TOTAL Gas & Power N Amer, Inc. v. FERC, et , 859 F.3d 325 ( 2017 )

Case: 16-20642 Document: 00514026081 Page: 1 Date Filed: 06/08/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 8, 2017
No. 16-20642
Lyle W. Cayce
Clerk
TOTAL GAS & POWER NORTH AMERICA, INCORPORATED; AARON
TRENT HALL; THERESE NGUYEN TRAN,
Plaintiffs - Appellants
v.
FEDERAL ENERGY REGULATORY COMMISSION; ACTING CHAIRMAN
CHERYL A. LAFLEUR, In her official capacity; COMMISSIONER
COLETTE D. HONORABLE, In her official capacity; CHIEF ALJ CARMEN
A. CINTRON, In her official capacity,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before KING, JOLLY, and PRADO, Circuit Judges.
KING, Circuit Judge:
We are presented with a challenge to the authority of the Federal Energy
Regulatory Commission to adjudicate violations of the Natural Gas Act and to
impose civil penalties on violators. TOTAL Gas & Power North America, Inc.,
a company that trades in North American natural gas markets, and two of its
trading managers brought this declaratory judgment action against the
Commission arguing that the Commission was precluded from adjudicating
violations or imposing civil penalties because the Natural Gas Act vests
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authority for those activities exclusively in federal district courts. The district
court granted the Commission’s motion to dismiss. Because we conclude that
the claims are not ripe, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case involves the process that Defendant–Appellee the Federal
Energy Regulatory Commission (FERC) uses for adjudicating violations of the
Natural Gas Act (NGA), 15 U.S.C. § 717 et seq., and imposing civil penalties on
the violators. For context, we first review the statutory and regulatory scheme
that guides FERC’s process for adjudicating NGA violations and imposing
penalties, and then we discuss the facts of this case.
A. Statutory Backdrop
FERC is an independent regulatory commission comprised of five
commissioners, each appointed by the President, who serve five-year terms. 42
U.S.C. § 7171(b)(1). FERC primarily administers three statutes: the Federal
Power Act (FPA), 16 U.S.C. § 791a et seq.; the Natural Gas Policy Act of 1978
(NGPA), 15 U.S.C. § 3301 et seq.; and the NGA. The NGA, the statute at issue
in this appeal, was enacted in 1938. Natural Gas Act of 1938, Pub. L. No. 75-
688, 52 Stat. 821. It grants FERC the authority to regulate the interstate
transport and sale of natural gas by, for example, setting pipeline rates and
establishing the conditions for transportation facilities. 15 U.S.C. §§ 717, 717c,
717f. In the Energy Policy Act of 2005 (EPACT 2005), Congress amended the
NGA to prohibit manipulation in natural gas markets by market participants.
Pub. L. No. 109-58, 119 Stat. 594, 691 (codified at 15 U.S.C. § 717c-1).
EPACT 2005 also made changes to how the NGA was enforced. Prior to
2005, the NGA provided FERC with limited enforcement powers. See JAMES
H. MCGREW, AM. BAR ASS’N, BASIC PRACTICE SERIES, FERC: FEDERAL ENERGY
REGULATORY COMMISSION 239–41 (2d ed. 2009). The pre-2005 NGA (like the
current NGA) permitted FERC to “investigate any facts, conditions, practices,
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or matters which it may find necessary or proper in order to determine whether
any person has violated [the NGA].” 15 U.S.C. § 717m. In addition, it
authorized FERC to conduct hearings and to establish the procedural rules
governing those hearings. Id. § 717n. However, if the investigation yielded a
finding of a violation, FERC had limited options available to punish violators.
Under the pre-2005 NGA, FERC was limited to seeking injunctive relief and
criminal penalties against violators in federal district court. 1 Id. §§ 717s, 717t.
Congress significantly enhanced FERC’s enforcement powers under the
NGA in EPACT 2005. MCGREW, supra, at 239–45. Section 22 added, for the
first time, civil monetary penalties (capped at $1 million per day per violation)
to those remedies available against NGA violators. 2 Pub. L. No. 109-58, 119
Stat. 594, 691 (codified at 15 U.S.C. § 717t-1). Section 22 provides:
(a) In general
Any person that violates this chapter, or any rule, regulation,
restriction, condition, or order made or imposed by the Commission
under authority of this chapter, shall be subject to a civil penalty
1 As an historical matter, FERC often imposed a variety of other penalties against
NGA violators, such as disgorgement of profits, imposition of compliance plans, and
suspension or revocation of operating certificate or market-based rate authority, see Revised
Policy Statement on Enforcement ¶ 6, 123 FERC 61,156, 62,008 (2008) [hereinafter 2008
Revised Policy], but these remedies sometimes encountered legal difficulties because they are
not expressly provided for in the NGA, see Laclede Gas Co. v. FERC, 997 F.2d 936, 945–48
(D.C. Cir. 1993); Coastal Oil & Gas Corp. v. FERC, 782 F.2d 1249, 1253 (5th Cir. 1986).
2 In addition to adding civil penalty authority under the NGA, EPACT 2005 also
enhanced FERC’s preexisting civil penalty authority under the FPA and the NGPA. 119
Stat. 691, 980 (codified at 15 U.S.C. § 3414(b)(6)(A); 16 U.S.C. § 825o-1(b)). But the
procedures for imposing civil penalties under these statutes differ from those under the NGA.
