In a March 30, 2017 order “in agreement with every other federal court that has expressly addressed this issue,” the court in FERC v. Barclays Bank PLC, (E.D. Cal., filed Oct. 9, 2013), held in an action FERC filed to enforce its prior assessment of $453 million in civil penalties and $34.9 million disgorgement of unjust profits for alleged market manipulation that the Defendants (Barclays Bank PLC and four individual traders) are entitled to conduct discovery under the Federal Rules of Civil Procedure.  The holding is a procedural victory for the Defendants who are alleged to have engaged in manipulative trading in physical electricity markets in the western U.S. from 2006 – 2008. It is also consistent with a growing body of law  finding that federal district court “de novo review of the law and the facts involved” regarding a FERC-assessed civil penalty under Section 31(d)(3) of the Federal Power Act (FPA), 16 U.S.C. 823b(d)(3)(B), requires “factual development through discovery” in the federal court action, and not solely review of the record of the underlying FERC investigation and/or administrative process.
The order may also have an important practical effect on the litigation strategies of parties subject to investigation by FERC’s Office of Enforcement (OE). Importantly, the court rejected FERC’s “issue exhaustion,” argument that the Defendants “waived all facts and legal arguments that they could have, but chose not to present to the Commission.”  In rejecting this argument, the court found that FERC’s assessment of a civil penalty under the FPA does not constitute “final agency action,” where issue exhaustion may be appropriate. Rather, the “statute and implementing regulations and policy statements plainly expect” that FERC’s penalty assessment, along with the required 60-day waiting period that FERC must observe prior enforcing the civil penalty in federal court, “is merely a mechanism for getting the proceeding into district court.”  In short, the “administrative investigation was a prelude to adjudication of FERC’s claims . . .”  Moreover, issue exhaustion is a “creature of statute,” and no relevant statute requires issue exhaustion in this instance.  Within the context of Barclays, this holding means that the Defendants will not be limited to the facts and legal arguments made during the underlying FERC investigation. More broadly, the holding on issue exhaustion suggests that an investigated party may have little incentive to make an exhaustive factual and legal case to OE during the FERC administrative investigation and process, since the investigated party may well be able to make all such arguments during the federal court’s subsequent de novo review of any assessed civil penalty.