In Federal Energy Regulatory Commission v. Barclays Bank PLC, et al. (Barclays Bank), the U.S. District Court for the Eastern District of California (the court) has granted a motion for judgment on the pleadings of defendant Ryan Smith and dismissed him from the action. In the September 29, 2017 order, the court found that FERC’s claim to enforce a civil penalty against Smith, a former Barclays trader, for alleged violations of Section 222 of the Federal Power Act (FPA), 16 U.S.C. § 824v, and FERC’s Anti-Manipulation Rule, 18 C.F.R. § 1c.2 in the amount of $1 million, was time barred by the applicable, five-year statute of limitations, 28 U.S.C. § 2462 (Section 2462). FERC’s remaining claims against Barclays Bank PLC and three other individual traders, by which FERC seeks enforcement of civil penalties of $452 million and disgorgement from Barclays of $34.9 million of unjust profits, remain pending. The order provides important guidance regarding application of Section 2462 to cases arising under the FPA’s civil penalty provisions and the due process requirements of the FPA.
FERC’s Order to Show Cause Provided Notice of Termination of FERC Investigation of Smith, Terminating Applicable Tolling Agreement The court first considered whether the text of FERC’s October 31, 2012 Order To Show Cause and Notice of Proposed Penalty (OSC) constituted notice to Smith that FERC had terminated its investigation into his conduct. If the OSC provided written notice to Smith of termination of the FERC investigation, such notice would terminate an agreement between FERC and Smith to toll the applicable five-year statute of limitations. The court held that the OSC did so, based on the OSC’s use of the past tense to describe FERC Enforcement staff’s (staff) actions, i.e., staff’s having “conducted” and “concluded” an investigation, and other language denoting that staff had arrived at “conclusions of law” in the OSC. The court rejected FERC’s arguments against termination, particularly that (1) the investigation had not “actually concluded”; (2) the OSC provided only insufficient, “implied notice” of termination; and (3) even if the OSC provided Smith written notice of termination, such notice was not provided by staff, as required by the tolling agreement.
FERC’s Claims Against Smith Are Time-Barred Having determined that the tolling agreement terminated as of October 31, 2012 based on the OSC, the court also agreed with Smith’s argument that FERC failed to commence its action in federal court prior to expiration of the five-year statute of limitations period under Section 2462, which requires that a “proceeding for the enforcement of any civil . . . penalty . . . shall not be entertained unless commenced within five years from the date when the claim first accrued.” The court rejected FERC’s arguments that issuance of the OSC on October 31, 2012 – approximately 11 months prior to FERC’s initial federal court filing – tolled the statute of limitations by commencing a timely “proceeding” that culminated in an order assessing civil penalties. The court held that a “proceeding” within the meaning of Section 2462 must involve an “adversarial adjudication to be tantamount to a prosecution” before a neutral decision maker. FERC’s “administrative penalty assessment process” – the period between issuance of the OSC and the order assessing civil penalty – failed to meet these requirements.
Pursuant to the FPA, FERC’s task during this period was simply to “decide whether to civilly prosecute” Smith, not to conduct or participate in a proceeding. FERC only commenced a “proceeding” consistent with Section 2462 when it filed its action in federal court. By that date, the statute of limitations had expired on FERC’s claims. The court also rejected FERC’s argument that issuance of the OSC tolled the statute of limitations by providing “statutorily required notice” of a civil penalty to Smith, holding that the text of the applicable provisions of the FPA provide for no such tolling mechanism.
The order enters judgment in favor of Smith and dismisses him from the action. More broadly, the order provides important precedent that FERC’s issuance of an Order to Show Cause does not commence a proceeding for purposes of Section 2462, but may, based on the pertinent language, be found to terminate any applicable tolling agreement. FERC may eventually appeal the order, but in the meantime the order likely will encourage FERC to seek to assess civil penalties and bring actions in federal district court more quickly, to avoid running afoul of the Section 2462 five-year limitations period.