Under the FPA, the alleged violator may opt to participate in a hearing regarding the
proposed civil penalty on the record before an administrative law judge (ALJ), with any
resulting penalty being subject to review in a federal court of appeals for substantial
evidence. 16 U.S.C. § 823b(d)(2). Alternatively, the alleged violator may choose to forego a
hearing and for FERC to immediately assess the proposed penalty and then seek de novo
review in federal district court. Id. § 823b(d)(3). Similarly, the NGPA explicitly grants a
federal district court authority to review de novo any civil penalty assessed by FERC under
the NGPA if the violator does not pay the penalty within 60 days. 15 U.S.C. § 3414(b)(6)(F).
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of not more than $ 1,000,000 per day per violation for as long as
the violation continues.
(b) Notice
The penalty shall be assessed by the Commission after notice and
opportunity for public hearing.
(c) Amount
In determining the amount of a proposed penalty, the Commission
shall take into consideration the nature and seriousness of the
violation and the efforts to remedy the violation.
15 U.S.C. § 717t-1.
B. Regulatory Backdrop
Following the passage of EPACT 2005, FERC issued a 2006 policy
statement interpreting its new civil penalty authority. Statement of
Administrative Policy Regarding the Process for Assessing Civil Penalties, 117
FERC 61,317 (2006) [hereinafter 2006 Policy]. Crucially, FERC explained
that, for civil penalties assessed under the NGA, “unlike the FPA and NGPA,
Congress did not establish a de novo court review.” Id. ¶ 8, 117 FERC at
62,533. Accordingly, FERC interpreted the NGA to permit FERC itself to
assess penalties under the NGA through either “a paper hearing or a hearing
before an ALJ.” Id. ¶ 2, 117 FERC at 62,533. FERC has established a
comprehensive procedure for assessing civil penalties under the NGA. We
provide an overview in order to situate the facts of this case within that
procedure.
(1) FERC’s Office of Enforcement, the FERC division in charge of
investigating alleged violations, reviews referrals and tips of potential NGA
violations by natural gas companies and market participants to determine
whether there is a substantial basis for opening an investigation. 2008 Revised
Policy ¶¶ 23–26, 123 FERC at 62,012; see 18 C.F.R. § 1b.3.
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(2) After opening an investigation, Enforcement employs conventional
discovery methods such as reviewing documents, conducting interviews and
depositions, and communicating with the subject of the investigation. 2008
Revised Policy ¶ 28, 123 FERC at 62,013; see 18 C.F.R. § 1b.3. Enforcement
can terminate an investigation at any point during this process. 2008 Revised
Policy ¶ 31, 123 FERC at 62,013
(3) If Enforcement concludes that a violation has occurred, it sends the
alleged violator the factual and legal conclusions of its investigation and its
proposed penalty, to which the alleged violator may confidentially respond. Id.
¶ 32; see 18 C.F.R. § 1b.19. In some cases, this response has prompted
Enforcement to terminate the investigation. 2008 Revised Policy ¶ 32, 123
FERC at 62,013.
(4) If Enforcement continues to believe that a violation has occurred, it
attempts to engage in settlement discussions with the alleged violator. Id.
¶ 33–34, 123 FERC at 62,013–14. This step concludes the investigation stage
of the process and commences the enforcement stage.
(5) If these settlement discussions are unavailing, Enforcement submits
to the commissioners of FERC its recommendation to initiate an enforcement
proceeding and impose a civil penalty against the alleged violator, together
with any response from the alleged violator. Id. ¶ 35, 123 FERC at 62,014.
The alleged violator is usually notified of this recommendation in advance. Id.
(6) If FERC deems it appropriate, it issues an order to show cause to the
alleged violator, which includes the amount of Enforcement’s proposed penalty
and a statement of the material facts constituting the violation. Id. ¶ 36, 123
FERC at 62,014; 2006 Policy ¶ 7, 117 FERC at 62,533. In issuing this order,
FERC does not make a finding that there has been a NGA violation. 2008
Revised Policy ¶ 37, 123 FERC at 62,014. Rather, issuing an order to show
cause merely triggers the procedural rules that FERC has promulgated to
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govern its hearings. Id.; see 18 C.F.R. §§ 385.101–2202. One such rule dictates
that when an order to show cause is issued, the Enforcement staff who were
involved in the investigation are designated as “non-decisional” and are not
permitted to further advise FERC commissioners on the matter. 2008 Revised
Policy ¶ 37, 123 FERC at 62,014; see 18 C.F.R. §§ 385.2201, 385.2202.
(7) The alleged violator may file an answer to the order to show cause,
which may include arguments on why it did not violate the NGA and why the
proposed penalty should not be assessed or should be reduced. 2006 Policy ¶ 7,
117 FERC at 62,533.
(8) FERC reviews the alleged violator’s answer, together with
Enforcement’s recommendation. Id.
(9) If FERC is unpersuaded by the alleged violator’s answer, it
determines what type of procedure is necessary to adjudicate the violation and
assess the penalty. Id. It may choose to assess a penalty based on the record
before it, conduct a “paper hearing” based on the parties’ written submissions,
or schedule a hearing before an ALJ. Id.
(10) If it proceeds to a paper hearing, FERC reviews solely the paper
record. Id. If the matter is heard before an ALJ, the ALJ issues an initial
decision in which it determines whether a NGA violation occurred and
recommends a penalty amount. Id.; 18 C.F.R. § 385.708(b)(1). After the ALJ
issues its initial decision, either party may file with FERC exceptions to the
decision, which identify alleged factual or legal errors made by the ALJ. 18
C.F.R. § 385.711. The other party may then file an opposition to these
exceptions. Id. Either party may also request oral argument on the matter
before FERC. Id. FERC may also require briefs and oral argument before
issuing its final order. Id. § 385.712. FERC then considers the ALJ’s decision,
together with any filings or oral arguments by the parties. 2006 Policy ¶ 7,
117 FERC at 62,533. In a 2008 policy statement, FERC outlined the five broad
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factors it considers in setting the amount of a penalty. 2008 Revised Policy
¶¶ 54–71, 123 FERC at 62,017–21. These factors are (a) seriousness of the
offense, (b) the violator’s commitment to compliance, (c) whether the company
self-reported the violation, (d) the extent of the violator’s cooperation in the
investigation, and (e) the extent to which the violator relied on guidance from
FERC staff in committing the violation. Id.
