On June 8, 2017, the U.S. Court of Appeals for the Fifth Circuit dismissed TOTAL Gas & Power North America, Inc.’s (“Total Gas”) claims that the Federal Energy Regulatory Commission (“FERC”) lacks authority to adjudicate violations of the Natural Gas Act and impose civil penalties for market manipulation violations. Specifically, Total Gas argued that, under Section 24 of the Natural Gas Act, only district courts of the United States may adjudicate violations of the Natural Gas Act and assess associated civil penalties. Total Gas also argued that adjudication by a FERC Administrative Law Judge of a Natural Gas Act violation and imposition of civil penalties would violate the Constitutional guarantees of the Appointments Clause, the Fifth Amendment’s Due Process Clause, and the Seventh Amendment’s right to a jury trial. The Fifth Circuit found that Total Gas’ arguments were not ripe, as the FERC has not yet found that Total Gas has violated the Natural Gas Act or assessed any associated civil penalties.
The Energy Policy Act of 2005 significantly increased FERC’s authority to enforce violations of the Natural Gas Act, including authority to enforce rules preventing manipulation of FERC-jurisdictional natural gas markets. Pursuant to this authority, in 2015, FERC Staff notified Total Gas of its intention to recommend that FERC bring an enforcement action against Total Gas based on trades that allegedly violated the prohibition against market manipulation. Total Gas filed a declaratory judgment action in the U.S. Federal District Court for the Southern District of Texas. The District Court dismissed the Total Gas action, finding it not ripe, as future events giving rise to Total Gas’ presupposed injury might not ever occur.
On appeal, the Fifth Circuit affirmed dismissal of the Total Gas action based on its lack of ripeness. The Court stated that before Total Gas can challenge FERC’s authority in District Court, FERC must officially determine that Total Gas violated the Natural Gas Act and impose civil penalties against it. Although the Court did not address the substantive, legal issues Total Gas raised, it did note that the Natural Gas Act “is far from clear” on the question of whether FERC may assess a civil penalty through an Administrative Law Judge hearing, rather than in a District Court.
The decision leaves unanswered significant questions on the scope of FERC’s enforcement authority, including the fundamental question of whether FERC even has the authority to levy and assess civil penalties for Natural Gas Act violations. However, based on this decision, at least in the Fifth Circuit defendants of FERC Natural Gas Act enforcement proceedings will not be able to address those fundamental questions until after FERC issues a final ruling on their enforcement proceeding.
The 5th Circuit’s opinion is available here
For more information on this decision, please contact Peter Scanlon
or Tyler Mansholt