Free Sur-Reply - District Court of Federal Claims - federal

Case 1:07-cv-00184-LAS

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ELECTRONICALLY FILED ON JUNE 20, 2008

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

THE PEOPLE OF THE STATE OF CALIFORNIA EX REL. EDMUND G. BROWN JR., ATTORNEY GENERAL OF THE STATE OF CALIFORNIA, and the CALIFORNIA DEPARTMENT OF WATER RESOURCES BY AND THROUGH ITS CALIFORNIA ENERGY RESOURCES SCHEDULING DIVISION, Plaintiffs, v. THE UNITED STATES, Defendant.

No. 07-184C (Hon. Loren A. Smith, Senior Judge) THE PEOPLE'S SURREPLY IN FURTHER OPPOSITION TO DEFENDANT'S MOTION TO DISMISS

Plaintiffs the People of the State of California ex rel. Edmund G. Brown Jr., Attorney General of the State of California, and the California Department of Water Resources, by and through its California Energy Resources Scheduling Division (CERS) (collectively, "the People"), respectfully submit this surreply brief, authorized by the Court in its June 19, 2008 Order, in further opposition to the United States' motion to dismiss. The People also incorporate by reference the arguments of the plaintiff Utilities in Plaintiffs Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company's Surreply in Further Opposition to Defendant's Motion to Dismiss, Court of Federal Claims Case Nos. 07-157C and 07-167C (consolidated), attached hereto as Exhibit A, in further reply to the same arguments raised by the U.S. in its motion to dismiss in this matter.

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I. Introduction The People's opposition to the pending motion to dismiss cited seventy-six different cases. Only two cases were state cases from California, cited as examples of the widespread recognition by courts of multi-party contracts. Opposition at 40. This legal point was otherwise amply supported by citation to federal law as well. Therefore, it is difficult to understand what concern the U.S. has regarding choice of law that warrants its introduction of new evidence on reply. Nonetheless, the U.S. now offers two newly discovered letters pertaining to BPA.1 U.S. Reply at 7-8; U.S. App. at A1686-A1691. The U.S. uses these letters to renew its argument that the "the federal common law of contracts" should govern the interpretation of the ISO and PX Tariffs in this case. The argument is entirely theoretical and academic because the U.S. does not indicate how the federal common law of contracts might cause a different interpretation of the Tariff from that advanced by the People already. For the additional reasons discussed below, the letters are improper to consider on the U.S.'s motion to dismiss. II. Argument A. The letters do not establish that the federal common law of contracts applies in implementing the ISO and PX Tariffs The newly discovered letters pertain only to BPA, and not to WAPA. Even if these letters are considered by the Court on this motion, this parol evidence does not show that the ISO and PX agreed that federal law governs in all respects as to BPA. U.S. Reply at 7-8.

Whatever meaning these letters might have for this litigation, WAPA was not a party to these communications. Therefore, if these letters cause the application of federal common law in litigation with BPA, this federal common law would apply to BPA only. The litigation would proceed against WAPA under a potentially different set of legal authorities. The Court should decline the invitation by the U.S. to add this unnecessary layer of complexity to this litigation.

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1.

The BPA-PX letter

The letter between BPA and the PX is inconclusive. It does not even identify or include the language of the PX Tariff amendments proposed by BPA that purport to be the subject of the letter. U.S. App. at A1686-1687. Even assuming that the section 19.6 of the PX Tariff incorporates the amendments alluded to in the BPA-PX letter, section 19.6 provides only that a federal entity shall be governed by "applicable federal law." U.S. App. at A39 (PX Tariff § 19.6) (emphasis added). The meaning of "applicable federal law" is amplified in the following section, which says that "[i]f any provision of this Tariff is inconsistent with any obligation imposed on any person or federal entity by federal law or regulation, to that extent it shall be inapplicable to that person." Id. at A40 (PX Tariff § 19.7) (emphasis added). The Tariff language read in context, as well as FERC filings made by the ISO, PX, and the Agencies at the time the Tariffs were amended to include the choice of law language, demonstrate that "applicable federal law" refers to federal laws that impose specific obligations on federal agencies or are inconsistent with the Tariff, not the wholesale adoption of and reference to all federal law.2 2. The BPA-ISO letter

The letter between BPA and the ISO is similarly non-probative on the choice of law issue raised by the U.S. The letter indicates only that the ISO agreed that under its Tariff, BPA's Scheduling Coordinator Agreement would be governed by federal law "to the extent applicable." U.S. App. at A1689 (emphasis added). The "extent applicable" language of the BPA-ISO letter harkens back to the actual terms of the ISO Tariff. As the U.S. acknowledges, the ISO Tariff provided that it was "to be

Consistent with that meaning, WAPA, in its PX Participation Agreement, designated two specific federal statutes that would be "applicable" to it in its transactions under the PX Tariff. WAPA attached an exhibit to its PX Participation Agreement stating that the agreement is subject to the Contract Work Hours and Safety Standards Act, 40 U.S.C. § 327 et seq., regulations promulgated thereunder, and Section 202 of Executive Order No. 11246, 43 Fed. Reg. 46501 (1978), concerning employment discrimination. U.S. App. at A1224.