(11) FERC issues a final order in which it may adjudicate a NGA
violation and assess a civil penalty. 2006 Policy ¶ 7, 117 FERC at 62,533.
(12) If the alleged violator does not prevail, it may request a rehearing
before FERC within 30 days. Id.; see 15 U.S.C. § 717r.
(13) If rehearing is unavailing, the alleged violator may then appeal to a
federal court of appeals, which then reviews FERC’s factual findings for
substantial evidence. 2006 Policy ¶ 7, 117 FERC at 62,533; see 15 U.S.C.
§ 717r.
(14) If the penalty is not paid, FERC may institute an enforcement action
in a federal district court. 2006 Policy ¶ 7, 117 FERC at 62,533.
C. Facts and Proceedings
Plaintiff–Appellant TOTAL Gas & Power North America, Inc. (TGPNA)
is the North American subsidiary of the France-based TOTAL S.A., one of the
world’s largest oil and gas companies. TGPNA trades in the North American
natural gas markets. In July 2012, FERC initiated a formal investigation into
TGPNA and two of its trading managers, Aaron Hall and Therese Tran
(TGPNA together with its trading managers, Total) based on a tip it received
from a former TGPNA employee alleging that the company had been
manipulating prices in the natural gas markets. 3 Order to Show Cause and
3The details of Total’s alleged NGA violations are largely irrelevant to this appeal.
The crux of the investigation centered on allegations that TGPNA traders in the
southwestern United States accumulated a large quantity of physical and financial natural
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Notice of Proposed Penalty, 155 FERC 61,105, app. A, 2016 WL 1723518, at
*14 (2016). In November 2015, after more than three years of investigation,
Enforcement notified Total of its intention to recommend that FERC initiate
enforcement proceedings against it for violations of the NGA and assess
corresponding civil penalties.
After receiving the notice, Total filed this declaratory judgment action in
federal district court on January 27, 2016. Total sought a declaration that
FERC lacked the authority to adjudicate violations of the NGA and assess
corresponding civil penalties through in-house administrative proceedings
because the NGA vested such authority exclusively in federal district courts.
Total based this argument on Section 24 of the NGA, which provides: “The
District Courts of the United States . . . shall have exclusive jurisdiction of
violations of [the NGA] . . . , and of all suits in equity and actions at law brought
to enforce any liability or duty created by, or to enjoin any violation of, [the
NGA] . . . .” 15 U.S.C. § 717u. In addition, Total sought a declaration that
adjudication of a NGA violation and imposition of a civil penalty through an
in-house FERC administrative proceeding would violate, in relevant part, the
Appointments Clause, the Fifth Amendment’s Due Process Clause, and the
Seventh Amendment’s guarantee of a jury trial. Total conceded that it did not
“seek to stop FERC from conducting an investigation or otherwise exercising
its lawful authority” under the NGA, but rather simply sought to preserve
gas products and then traded monthly physical fixed price natural gas in high volumes during
the strategic “bidweek” period in order to drive up index prices in a way that would benefit
its own natural gas holdings. See Order to Show Cause and Notice of Proposed Penalty, 2016
WL 1723518, at *4–6. This conduct was alleged to violate the NGA’s prohibition on
manipulation in the natural gas markets. See 15 U.S.C. § 717c-1.
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Total’s right to have any violation “adjudicated in the first instance by a federal
district court.”
The proceedings before FERC and the district court proceeded on
parallel, independent tracks. In the FERC proceeding, FERC issued an order
to show cause on April 28, directing Total to respond and explain why it should
not be found to have violated the NGA by manipulating prices and why it
should not have to disgorge $9 million in alleged unjust profits and be assessed
over $216 million in civil penalties. Order to Show Cause and Notice of
Proposed Penalty, 155 FERC 61,105, 2016 WL 1723518, at *1–2. The order to
show cause also included an overview of the rest of the process for adjudicating
a violation and imposing a penalty, which mirrors Steps 8–14 above. Id. On
July 12, Total filed a 201-page answer raising numerous factual and legal
arguments, including the same jurisdictional challenge to FERC’s authority
that Total had raised in its declaratory action. Answer in Opposition to Order
to Show Cause and Notice of Proposed Penalty, Total Gas & Power N. Am., Inc.,
No. IN12-17-000 (July 12, 2016). Total’s answer opposed the imposition of any
penalty and urged that FERC summarily dismiss the claims without a hearing.
Id.
Back in district court, while the administrative proceeding was still
pending, FERC moved to dismiss Total’s claims under Federal Rule of Civil
Procedure 12(b)(1) for, in relevant part, lack of subject matter jurisdiction due
to lack of ripeness. Days later, Total moved for summary judgment. On July
15, before any further progress in the FERC proceeding, the district court ruled
on these dueling motions simultaneously, granting FERC’s motion to dismiss
and denying Total’s motion for summary judgment as moot. The district court
provided three alternative grounds for dismissing Total’s declaratory action.
First, the district court concluded that the case was not justiciable because (a)
the relief requested would not completely resolve the dispute, since the merits
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of the market manipulation allegations against Total would remain unresolved
even if the district court ruled in Total’s favor, and (b) the case was not yet ripe
because FERC had not issued a final order. Second, on the merits, the district
court disagreed with Total’s interpretation of the NGA’s jurisdictional dictates,
instead concluding that the NGA permitted FERC to adjudicate NGA
violations and assess civil penalties through an in-house administrative
proceeding; therefore, no action by the district court to interfere with the FERC
proceedings was warranted. Finally, the district court stated that, even if
Total was right on the merits and the action was justiciable, the district court
nevertheless declined to exercise its discretion to entertain the declaratory
action.
