Two Federal District Court Opinions Highlight Differences Between Natural Gas Act and Federal Power Act Investigations

Two weeks ago, a federal judge in Texas rejected arguments that targets of FERC investigations under the Natural Gas Act (NGA) should be able to make their cases before federal district court judges and not before the agency. Less than a week later, another federal judge, this one in Massachusetts, held that the right to "de novo review" in federal district court given to targets of FERC investigations under the Federal Power Act (FPA) entitles them not merely to a court review of FERC’s conclusions, but to trials in the federal courts where they may conduct discovery and present witnesses. Were these judges reading the same statutes? No, they weren’t. And that largely explains the different outcomes in these two cases.

The first of these cases, Total Gas & Power North America, Inc. et al. v. FERC, involved a claim by Total Gas that section 24 of the NGA gives the federal districts the exclusive jurisdiction to adjudicate violations of the Act. The district court judge, as we discussed in our recent Insight, not only found the claim premature (FERC had only issued a "show cause" order and had made no determination about liability), but concluded that the reference to "exclusive jurisdiction" meant "merely that all criminal or civil proceedings initiated in the courts for violations of the act must be brought in the [federal district courts]" and that "the exclusive jurisdiction of violations language was not intended to repeal the statutes authorizing agency proceedings followed by review in a United States Court of Appeals." Complaints about the inherent unfairness of having the same agency whose staff had initiated the investigation ultimately deciding the company’s fate, the court said, would have to be raised in the federal circuit courts of appeal – after any hearing FERC might conduct.

The second case, FERC v. Maxim Power Corp., et al., arose under the Federal Power Act. Like the NGA, it empowers FERC to investigate companies and individuals suspected of engaging in energy market manipulation. But unlike the NGA, section 31 of the FPA gives targets of FERC investigations two express options. They may either elect to have their cases heard before a FERC administrative law judge (with the right to conduct discovery and to introduce and cross-examine witnesses) or they may insist that FERC "promptly" assess a civil penalty and, if not paid, "institute an action" in federal district court where the judge will "have authority to review de novo the law and facts involved."

Unlike the Total Gas case, there was no dispute between FERC and Maxim that Maxim had a right to "de novo" review in the federal district court. The only issue between them on this jurisidictional point concerned the meaning of de novo review – more specifically, whether "de novo" review meant only that the court would review the agency’s determination and the evidence it relied upon (FERC’s position) or whether Maxim had a right to a full trial and the attendant right to conduct discovery and to call and cross-examine witnesses. The court sided with Maxim, but also ordered that discovery should not be duplicative of what had already been relied upon and disclosed by the agency.