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construed in accordance with California law," except to the extent that any of its provisions were inconsistent with federal law applicable to a federal entity. U.S. Reply at 10. Where such an inconsistency arises, the provision "shall be inapplicable" to the federal entity. Id.; U.S. App. at A562-563 (ISO Tariff § 20.8). Taken together, the ISO Tariff and the BPA-ISO letter show that California law would apply unless in conflict with federal law ­ a conflict that the U.S. has not shown. Contrary to the U.S.'s argument, the ISO Tariff nowhere says that "California law is thus inapplicable" to BPA in toto. And such an agreement to displace California law entirely ­ the meaning the U.S. takes from the BPA-ISO letter ­ would be improper. The FERC-approved ISO Tariffs' choice of law provisions specifying California law would be rendered meaningless by such a reading of the BPA-ISO letter and thereby insert a non-FERC-approved term into the ISO Tariff. In short, nothing in these newly identified letters supports the U.S.'s sweeping assertion that the Agencies are wholly exempt from all state law and governed exclusively by federal substantive contract law. But again, this is simply not the motion, or the record, on which these contract interpretation questions can be decided. 3. The U.S. has previously taken a contrary position on this choice of law issue

The U.S.'s position here contrasts acutely with its position in Alliant Energy, where WAPA agreed to a virtually identical choice of law provision in the MAPP Restated Agreement.3 As here, there was no apparent conflict between Minnesota contract law and any federal statute, and the district court and the Eighth Circuit decided WAPA's contract claims

Section 13.8 states: "Subject to the provisions of Section 13.15 and to the extent permitted by law, to promote uniformity of interpretation of this Restated Agreement the laws of the State of Minnesota, with the exception of its laws governing choice of law, or United States federal law or Canadian Laws as applicable, shall control the obligations and procedures established by this Restated Agreement and the performance and enforcement thereof." MAPP Restated Agreement, § 13.8 (emphasis added), U.S. App. at A1546. Section 13.15, like the PX Tariff, states no member is required to comply with a provision if it would be prohibited by federal law, but the member must make every effort to comply to the maximum extent permitted by federal law. Id. § 13.15, U.S. App. at A1552-A1553; see PX Tariff § 19.7(a).

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under Minnesota law pursuant to the choice of law provision.4 Alliant Energy, Inc. v. Nebraska Pub. Power Dist., No. 00-2139 ADM/FLN, 2001 WL 1640132 at *3 & n.3 (D. Minn. Oct. 18, 2001) (citing § 13.8 of the Restated Agreement), aff'd, 347 F.3d 1046, 1050 & n.6 (8th Cir. 2003) (Eighth Circuit also noted Minnesota law controlled pursuant to § 13.8). III. Conclusion

The U.S. identifies no conflict between California and federal law regarding any issue presented by its motion. Accordingly, its offer of new evidence and its extensive discussion on this point are an irrelevant, theoretical exercise. It is improper for the U.S. to ask the Court resolve the meaning of the Tariffs' disputed choice of law provisions in the abstract, especially by relying on parol evidence. The full record, including filings made at FERC by the ISO and PX, and comments submitted to FERC by the Agencies, supports Plaintiffs' assertion that the Agencies contractually bound themselves to a choice of law provision specifying that California law governs except where some specific federal law applies to federal agencies or is inconsistent with the Tariffs. However, resolution of that issue must be left for another day.

The fact that WAPA signed on to a choice of state law provision in the MAPP Restated Agreement also belies the U.S.'s current contention that its officials somehow lacked authority to sign a contract that is generally governed by state law; in fact such authority is presumed. See Pl. Opp. Br. at 33 n.21; see U.S. Reply at 11. Moreover, the U.S. admits that such an argument is improper on this Rule 12(b)(1) motion: "[W]e could not argue at this stage . . . that the Court lacks jurisdiction because the Government agent who signed the contracts lacked the requisite authority to bind the United States or because the contracts were illegal." U.S. Reply at 6.

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Dated: June 20, 2008

Respectfully submitted, EDMUND G. BROWN JR. Attorney General of the State of California MARK BRECKLER Senior Assistant Attorney General By:/s/ Martin Goyette (by Joshua Sondheimer) MARTIN GOYETTE Supervising Deputy Attorney General Office of the Attorney General 1515 Clay Street, 20th Floor P.O. Box 70550 Oakland, CA 94612-0550 Tel. (510) 622-2207 Fax (510) 622-2270 [email protected] ATTORNEY OF RECORD FOR PLAINTIFFS THE PEOPLE OF THE STATE OF CALIFORNIA EX REL. EDMUND G. BROWN JR., ATTORNEY GENERAL OF THE STATE OF CALIFORNIA, and the CALIFORNIA DEPARTMENT OF WATER RESOURCES BY AND THROUGH ITS CALIFORNIA ENERGY RESOURCES SCHEDULING DIVISION

OF COUNSEL: GARY ALEXANDER JOSHUA SONDHEIMER JULIA JE Deputy Attorneys General Office of the Attorney General 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Tel. (415) 703-5500 Fax (415) 703-5480 PEGGY BERNARDY California Department of Water Resources California Energy Resources Scheduling Division 3310 El Camino Avenue, Suite 120 Sacramento, CA 95821 Tel. (916) 574-0321 Fax (916) 654-9822

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