Ohio District Court Rejects FERC Enforcement of Disgorgement and Joint and Several Liability

Morgan Lewis - Power & Pipes
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Morgan Lewis - Power & Pipes

The US District Court for the Southern District of Ohio held on November 29, 2021, that in actions commenced under 16 USC Section 823b, district courts have the power to decide whether FERC can enforce civil penalties but do not have the ability to consider challenges to FERC orders that pursue joint and several liability and disgorgement. The court held that those challenges generally fall within the exclusive jurisdiction of federal appeals courts.

FERC sought to enforce an order in which it imposed civil penalties and disgorgement, on a joint and several basis, against a Pennsylvania power trading firm, its co-owners, and three of its traders. FERC argued that Section 309 of the Federal Power Act grants it broad authority to craft remedies and impose orders as it sees fit, including joint and several liability and disgorgement. However, the court held that it lacks jurisdiction to review orders imposed under Section 309 because that section specifically provides that a party aggrieved by a FERC order can seek review and raise its objections to the FERC order in a US court of appeals.

The court held that Section 823b, which addresses the assessment of civil penalties and under which FERC initiated the action, provides a different process, but only for penalties. That statute allows a defendant to affirmatively elect a penalty assessment by FERC. If the defendant does not pay the civil penalty within 60 days, Section 823b requires the Commission to file an action in district court for an order affirming the assessment of the civil penalty at which point the court provides a de novo review of the allegations.

Finding that disgorgement is not a civil penalty, the court held that FERC cannot enforce a disgorgement award through the district court enforcement process under Section 823b. The court explained that FERC can enforce a disgorgement award or impose joint and several liability by applying to a district court for a writ of mandamus commanding compliance with FERC’s order under 16 USC Section 825m. However, because FERC in this case commenced its action under Section 823b, the district court held that it will not enforce those remedies through this action because Section 823b does not provide for the enforcement of joint and several liability or disgorgement.

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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.

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