Free Motion to Consolidate Cases - District Court of Federal Claims - federal

Case 1:07-cv-00184-LAS

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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 MOTION TO COORDINATE PRETRIAL PROCEEDINGS

I.

INTRODUCTION
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 request that the Court order this case to be coordinated for pretrial purposes with the two directly related cases also pending before this Court, Pacific Gas and Elec. Co., et al. v. United States, No. 07-157C (LAS), and San Diego Gas & Elec. Co. v. United States, No. 07-167C (LAS). The Pacific Gas and Elec. Co. and San Diego Gas & Elec. Co. actions are now consolidated under lead case number 07-157C, and are collectively referred to herein as the "Utilities' Action." The People request pretrial coordination of the People's Action with the Utilities' Action in order to appropriately coordinate the filing of preliminary and dispositive motions, briefing
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schedules, hearings on motions, and discovery, as detailed below.1 Pretrial coordination is appropriate because these two actions share a number of common questions of law and fact. Further, coordination will facilitate an efficient determination of the actions, avoid the risk of inconsistent adjudications of common issues, and serve the interests of convenience and economy for the parties, witnesses, and the Court. Plaintiffs in the related Utilities' Action do not oppose this request to coordinate that proceeding with the People's Action for pretrial purposes. The United States has advised the People that it is in favor of efficiencies in the litigation but takes no official position on formal coordination until it has time to study the matter further.

II.

STATEMENT OF THE ISSUES
1. Whether the Court should order the People's Action coordinated for pretrial purposes

with the Utilities' Action given that the cases share common questions of law and fact and that coordination will facilitate an efficient determination of the actions, avoid the risk of inconsistent adjudication of common issues, and serve the interests of convenience and economy for the parties, witnesses, and the Court.

III.

STATEMENT OF THE CASE
Plaintiffs in both actions bring claims against the United States arising out of sales of

