A California federal court last week dismissed all claims brought by the Federal Energy Regulatory Commission (FERC) against an energy trader for the agency’s failure to commence its action within the five-year statute of limitations in 28 U.S.C. § 2462. Judge Troy Nunley in the Eastern District of California dismissed the action notwithstanding that FERC and the trader had entered into an agreement tolling the running of the statute of limitations while the agency investigated. The ruling will likely impact the terms of future FERC tolling agreements with investigated persons and may force the agency to begin enforcement actions more quickly and streamline its procedures for that purpose.
FERC commenced its court action in 2013 to collect a civil money penalty it had earlier assessed based on non-adjudicated allegations in an administrative show cause order entered October 31, 2012, charging manipulation of certain power markets. The trader, Ryan Smith, contested the charges and the penalty both on the merits and for failure to satisfy the statute of limitations. There was no dispute that Smith’s alleged conduct did not extend past March 29, 2007 – clearly more than five years before FERC’s court action. The legal issue, however, was whether the tolling agreement could be interpreted to toll sufficient time to preserve FERC’s claims.
The June 21, 2011 tolling agreement stated that “tolling of the statute of limitations shall continue until Enforcement provides written notice to Mr. Smith that the investigation is terminated.” This raised two issues: (1) whether FERC’s October 31, 2012 show cause order constituted notice that the investigation was terminated; and (2) if so, whether the statute of limitations continued to run from that date to FERC’s court filing on October 9, 2013?
Applying federal common law, the Court held that the answer to both questions was “yes” and dismissed FERC’s case against him as untimely.
The ruling will likely impact how FERC approaches tolling agreements entered into with individuals and entities that are the subject of FERC investigations. FERC’s most immediate remedy is to seek much more specific language in future agreements about when a tolling agreement expires, and under what particular circumstances. FERC staff might seek to re-negotiate existing agreements with current subjects of investigations to address those issues. The court’s ruling, however, might also spur swifter resolution of investigations and spark review of agency procedures that delay the commencement of actions when a settlement is not reached.
The decision can be found here. Please contact Steptoe’s FERC and CFTC enforcement team with any questions about this decision, or any compliance or enforcement issues.