D.C. Court of Appeals Sets New Precedent in Affirming FERC Enforcement Penalties Against a Seller Making False or Misleading Submissions to FERC or to a FERC-Approved Market Organization

by Davis Wright Tremaine LLP

The District of Columbia Circuit Court of Appeals, in Kourouma v. FERC, (Docket No. 11-1283, July 23, 2013), has set new precedent affirming FERC’s authority to enforce penalties for a seller’s violation of its Market Behavior Rule (18 CFR § 35.41(b)) prohibiting the submission of false or misleading information or the omission of material information in any submission to FERC, to a FERC-approved ISO, RTO, or market monitor, or to a jurisdictional transmission provider, unless excused by the seller’s exercise of due diligence to prevent the occurrence. In Kourouma, the Court of Appeals upheld FERC’s imposition of a $50,000 penalty on an individual trader who falsified and concealed his identity on forms submitted to FERC and to PJM in registering as a new market participant.

Seller’s right to an ALJ hearing prior to agency assessment of a penalty is limited. By statute, prior to FERC’s assessment of a penalty after issuance of a show cause order, the seller may elect to have the determination of violation and the “basis” of the penalty made “on the record after an opportunity for an agency hearing … before an Administrative Law Judge.” 16 U.S.C. § 823b(d)(2)(A). The trader requested such a hearing, but the Commission summarily assessed the penalty, without an ALJ hearing. Declaring it a matter of first impression, the Court of Appeals upheld summary disposition under § 823b(d)(2)(A), holding that FERC need not set a penalty assessment for an ALJ hearing if there is no material fact in dispute. This is the same standard applied by FERC under its generally applicable Rule of Practice and Procedure 217 for summarily issuing, without an ALJ evidentiary hearing, any order required to be made on the record after opportunity for a hearing. Section 823b(d)(2)(A) thus does not constrain FERC’s usual discretion to act summarily, even with respect to penalty assessments. The Court of Appeals found that the trader’s affidavit submitted in response to the order to show cause admitted the falsifications and omissions and, therefore, the violation of the Market Behavior Rule was clear. Implicitly, the decision means that a seller is not entitled to ALJ determination of the “basis” or amount of a penalty, if a violation of the Market Behavior Rule is admitted.

FERC need not find “intent to deceive” or a “knowing” violation of the Market Behavior Rule. Again, ruling on a matter of first impression, the Court of Appeals held that an intent to deceive is not an element of violation of the Market Behavior Rule and that only inadvertence despite the exercise of due diligence excuses the filing of false or misleading submissions. The Court of Appeals states, in what might be considered dicta, that the due diligence excuse contained in the pertinent Market Behavior Rule “implies even negligent misrepresentations may be actionable.” The Court of Appeals characterized the trader’s violations as not inadvertent and “worse than carelessness.” Whether FERC will apply in the future a standard of care and due diligence based on negligence, carelessness, or not inadvertence remains to be seen. Kourouma strongly supports a not inadvertent standard and market participants would probably be deemed on notice that negligent, careless and not inadvertent violations of the Market Behavior Rule prohibiting false or misleading submissions are potentially subject to penalty.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Davis Wright Tremaine LLP | Attorney Advertising

Written by:

Davis Wright Tremaine LLP

Davis Wright Tremaine LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.