Total moved for reconsideration of the district court’s judgment, offering
responses to several points in the court’s order that were raised by the district
court sua sponte (because subject matter jurisdiction was at issue). Total also
sought leave to amend its complaint to add a request for a declaration that it
did not violate the NGA in order to alleviate the district court’s concern that
its requested relief would not fully resolve the dispute. The district court
denied Total’s motion for reconsideration and also denied it leave to amend the
complaint, finding that amendment would be futile in the light of the district
court’s two alternative bases for dismissal. Total timely appeals all the district
court’s orders.
While this appeal was pending, the FERC proceeding has continued
apace. Most recently, on September 23, 2016, Enforcement filed a reply to
Total’s answer to the order to show cause. Enforcement Staff’s Reply to
Respondents’ Answer to Order to Show Cause and Notice of Proposed Penalties
and Opposition to Respondents’ Motion for Summary Disposition, Total Gas &
Power N. Am., Inc., No. IN12-17-000 (Sept. 23, 2016). Enforcement’s reply
opposed Total’s request for summary disposition of the matter and requested
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three rulings. First, it requested that FERC set the matter for a hearing before
an ALJ to resolve certain disputes of material fact. Id. at 4. Second, it
requested that FERC decide certain undisputed facts without a hearing. Id.
Third, it urged FERC to reject Total’s legal and jurisdictional challenges to the
proceeding in their entirety. Id. To date, however, FERC has not ordered the
matter to be heard before an ALJ nor has it taken any other action on these
pending motions. 4 See FERC Docket No. IN12-17-000. The proceeding is thus
stalled at Step 8 of the process we outlined above.
II. STANDARDS OF REVIEW
We review de novo a district court’s rulings on a motion to dismiss and a
motion for summary judgment, applying the same standard as the district
court. Air Evac EMS, Inc. v. Tex., Dep’t of Ins., Div. of Workers’ Comp., 851
F.3d 507, 513 (5th Cir. 2017); EEOC v. Simbaki, Ltd., 767 F.3d 475, 481 (5th
Cir. 2014). We may affirm the district court’s rulings any basis supported by
the record. Taylor v. City of Shreveport, 798 F.3d 276, 279 (5th Cir. 2015);
Simbaki, Ltd., 767 F.3d at 481. We also review ripeness issues de novo and
the plaintiff bears the burden of proof. Choice Inc. of Tex. v. Greenstein, 691
F.3d 710, 714 (5th Cir 2012).
III. RIPENESS
Total brings its claims in the form of a declaratory judgment action.
Under the Declaratory Judgment Act, any federal court “may declare the
rights and other legal relations of any interested party seeking such
declaration, whether or not further relief is or could be sought.” 28 U.S.C.
§ 2201(a). When considering a declaratory judgment action, a district court
4The most recent filings reflected on the docket are Total’s motion for leave to respond
to Enforcement’s reply (January 17), Enforcement’s answer to this motion (January 27), and
Enforcement’s motion to supplement its reply (February 23). To date, no orders have been
issued on these pending motions.
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must first determine whether the action is justiciable, which frequently boils
down to a question of ripeness. See Orix Credit All., Inc. v. Wolfe, 212 F.3d
891, 895 (5th Cir. 2000). “[A] declaratory judgment action, like any other
action, must be ripe in order to be justiciable.” Id. at 896. If the action is not
ripe, the court must dismiss it. Id. at 895. Accordingly, we first consider
whether this declaratory judgment action is ripe. Because we conclude it is
not, we end our analysis and do not reach the merits of Total’s claims. 5
A. Ripeness and Declaratory Judgment Actions
The ripeness requirement originates from Article III of the United
States Constitution, which provides that federal courts have jurisdiction over
“cases” or “controversies.” U.S. Const. art. III, § 2; see Choice Inc., 691 F.3d
at 714–15. “[R]ipeness . . . determine[s] when . . . litigation may occur.
Specifically, the ripeness doctrine seeks to separate matters that are
premature for review because the injury is speculative and may never occur,
from those cases that are appropriate for federal court action.” Roark &
Hardee LP v. City of Austin, 522 F.3d 533, 544 n.12 (5th Cir. 2008) (second
alteration and first omission in original) (quoting ERWIN CHEMERINSKEY,
FEDERAL JURISDICTION § 2.4.1. (5th ed. 2007) (emphasis added)). “The
ripeness doctrine’s ‘basic rationale is to prevent the courts, through avoidance
of premature adjudication, from entangling themselves in abstract
disagreements.” Choice Inc., 691 F.3d at 715 (quoting Abbott Labs. v.
Gardner, 387 U.S. 136, 148 (1967)). In determining whether a case is ripe,
5 Because we affirm the district court’s dismissal on this basis, we do not resolve
Total’s argument regarding the district court’s alternative bases for denial: its interpretation
of NGA Section 24 and its exercise of discretion to decline to hear the declaratory judgment
action. Nor do we resolve Total’s challenge to the district court’s denial of leave to amend the
complaint because the basis on which Total sought to amend related to one of the district
court’s alternative bases for dismissal—that the requested relief would not completely resolve
the parties’ dispute.
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we rely on two “key considerations”: “the fitness of the issues for judicial
resolution and the hardship to the parties of withholding court consideration.”
New Orleans Pub. Serv., Inc. v. Council of New Orleans, 833 F.2d 583, 586
(5th Cir. 1987) (quoting Abbott Labs., 387 U.S. at 149).
