007 amendment; see also Scanlon, 362 U.S. at 407
n.6 (citing examples of "express statutory
authorization" for summary proceedings in place of a
"full court trial").
Congress also used the phrase "institute an action"
to describe the procedure a person against whom a penalty was
assessed under the Default Option takes. 16 U.S.C. §
823b(d)(2)(B) ("Any person against whom a penalty is
assessed under [the Default Option] may ... institute an
action in the United States court of appeals for the
appropriate judicial circuit for judicial review of such
order"). Neither party contends that a proceeding in the
court of appeals would be governed by the Federal Rules of
Civil Procedure, nor would it make any sense for Congress to
have devised such a scheme. Finally, "Congress has in
other cases called for the institution of 'a civil
action' to review an administrative decision, while
limiting that review to the administrative record."
Barclays Bank, 247 F.Supp.3d at 1136 (citing 42
U.S.C. § 405(g) (setting forth the procedures for
judicial review of a "final decision of the Commissioner
of Social Security")).
although the statute governing the procedures under the
Alternate Option contains no express exemption from operation
of the Federal Rules of Civil Procedure, neither is it clear,
simply from Congress's use of the word "action"
to characterize the proceeding, that the Default Option
must be governed by the Federal Rules of Civil
"Review de ...