electric power by the Bonneville Power Administration ("BPA") and the Western Area Power Administration ("WAPA") (collectively, "the Agencies") during the California energy crisis of 2000-2001 ("Energy Crisis"). The background of these transactions and the parties' claims, in brief, is as follows: 2 The People are not seeking in this motion to consolidate the two actions for purposes of trial. Plaintiffs in each action reserve their rights to request or oppose a joint trial of any or all of the claims in the actions. 2 The facts surrounding these cases have been summarized in several published decisions, including Public Utils. Comm'n v. FERC, 456 F.3d 1025, 1035-44 (9th Cir. 2006) ("CPUC"); Bonneville Power Admin. v. FERC, 422 F.3d 908, 911-14 (9th Cir. 2005) ("Bonneville"); and In re: California Power Exchange Corp., 245 F.3d 1110, 1114-19 (9th Cir. 2001).
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Beginning in 1998, the California Legislature restructured the state's electricity market, and as part of the restructuring plan required that the state's three investor-owned utilities ("Utilities")--Pacific Gas and Electric Co., Southern California Edison Co., and San Diego Gas & Electric Co.--divest a substantial portion of their electric power generation facilities. See CPUC, 462 F.3d at 1037. Instead of generating most of the power to supply their customers, the Utilities became buyers of electric power through a new, centralized clearinghouse market called the California Power Exchange Corporation ("PX"). Id. at 1037-38. The restructuring plan also established the California Independent System Operator Corporation ("ISO") to manage and operate the state's electricity transmission grid. Id. at 1038-39. To maintain a balanced grid and ensure that sufficient power was available to meet real-time demand, the ISO was authorized to procure additional power through a spot-auction market and to buy or limit power from sellers in direct transactions. The costs of those transactions were passed on to participants in the ISO market, including the Utilities. The PX and ISO markets operated under tariffs filed with and approved by the Federal Energy Regulatory Commission ("FERC"). People's Complaint for Damages and Declaratory Relief ("Complt.") ¶¶ 1, 16-17, 33-38; California Parties' Complaint for Damages and Declaratory Relief, Case No. 07-157C (LAS) ("Utilities' Complt.")3 ¶¶ 1, 16-18, 36-42 (Exhibit A to the Declaration of Joshua Sondheimer in Support of the People's Motion to Consolidate Pretrial Proceedings ("Sondheimer Decl.") submitted herewith). As required by the tariffs, the Agencies each signed agreements with the ISO and PX that incorporated the respective tariffs and contractually bound the Agencies to abide by all of the obligations set out in the tariffs. Complt. ¶¶ 23 and Exs. B & C; Utilities' Complt. ¶¶ 25, 27. The tariffs provided, among other things, that the parties could petition FERC to review rates charged under the San Diego Gas & Electric Co., in its action before this Court (Case No. 07-167C), filed a complaint that is essentially identical to the California Parties' complaint. For convenience, we refer to the complaints by the Utilities in the singular as the "Utilities' Complt.," and citations are to the complaint on file in the lead case Pacific Gas & Elec. Co, et al. v. United States, Case No. 07-157C.
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tariffs, and that the ISO and PX could re-calculate charges and re-settle the accounts of the market participants if FERC determined that rates received by sellers required correction because they were unjust, unreasonable, or unlawful. Complt. ¶¶ 24, 35-38; Utilities' Complt. ¶¶ 28, 39-41. Beginning in the summer of 2000, electricity prices in the California markets spiked sharply, affecting the reliability of the transmission grid and leading to rolling blackouts. See Complt. ¶¶ 39-42; Utilities' Complt. ¶¶ 43-47. The Utilities were forced to purchase power to serve their customers at the unprecedented high prices, and two of the three Utilities (Pacific Gas and Electric and Southern California Edison) quickly exhausted their financial resources and became ineligible to purchase power through the ISO and PX markets. Complt. ¶ 43; Utilities' Complt. ¶ 48. To help ensure a reliable and affordable supply of electricity for California consumers, the state legislature in emergency legislation authorized the state's Department of Water Resources, through CERS, to begin purchasing, in place of the Utilities, the power needed to serve California ratepayers. Complt. ¶¶ 44-45; Utilities' Complt. ¶ 48. CERS began in January 2001 to purchase power through the ISO and PX markets, including power sold by the defendant Agencies. Complt. ¶¶ 1, 22, 25, 44-45. During the Energy Crisis, both CERS and the Utilities engaged in or incurred costs for certain common types of transactions involving the Agencies, and also engaged in certain other types of transactions involving the Agencies that were distinct. Both CERS and the Utilities purchased power from the Agencies in "energy exchanges" outside of the ISO and PX auction markets, in which the Agencies demanded payment for their power not in money, but in-kind, by the return delivery of a greater amount of power at a later time or date. Complt. ¶¶ 1, 22, 25; see Utilities' Complt. ¶ 83. Both CERS and the Utilities also were charged by the ISO, as participants in the ISO market, for purchases made through the ISO from the Agencies in so-called "out-of-market" emergency transactions designed to stabilize the grid when supply was insufficient to meet demand. Complt. ¶¶ 22; Utilities' Complt. ¶ 24.
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Distinct from the Utilities, CERS also purchased energy directly from the Agencies in such "out-of-market" emergency transactions on behalf of the ISO, and bought power from the Agencies in bilateral sales outside the PX and ISO markets. Complt. ¶¶ 1, 22. The Utilities, for their part, purchased energy supplied by the Agencies in monetary sales through the PX and ISO markets. Utilities' Complt. ¶¶ 1, 14, 75. Following investigation and hearings by FERC concerning the Energy Crisis, FERC ruled that the prices being charged by sellers of electricity during the Crisis were unjust, unreasonable, and unlawful. San Diego Gas & Elec. Co, et al., 93 F.E.R.C. ¶ 61,121 at 61,34950 (2000). In a July 25, 2001 order, the Commission set out a methodology for determining just and reasonable rates, and ordered all sellers, including government entities, to refund to buyers their windfall profits above those rates for sales from October 2, 2000 through June 20, 2001 (the "Refund Period"). San Diego Gas & Elec. Co., 96 F.E.R.C. ¶ 61,120 at 61,511-13 (2001). In an appeal of FERC's ruling, the Ninth Circuit concluded that while the Commission had jurisdiction to regulate prices in the ISO and PX markets, the Commission lacked statutory authority to enforce payment of the resulting refund liability against government sellers such as BPA and WAPA. Bonneville, 422 F.3d at 911. The Court noted, however, that the government entities had entered into contractual commitments to abide by the FERC-approved tariffs, and that purchasers could recover the equivalent relief from governmental sellers as damages in a court action for breach of their contracts. Id. at 925-26. Following the Ninth Circuit's decision, the People and the Utilities promptly presented claims to the Agencies under the Contract Disputes Act, 41 U.S.C. § 601 et seq., based on the Agencies' contractual obligations to pay refunds to purchasers, and timely instituted these actions after each party's claims were denied. Complt. ¶ 66; Utilities' Complt. ¶ 70. Shortly after these actions were filed, the People submitted a notice to Court identifying the nowconsolidated Utilities' Actions as directly related cases. Notice of Directly Related Cases, Dkt. No. 2 (filed Mar. 19, 2007). Both the People's Action and the Utilities' Action are assigned to Senior Judge Smith.
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IV.

ARGUMENT A. This Court Has Broad Discretion to Coordinate Pretrial Matters in These Related Actions.