Although a declaratory judgment action is often brought before injury
has occurred, it is nevertheless subject to the ripeness requirement. United
Transp. Union v. Foster, 205 F.3d 851, 857 (5th Cir. 2000). “A declaratory
judgment action is ripe for adjudication only where an ‘actual controversy’
exists.” Orix Credit All., 212 F.3d at 896 (quoting 28 U.S.C. § 2201(a)).
Whether an actual controversy exists must be determined on a case-by-case
basis, but, “[a]s a general rule, [one] exists where ‘a substantial controversy
of sufficient immediacy and reality [exists] between parties having adverse
legal interests.’” Id. (third alteration in original) (quoting Middle S. Energy,
Inc. v. City of New Orleans, 800 F.2d 488, 490 (5th Cir. 1986)).
To determine whether Total’s claims are ripe, it is necessary to outline
its arguments. First, Total contends that, although FERC is statutorily
authorized to conduct the 14-step procedure we set out above, it may not issue
a final order adjudicating a NGA violation or imposing a civil monetary policy.
Rather, Total urges, FERC is permitted through these procedures only to
recommend a finding of a NGA violation and propose a penalty; only a federal
district court has the power to adjudicate a violation and impose a penalty.
Total thus objects not to the FERC’s process but to the potential outcome of
this process. For this argument, Total relies on Section 24 of the NGA, entitled
“Jurisdiction of offenses; enforcement of liabilities and duties.” 15 U.S.C.
§ 717u. Section 24, which was included in the original NGA enacted in 1938,
provides:
The District Courts of the United States . . . shall have exclusive
jurisdiction of violations of [the NGA] or the rules, regulations, and
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orders thereunder, and of all suits in equity and actions at law
brought to enforce any liability or duty created by, or to enjoin any
violation of, [the NGA] or any rule, regulation, or order thereunder.
. . . Any suit or action to enforce any liability or duty created by, or
to enjoin any violation of, [the NGA] or any rule, regulation, or
order thereunder may be brought in any such district or in the
district wherein the defendant is an inhabitant . . . .
Id. According to Total, Section 24’s grant of “exclusive jurisdiction of [NGA]
violations” to federal district courts precludes FERC from conclusively
adjudicating such violations, along with the corresponding civil penalties,
through in-house administrative proceedings. If it wishes to impose civil
penalties under the NGA, Total asserts, FERC must instead bring an action
in federal district court.
In addition to this jurisdictional claim, Total asks for a declaration that
FERC’s proceedings violate various constitutional rights. First, Total claims
that allowing an ALJ to preside over a hearing that resulted in a “binding”
order would violate the Appointments Clause, U.S. Const. art. II, § 2, cl. 2,
because the manner in which FERC appoints ALJs does not comport with the
Appointment Clause’s requirements for the appointment of “inferior officers.”
Second, Total argues that such a proceeding would deprive it of its Seventh
Amendment right to a jury trial in an Article III tribunal. U.S. Const. amend.
VII. Third, Total alleges that such a proceeding would also violate the Fifth
Amendment’s Due Process Clause’s guarantee of an impartial tribunal
because Enforcement staff who assisted in the investigatory stage are
permitted to advise the ALJ and FERC commissioner during the enforcement
stage.
B. Our Decision in Energy Transfer Partners, L.P. v. FERC
We have recognized that “applying the ripeness doctrine in the
declaratory judgment context presents a unique challenge.” Orix Credit All.,
212 F.3d at 896. Fortunately, here, we do not write on a blank slate. In Energy
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Transfer Partners, L.P. v. FERC, we addressed the issue of ripeness in the
context of a party raising an identical argument to the primary one that Total
raises here: Section 24 of the NGA grants district courts exclusive jurisdiction
over adjudication of NGA violations and imposition of civil penalties,
precluding any such adjudication by FERC. 567 F.3d 134, 138–39 (5th Cir.
2009). In that case, similar to here, FERC issued to Energy Transfer Partners,
L.P. (ETP) an order to show cause that raised allegations of market
manipulation in violation of the NGA and proposed a civil penalty of $82
million. Id. at 136. ETP filed an answer asserting that it had not violated the
NGA and requesting summary disposition of the matter, again, just as Total
did here. Id. at 137. However, the FERC case against ETP progressed beyond
Total’s case. After reviewing ETP’s answer, FERC denied ETP’s request for
summary disposition and instead issued an order scheduling the matter for a
hearing before an ALJ to resolve genuine issues of material fact—a step that
FERC has not taken in this case. Id. ETP requested a rehearing on this order
and a stay in the meantime, which FERC denied. Id. ETP then filed a petition
for review of the order denying rehearing—along with the order to show
cause—in this court. Id.
On appeal, just as Total argues now, ETP argued that Section 24 of the
NGA vested exclusive jurisdiction in a federal district court to determine de
novo if ETP had violated the NGA and impose civil penalties for violations,
thereby prohibiting FERC from doing so through a proceeding before an ALJ.
Id. at 138–39. But ETP conceded that FERC was permitted to make some sort
of initial recommendation on a proposed civil penalty prior to district court
proceedings. Id. at 138. At the time we considered ETP’s petition, just as now,
the matter had not yet been heard by an ALJ nor had FERC issued a final
order. Id. at 141.
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We concluded in Energy Transfer Partners that ETP’s petition for review
was not ripe and accordingly dismissed it. Id. at 141–44, 146. We
acknowledged that the NGA “is far from clear” on the question whether FERC
could assess a civil penalty through a hearing before an ALJ rather than a
proceeding in district court. Id. at 146. However, we declined to decide this
question because its resolution must await “when and if [FERC] determines
that the NGA has been violated and assesses a penalty.” Id. Because FERC
had made no such determination—rather, it had merely scheduled the
allegations against ETP for a hearing before an ALJ—the proper construction
of the NGA’s requirements for civil penalty assessment was not ripe for
resolution. Id.
