In FERC v. Silkman, decided January 4, 2019, the U.S. District Court for the District of Maine held that the Federal Energy Regulatory Commission (FERC) has up to five years from the date of its enforcement order to impose civil penalties on violators of FERC’s anti-market manipulation rule. The court reached its determination by applying the federal statute of limitations (28 U.S.C. § 2462), which provides that “an action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued” (emphasis added).
The issue before the court was to determine “when the claim first accrued” – was it at the time of the underlying events that gave rise to the claim (2007), or upon the issuance of a penalty order by FERC (2013)? Applying First Circuit precedent in United States v. Meyer, 808 F.2d 912 (1st Cir. 1987), the court held that the latter date (2013) applied, and that FERC’s disgorgement order was accordingly not time-barred. Applying Meyer, the court determined that FERC provided the type of full-fledged, “adjudicatory administrative proceeding” that warranted tolling the statute from the date that that adjudication concluded, rather than a simple “decision to prosecute,” which would have tolled the statute as of the date of the alleged fraud.
The court, using the Meyer analysis, noted that where a lengthy adjudicatory administrative process is necessary prior to assessing a penalty, the statute of limitations on enforcement of the penalty tolls only after the administrative proceedings have concluded. As the court put it, “the claim for the enforcement of a civil penalty cannot accrue until the civil penalty has assessed.” While conceding that FERC’s administrative proceeding did not include discovery or a live hearing before an administrative law judge, the court noted that FERC provided some procedural protections, even if “less formal and … fewer” than some adjudications under the Administrative Procedure Act and the adjudication in Meyer. Additionally, FERC “made extensive findings of facts and applied the law to those facts.” The court found that this was “significantly more” than what is afforded in a mere discretionary decision to prosecute, and as such FERC had conducted an adjudication.
Silkman is at odds with a prior order by the District Court for the Eastern District of California in FERC v. Barclays Bank PLC, No. 2:13-CV-02093-TLN-DB, 2017 WL 4340258 at *11, (E.D. Cal. Sept. 29, 2017), which determined that FERC’s disgorgement order amounted to a “prosecutorial determination” rather than an adjudication, and that the disgorgement order was time-barred because it was issued six years after the alleged misconduct. Accordingly, it remains uncertain which precedent will be applied in future enforcement cases.
More fundamentally, Silkman highlights the stark choices faced by market participants who are accused of market manipulation, or other behavior subject to FERC’s $1,269,500 per violation per day civil penalty authority. The underlying dispute remains unresolved more than a decade after the alleged fraud. One party has since settled and one has gone bankrupt. Silkman, by seemingly allowing for lengthy Commission delays during the administrative process, increases the pressure on market players to settle cases, even ones that might lack merit.