SACRAMENTO — A recent order in the case against a California
energy company could have far-ranging implications in actions brought
against companies by the Federal Energy Regulatory Commission.
An order was entered
on March 8 in the U.S. District Court for the Eastern District of
California ordering that in the suit brought by FERC against Etracom
LLC and its owner, the respondents are entitled to discovery rights
and a full trial on the merits. This is considered a victory for
companies like Etracom that are the subject of FERC investigations.
Last June, Etracom LLC and Michael Rosenberg were ordered to pay
civil penalties by the FERC as a result of alleged manipulation of
the California electricity market. Rosenberg was ordered
to pay a $100,000 file, and his company was ordered to pay a $2.4
million fine. FERC also ordered the company to pay back about
$315,000 in profits because the profits were allegedly from market
Rosenberg founded Etracom in 2008 and owns about 75 percent of the
Rosenberg and Etracom had argued
that the market fluctuations in May 2011 were not under their control
and the trading during that time was normal and aboveboard.
Attorney Michael Brooks, a partner with the law firm Bracewell,
has written about this issue and understands the reasons why this
court ruling is significant.
“Etracom is being accused of manipulation under the Federal
Power Act,” Brooks told the Northern California Record.
“That law says if you’re being accused of something, you can
either go through a trial-like hearing at FERC, or a defendant can
say no, I’d rather go to an independent, neutral, third-party judge
to evaluate this case.”
“If you are a defendant and you go to FERC and you lose there,
and you want to appeal, the court will defer to FERC a lot — unless
they were completely wrong, arbitrary and capricious, that ruling
will stand,” he said. “If you go to court, the de novo review
means they will look at it fresh, just like a new trial. Then, FERC
has to prove its case, and the court doesn’t just rubber stamp
FERC’s decision. The hope is that it will be a fair trial with
discovery and all the bells and whistles that come with a court
Brooks said that in this Etracom case, and in a recent ruling in
California where Barclay’s Bank PLC is the defendant and FERC is
the plaintiff, trials in district court are becoming more common.
“We didn’t really have any case law to say what really happens
when you go to federal court in these types of cases,” he said. “Do
you get a new, full trial, or do you just get a review of the record
that FERC has created? In this instance, FERC said you chose to go to
federal court, but you don’t really get a trial there. You don’t
get to raise any new defenses or say anything new.
“The court’s just going to review what we did and what you did
and see if they agree with us. Etracom argued that they wanted to
conduct discovery and do the things you normally do in court. FERC
argued that according to the statute, you don’t get to go to court
and have a [regular] trial. What has happened in these two cases in
California [Etracom and the Barclay’s bank case] and also in other
district courts, is that the court has ruled that FERC was wrong, and
there will be a normal trial.”
Defendants in these types of cases, where millions of dollars are
at stake and defendant companies can be driven out of business, are
entitled to their day in court, Brooks said.
“I think this is a question of fairness, and not just having an
agency be able to dictate huge penalties,” he said. “Defendants
now will have a chance to have a third party, a judge presiding and
they can defend themselves. There are still open questions, but for
five times in a row now, FERC has been told no to this notion that
we’re going to defer to the agency now and waive all our rights.
Now defendants can investigate fully and find other possible