The U.S. Court of Appeals for the 4th Circuit has upheld a lower court's finding that the Federal Energy Regulatory Commission did not act outside of the statute of limitations when it ordered an energy consulting company, its manager and related funds to pay millions of dollars in penalties and disgorge profits tied to a market manipulation investigation.
A three-judge panel of the 4th Circuit agreed with the U.S. District Court for the District of Maine's 2018 ruling that the clock for the five-year statute of limitations on FERC's market manipulation enforcement case started shortly after the parties refused to pay the penalties assessed by the agency and not when the alleged market manipulation occurred.
FERC in 2015 ruled that the Powhatan parties — the Powhatan Energy Fund LLC, CU Fund, HEEP Fund and Houlian Chen — for two months in 2010 used a financial trading scheme to manipulate the power market operated by the PJM Interconnection and directed the parties to pay $29 million in civil penalties and disgorge $4 million in profits.
Powhatan has maintained it did not engage in market manipulation. Rather than have the final decision on disgorgement be decided by a FERC administrative law judge after holding hearings, the parties exercised the option to have FERC assess the penalty and not pay it, thereby forcing FERC to ask a federal district court to affirm its findings and determine the appropriate penalties.
At issue before the 4th Circuit was when the statute of limitations in the case began. FERC argued that the clock began after the parties refused to pay the assessed penalties, and since it filed suit in the district court within five years of that date, it maintained that the entirety of its case was timely.
But the Powhatan parties insisted that the clock should have begun in 2010 when the alleged illegal behavior took place, noting that the U.S. Supreme Court has held that the five-year clock for civil penalty claim for fraud under the Investment Advisers Act starts when the conduct occurs. The parties, therefore, claimed that FERC had five years from the date last purportedly manipulative trades took place on Aug. 3, 2010. Since FERC did not file its court complaint until July 31, 2015, the parties argued that FERC could enforce civil penalties for only the last four days of the trading activities at issue.
The 4th Circuit sided with FERC.
"Although appellants are correct that there are many instances in which a claim accrues instantly upon a statutory violation, no natural law principle dictates that result," said the Feb. 11 opinion written by Judge J. Harvie Wilkinson. "Statutes of limitation are, as the name implies, statutory."
So the application of those statutes "must take account of any substantive prerequisites that Congress has placed on the right to file the underlying lawsuit," Wilkinson continued. "Put plainly, until a prospective plaintiff satisfies any such prerequisites and has a legal right to initiate an action to enforce a claim, that claim has not 'accrued.'"
Wilkinson added that "in essence, the degree to which FERC controls the pace of proceedings — and therefore when a complete and present cause of action accrues — is a matter of congressional design."
"To adopt appellants’ position that FERC has only five years from the date of the underlying violation both to complete the entire show cause process and to institute the district court action would materially disrupt this carefully reticulated enforcement scheme," Wilkinson wrote.
Kevin Gates of the Powhatan Energy Fund, in an emailed statement, said that while the parties are disappointed by the court's findings, "we look forward to the opportunity of finally litigating the merits of the case."
Judges Barbara Keenan and Albert Diaz joined with Wilkinson in the opinion in FERC v. Powhatan (18-2326)