C. Ripeness of Total’s claims
Our decision in Energy Transfer Partners controls our resolution of
Total’s appeal and dictates that we dismiss it for lack of ripeness. Our ripeness
analysis in this case fits squarely under our ripeness analysis in Energy
Transfer Partners. Total makes an identical argument to that made by ETP—
only with the addition of related constitutional arguments that are similarly
predicated on uncertain future events—and the underlying FERC proceeding
against Total has made even less progress than that against ETP had made at
the time of our decision in that case. Accordingly, as in Energy Transfer
Partners, we must decline to address the merits of Total’s arguments regarding
the NGA. If and when FERC conclusively determines that Total has violated
the NGA and imposes civil penalties against it, Total can raise all the
arguments it now raises to challenge FERC’s jurisdiction, but with the benefit
of an actual, concrete controversy for this court to review rather than mere
speculations about future hypothetical events.
To begin with, Total’s argument relating to the district court’s
jurisdiction under Section 24 of the NGA is identical to that raised by ETP. We
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first emphasize that Total, similar to ETP, does not object to any of the actions
that FERC has already taken in this matter. To the contrary, Total explicitly
concedes that FERC has the authority to conduct a proceeding regarding the
alleged violation and to propose a penalty prior to any action being brought in
the district court. Indeed, in its brief on appeal, Total concedes that “[t]he NGA
does not bar FERC from first holding an abbreviated in-house ‘public hearing’
. . . before proceeding to district court . . . .” (Emphasis added.) Instead, just
as ETP, Total objects only to future actions that FERC may take, namely,
conclusively adjudicating NGA violations and imposing civil penalties against
Total.
We emphasize that FERC taking these future actions is only a
possibility. As in Energy Transfer Partners, FERC has not made any
conclusive determination that Total violated the NGA, nor has it assessed a
civil penalty against Total. Indeed, the FERC proceedings in this case fall
short of even those in Energy Transfer Partners because, to date, FERC has
not scheduled the matter for a hearing. Rather, FERC has simply initiated
enforcement proceedings against Total by issuing an order to show cause, to
which Total has responded with a 201-page answer raising a plethora of factual
and legal challenges to the allegations in the order to show cause. In other
words, this matter is currently stalled at Step 8 in the civil penalty assessment
process outlined above. And by issuing an order to show cause, FERC does not
make a finding that there has been a NGA violation. See Energy Transfer
Partners, 567 F.3d at 141; 2008 Revised Policy ¶ 37, 123 FERC at 62,014.
Rather, in order to adjudicate a NGA violation and assess a corresponding civil
penalty, FERC must complete steps 8 through 11 above: First, it must consider
Total’s answer. Second, if it is unpersuaded by the arguments in Total’s
answer, it must determine what type of proceeding is necessary to adjudicate
the matter. Third, if it sets the matter for a hearing before the ALJ, FERC
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must review the ALJ’s initial decision, together with any exceptions (and
answers to exceptions) filed by the parties. It may also request additional
briefing or oral argument. If (in FERC’s judgment) only a paper hearing is
required, FERC reviews the record. Fourth, FERC issues a final order
regarding the violation and the penalty, taking into account the five factors
outlined above. Only upon completion of this final step does FERC conclusively
adjudicate a violation and impose a penalty.
Moreover, FERC can terminate a proceeding at any point during these
steps without a finding of a violation. Indeed, as the Energy Transfer Partners
court noted, other alleged violations against ETP had been heard by an ALJ
and dismissed by the ALJ prior to our decision in that case. It is possible that
something in Total’s 201-page answer will compel FERC to drop the
enforcement action. If not, it is also possible that the ALJ rules in Total’s favor
or, if not, that FERC rejects the ALJ’s initial order. We discuss these
hypotheticals not to express judgment on the merits of the allegations against
Total but rather to underscore the point that, just as in Energy Transfer
Partners, Total’s arguments are limited to future actions that FERC may take,
not actions that FERC has already taken or those that it definitely will take in
the future. And if these various decisions are all resolved against Total and
FERC issues a final order finding a NGA violation and assessing a civil
penalty, Total is free to bring an action for a declaration of FERC’s jurisdiction
at that time.
Our holding in Energy Transfer Partners also proves fatal to Total’s
claims regarding constitutional violations. In addition to its jurisdictional
argument, Total requests a declaration that FERC’s administrative process for
adjudicating NGA violations and assessing civil penalties violates the
Appointments Clause, the Fifth Amendment’s Due Process Clause, and the
Seventh Amendment’s guarantee of a jury trial. The Appointments Clause
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argument relates to the manner in which FERC appoints its ALJs, and the
Fifth and Seventh Amendments arguments relate to certain procedures that
FERC has established for conducting hearings. But each of these arguments
is predicated on the assumption that FERC will ultimately schedule a hearing
before an ALJ and issue a final order assessing civil penalties against Total.
Total does not contend that any of the actions that FERC has already taken
violate these constitutional rights; it does not, for instance, claim that FERC’s
proceedings to date have deprived it of due process. Rather, Total claims that
actions FERC could potentially take in the future may violate these rights. As
we just discussed, whether FERC ultimately takes actions that Total claims
would violate its constitutional rights rests on a series of contingencies and is
not a certainty. Again, Total is free to bring these claims if and when FERC
issues a final adverse order.
Total’s arguments to the contrary are unavailing. First, Total attempts
to distinguish Energy Transfer Partners based on the nature of the action.
