On March 22, 2023, the U.S. District Court for the Eastern District of Virginia (Court) granted the Federal Energy Regulatory Commission’s (FERC) Motion for Default Judgment and entered a default judgment against Powhatan Energy Fund, LLC (Powhatan Energy Fund). The Court awarded FERC $3,465,108 in disgorgement and $16,800,000 in civil penalties.
The Court’s decision brings this decadelong saga to a close. The case began in August 2010 with the PJM Interconnection, L.L.C. (PJM) submission of a referral to the FERC Office of Enforcement (OE) after it received complaints from a market participant alleging that someone was “trying to game the system.” On December 17, 2014, FERC issued an Order to Show Cause and Notice of Proposed Penalty alleging that Powhatan Energy Fund, Dr. Houlian Chen, and funds created by Dr. Chen (Powhatan) violated FERC’s manipulation rules from June 1, 2010 to August 3, 2010 by conducting fraudulent Up-To Congestion transactions in PJM energy markets in order to obtain excessive amounts of certain credit payments to transmission customers. Powhatan stated and maintained that it did not violate FERC’s rules but merely profited from a market inefficiency or loophole. After a highly contested and adversarial enforcement proceeding, the FERC Office of Enforcement issued an Order Assessing Civil Penalties on May 29, 2015, requiring Powhatan Energy Fund to pay a civil penalty of $16,800,000 and $3,465,108 in disgorgement within 60 days. Powhatan Energy Fund refused to pay the civil penalties.
On July 31, 2015, FERC filed the instant action seeking affirmation and enforcement of its Order Assessing Civil Penalties. Powhatan filed a Joint Motion to Dismiss, alleging that the suit was barred by the statute of limitations, that FERC did not have authority to seek disgorgement as a civil penalty, and even if FERC did have such authority to seek disgorgement, it too was barred by the statute of limitations. Powhatan argued that the five-year statute of limitations period for bringing civil penalties under 28 U.S.C. § 2462 should first accrue at the time of the alleged activity. FERC argued that where the subject of an enforcement proceeding elects to a federal district court forum (rather than an administrative law judge forum), FERC’s claim does not accrue, for purposes of filing suit in federal district court, until the subject fails to pay the assessed penalties within the 60-day deadline. Because FERC filed suit within five years of Powhatan’s not paying the initial civil penalty assessed by FERC, FERC maintained that the entirety of its case was timely.
On September 24, 2018, the Court found that FERC had met the statute of limitations, as the action began to accrue when Powhatan failed to pay the assessed penalty within 60 days of issuance of the Order Assessing Civil Penalties, but authorized Powhatan to seek interlocutory appeal. On February 11, 2020, the Fourth Circuit affirmed the Court’s judgment that FERC’s action was timely filed against Powhatan and remanded to the Court for further proceedings.
On October 29, 2021, FERC issued an Order Approving Stipulation and Consent Agreement between OE, Dr. Chen, and the funds created by Dr. Chen (Chen Defendants). Chen Defendants stipulated to the facts, neither admitted or denied the alleged violations, and agreed to pay $600,000 in disgorgement to PJM. On November 4, 2021, the Chen Defendants were dismissed from the instant action.
After the close of expert discovery, Powhatan Energy Fund filed for bankruptcy on February 26, 2022. As such, the Court stayed the case. FERC and Powhatan Energy Fund reached a settlement whereby the Trustee in the Powhatan Energy Fund bankruptcy proceeding would not oppose lifting the stay or challenge a default judgment, and FERC would not enforce or collect any judgment that the Court may issue outside of FERC’s claim in the Bankruptcy Court. Ultimately, the Court lifted the stay and the Clerk entered a default judgement.