Total brings this challenge as a declaratory judgment action, purporting to rely
on the district court’s “exclusive” jurisdiction over NGA violations under
Section 24 of the NGA. In contrast, Energy Transfer Partners was brought as
a petition for review under Section 19(b) of the NGA, which affords appellate
review to any party “aggrieved” by a FERC “order.” 15 U.S.C. § 717r(b); see
Energy Transfer Partners, 567 F.3d at 137, 139. According to Total, this
distinction renders Energy Transfer Partners wholly inapplicable because,
unlike a Section 19(b) petition for review, a declaratory action need not await
a final agency action in order to be ripe. We disagree. It is true that, unlike in
Energy Transfer Partners, Total is not seeking review of a FERC action under
Section 19(b) but rather is seeking a declaration of its right to have the action
heard in federal district court. Whether a petition for review under Section
19(b) is ripe requires consideration of whether the party has been sufficiently
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“aggrieved” by FERC’s action. 6 Energy Transfer Partners, 567 F.3d at 139; see
15 U.S.C. § 717r(b) (affording appellate review only to parties “aggrieved by an
order issued by [FERC]”). This ripeness analysis is not identical to the analysis
for declaratory judgment actions that we outlined above, which requires
consideration of whether an actual controversy with sufficient immediacy and
reality exists. Compare Energy Transfer Partners, 567 F.3d at 139–40
(outlining ripeness analysis for Section 19(b) petitions), with Orix Credit All.,
212 F.3d at 896 (outlining ripeness analysis for declaratory actions).
Yet this difference does not avoid the crux of Energy Transfer Partners’
holding: A challenge to FERC’s authority to impose civil penalties under the
NGA is not ripe until “when and if [FERC] determines that the NGA has been
violated and assesses a penalty.” Energy Transfer Partners, 567 F.3d at 146.
We do not discern, and Total does not offer, any principled way to limit Energy
Transfer Partners’ reasoning to petitions for review under Section 19(b). To
the contrary, the language of Energy Transfer Partners extends to any such
challenge, regardless of the form in which it is brought. And, as discussed
above, it is undisputed that FERC has not determined whether Total violated
the NGA, nor has it imposed a penalty. Thus, under the holding of Energy
Transfer Partners, Total’s request for a declaratory judgment is not ripe.
6 We have “distilled four factors” to consider in analyzing whether a FERC order is
ripe for review under Section 19(b):
(1) whether the issues the issues presented are purely legal; (2) whether the
challenged [FERC] action constitutes “final agency action,” within the meaning
of Section 10 of the Administrative Procedure Act; (3) whether the challenged
[FERC] action has or will have a direct and immediate impact upon the
petitioners; and (4) whether resolution of the issues will foster, rather than
impede, effective enforcement and administration by [FERC].
Energy Transfer Partners, L.P., 567 F.3d at 139–40 (quoting Pennzoil Co. v. FERC,
645 F.2d 360, 398 (5th Cir. 1981)).
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Total counters that if it is forced to await final FERC resolution to bring
its claims, it will suffer significant harm in the meantime. Total asserts that
it is already being injured by the FERC proceedings and this “tangible harm”
renders the dispute ripe. According to Total, it is “incurr[ing] significant
expense defending against” the order to show cause. In support of this
argument, Total cites caselaw for the proposition that “[t]he concrete costs of
an additional proceeding is a cognizable Article III injury,” (quoting Sea–Land
Serv., Inc. v. Dep’t of Transp., 137 F.3d 640, 648 (D.C. Cir. 1998)), and “the
‘hardship’ of being forced to defend in an ‘ultra vires proceeding’ is a present
injury ripe for adjudication,” (quoting Stolt–Nielsen SA v. AnimalFeeds Int’l
Corp., 559 U.S. 662, 671 n.2 (2010)). Total urges that it requires relief now, as
opposed to in the future, to “spare [it] the additional unnecessary expense [it]
will continue to suffer” as a result of FERC’s ongoing enforcement action.
This argument is refuted by one simple fact: Total, as discussed above,
concedes that FERC is authorized to conduct a proceeding regarding the
alleged violation and penalty prior to any action being brought in the district
court. This means that it is undisputed that, under either party’s
interpretation of the NGA, Total would have to undergo a proceeding
conducted by FERC prior to any district court proceeding. Therefore, Total is
not being forced to undergo an “additional” proceeding nor is it being subjected
to an “ultra vires” proceeding. Even under Total’s proposed interpretation of
the NGA, Total would be forced to undergo some burden and expense in FERC
proceedings prior to any proceedings in district court.
Total nevertheless argues that if the FERC proceeding involves the
possibility of a future definitive finding of a NGA violation and imposition of a
penalty, as FERC argues it does, Total will be forced to expend “substantial
incremental burden and expense” to defend itself, compared to a proceeding
that can result only in a FERC order that recommends finding a violation and
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proposes a penalty. Total also posits that, if the FERC proceedings could not
result in a binding outcome, the proceedings would be “abbreviated,” thereby
further reducing Total’s expense. According to Total, this incremental burden
and expense renders its claims ripe.
We reject this argument. Total offers only speculation to the effect that,
if its interpretation of the statute prevailed, FERC would significantly
“abbreviate[]” the proceedings. 7 To the contrary, the NGA affords FERC wide
latitude to dictate the terms of the civil penalty process, requiring only that it
involve “notice and opportunity for public hearing.” 15 U.S.C. § 717t-1(b).
And, although it may be true that Total will put more effort into defending
itself in the FERC proceeding if a possible outcome is a definitive finding of
liability and binding imposition of a penalty (in comparison to simply a
recommendation), we rejected this same argument for ripeness made in Energy
Transfer Partners. ETP contended that the litigation expenses of participating
in the FERC proceedings weighed in favor of finding ripeness. Energy Transfer
Partners, L.P., 567 F.3d at 141–42. In rejecting this argument, we explained
that, according to the Supreme Court, “the expense and annoyance of
litigation,” though “substantial[,] . . . is part of the social burden of living under
government,” and thus cannot constitute sufficient hardship for ripeness. Id.
Similarly here, the fact that Total may incur some expense in participating in
proceedings before FERC—even if it is more than it would be if those
7 The likelihood of “abbreviated” proceedings in this matter is further reduced by the
fact that Total filed a 201-page answer to the order to show cause, raising a plethora of legal
and factual challenges to the allegations of NGA violations, which FERC must now consider
and resolve. Answer in Opposition to Order to Show Cause and Notice of Proposed Penalty,
Total Gas & Power N. Am., Inc., No. IN12-17-000 (July 12, 2016).
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proceedings were reviewed de novo—does not render its declaratory action
ripe. 8
In sum, Total does not object to any actions FERC has already taken.
Rather, Total seeks to preemptively challenge a FERC order that may never
be issued. All of Total’s arguments are predicated on future events and are
brought before FERC has even scheduled the matter for a hearing—let alone
issued an order finding a NGA violation and imposing a civil penalty. Yet in
Energy Transfer Partners, we held that any challenge to FERC’s authority to
adjudicate NGA violations and impose a civil penalty must await a final
determination of a violation and imposition of a penalty by FERC. Id. at 146.
Total’s suit is thus not ripe and the district court did not err in dismissing it
on justiciability grounds.
IV. CONCLUSION
Because all of Total’s claims are unripe, the district court’s order
dismissing them is AFFIRMED.
We additionally note that Total’s own argument undercuts its assertion regarding
8
the expense and burden of FERC proceedings. In another section of its brief, Total complains
that FERC’s proceeding will not afford it enough process. It claims that FERC interprets
Section 22 to permit FERC to adjudicate a violation and impose a penalty through merely a
paper hearing without the participation of an ALJ. Total further describes the FERC
proceedings as “abbreviated”; indeed, a component of its argument is that Congress simply
could not have intended for such a short, informal proceeding to result in the imposition of a
penalty totaling in the hundreds of millions. This description of the FERC process
undermines Total’s claims of unduly burdensome proceedings.
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E. GRADY JOLLY, Circuit Judge, concurring:
I concur in the result reached by the panel majority and agree that
Total’s claims are due to be dismissed as not yet ripe.
I write separately because of my concerns with the majority’s reliance on
Energy Transfer Partners, L.P. (“ETP”) v. FERC, 567 F.3d 134 (5th Cir. 2009).
I am not convinced that case necessarily controls our analysis. The difference
between that case and the posture of this case is fundamentally different.
There, ETP filed an interlocutory petition for appellate court review pursuant
to § 19 of the NGA, 15 U.S.C. § 717r. ETP, 567 F.3d at 139-40. The court
“analyze[d] whether this petition for review should proceed under § 19(b) of the
NGA and the precedents construing and applying that statute.” Id. at 139.
The question presented by a § 19(b) petition—the question of “ripeness of
agency action for judicial review”—is analyzed under the factors distilled from
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967). See ETP, 567 F.3d at
139-140.
By contrast, the issue here arises from a declaratory judgment action.
The question in this declaratory judgment action is whether there is a “case or
controversy” sufficient to establish Article III jurisdiction. See Orix Credit All.,
212 F.3d at 896. Indeed, the panel majority properly acknowledges that ETP
involved a distinct inquiry, see supra at 20 (“This ripeness analysis [in ETP] is
not identical to the analysis for declaratory judgment actions that we outlined
above.”), but would nevertheless shoehorn this case into ETP’s holding.
Because the ETP court applied a different standard from the standard
that must be applied to this case, I would not rely on that case so much, but
would instead simply ask whether there is “a substantial controversy of
sufficient immediacy and reality . . . between parties having adverse legal
interests[?]” Orix, 212 F.3d at 896 (citations and quotations omitted).
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I would respond “no” to this question and conclude that the case is not
ripe for review. As the majority notes, “FERC is authorized to conduct a
proceeding regarding the alleged violation and penalty prior to any action
being brought in the district court.” Supra at 21. FERC is, under the statute,
given broad authority to “assess[]” a penalty “after notice and opportunity for
public hearing.” NGA § 22, 15 U.S.C. § 717t-1; see also NGA § 15, 15 U.S.C.
§ 717n. Even assuming that Total is correct in its argument that it is entitled
to de novo review of the penalty assessment in district court, no penalty can be
said to have been “assessed” until the conclusion of all FERC proceedings. See
NGA § 22 (“The penalty shall be assessed by the Commission after notice and
opportunity for public hearing.”) (emphasis added). After the “assessment,”
Total may choose to either (1) challenge the finding through an NGA § 19
petition, or (2) wait for FERC to bring an action for enforcement pursuant to
NGA § 24, 15 U.S.C. § 717u, and then raise its arguments that it is entitled to
de novo adjudication in the district court now that FERC has “assessed” the
“proposed” penalty.
In other words, even assuming that Total is correct on the merits of this
case, it still does not have standing because the FERC proceedings up to this
point are not ultra-vires. Total cites no authority for the proposition that
subjecting a party to an arguably inefficient though not ultra-vires proceeding
may constitute an injury sufficient to give rise to an Article III case or
controversy. Cf. Sea–Land Serv., Inc. v. Dep’t of Transp., 137 F.3d 640, 648
(D.C. Cir. 1998); Stolt–Nielsen SA v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671
n.2 (2010).
Accordingly, I concur in the judgment reached by the majority.
25