This Court, like all federal courts, has "broad discretion" to coordinate or consolidate proceedings in related actions pending before it "to conserve judicial resources and promote an efficient determination of the actions." Rule 40.2(a)(4), Rules of the Court of Federal Claims ("RCFC"); Cienega Gardens v. United States, 62 Fed. Cl. 28, 32 (2004). This follows from the Court's "inherent power `to control the disposition of the causes on its docket with economy of effort for itself, for counsel, and for litigants.'" See L.E.A. Dynatech, Inc. v. Allina, 49 F.3d 1527, 1530 (Fed. Cir. 1995) (quoting Landis v. North American Co., 299 U.S. 248, 254-55 (1936)). "`Whenever ... two or more cases before the court ... present common issues of fact,' the court may `transfer, consolidate[e], or ... adopt[ ] ... a coordinated discovery schedule [in the cases if such action] would significantly promote the efficient administration of justice.'" Banks v. United States, 68 Fed. Cl. 524, 526 n.4 (Fed. Cl. 2005) (quoting Rule 40.2(b)(1) (brackets and ellipses by Court)).

B.

Common Factual and Legal Issues Make Pretrial Coordination Appropriate.

Pretrial coordination of motions, briefing and discovery is appropriate in these related cases because the People's case and the Utilities' case share a common factual background and certain common questions of law and fact. Both actions arose from the complex events of the California energy crisis and the series of regulatory and judicial decisions made in response to those events. Some of the claims in both actions arise out of the same categories of sales, including energy exchanges and out-of-market transactions. As a result, the claims and legal issues in the cases overlap. Most importantly, plaintiffs in both actions allege that the Agencies' refund liabilities, at least with respect to transactions other than bilateral sales, are governed by the same contract terms--the terms of the ISO and PX
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Tariffs. In addition, both actions assert certain claims for declaratory relief in common. Plaintiffs in both cases seek declaratory judgments that: (1) The United States will be contractually liable to refund its overcharges for

energy exchanges once FERC corrects rates for these transactions (Complt. ¶¶ 68-69 (First Claim for Relief); Utilities' Complt. ¶¶ 82-83 (Fourth Claim)); (2) The United States will be contractually liable for any amounts assessed

against Plaintiffs by the ISO or PX resulting from market shortfalls caused by the Agencies' refusal to honor their refund obligations (Complt. ¶¶ 70-73 (Second Claim); Utilities' Complt. ¶¶ 86-89 (Sixth Claim)); and, in the alternative, that (3) The United States is contractually obligated to permit the Agencies'

accounts at the ISO and PX to be adjusted to reflect pricing changes resulting from FERC's determination of the just and reasonable rates for all sales in the ISO and PX markets, and is contractually obligated to honor any resulting invoices and pay any associated refunds (Complt. ¶¶ 74-76 (Third Claim); Utilities' Complt. ¶¶ 90-92 (Seventh Claim)). In light of the common genesis and common factual and legal issues, the parties are likely to raise issues common to each of the cases in dispositive and other pre-trial motions. A coordinated briefing and hearing schedule will reduce costs and time for both the Court and the parties and may allow the parties to avoid duplicative briefing. Coordination will also minimize the risk of inconsistency between rulings in the related cases. The common factual issues will also mean substantial overlap with respect to discovery, including fact and expert witnesses. A coordinated discovery schedule, with jointly noticed depositions and access in both cases to discovery materials produced in either case, will speed the discovery process and reduce costs substantially. Pre-trial coordination of these cases now will not cause any delay of the litigation or prejudice to the United States or the Utilities. The complaints in each of the actions were filed just one week apart in March 2007, and the United States has not yet filed a responsive pleading
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in any of the actions. As both matters are in the same incipient stage, pretrial coordination rather than causing any delay, is instead likely to lead to a more efficient resolution. The advantages, feasibility, and practicality of coordination already have been demonstrated in the briefing that has occurred thus far. The United States filed identical motions to stay the Utilities' and the People's actions on May 11 and May 14, 2007, respectively. The parties cooperated in stipulating that subsequent briefing on the motions follow the same schedule, and the Court approved the parties' requests. The parties in all of the actions subsequently agreed on a resolution of the United States' motions, which the Court adopted in its September 7, 2007, orders setting identical briefing schedules for the United States' responses to the respective complaints. Counsel for the Utilities have informed the People that the Utilities do not oppose the People's request for pre-trial coordination. The United States has advised the People that it is in favor of efficiencies in the litigation but takes no official position on formal coordination until it has time to study the matter further. Sondheimer Decl. ¶¶ 3-4.

V.

CONCLUSION
For these reasons, the People request that the Court order pre-trial coordination in the

related actions, and that such coordination include:

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A coordinated schedule for the filing and briefing of all motions made during the pretrial phase of these proceedings that raise common issues (with motions concerning common claims or issues to precede motions based on separate claims or issues) and joint hearings on such motions.

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A coordinated discovery schedule, and availability in both cases of fact and expert discovery taken in either case, subject to any appropriate protective order.

DATED: November 7, 2007 Respectfully submitted, EDMUND G. BROWN JR. Attorney General of the State of California JANET GAARD Acting Chief Assistant Attorney General MARK BRECKLER Senior Assistant Attorney General MARTIN GOYETTE Supervising Deputy Attorney General GARY ALEXANDER Deputy Attorney General JULIA JE Deputy Attorney General By: /s/ Joshua Sondheimer Deputy Attorney General Office of the Attorney General 455 Golden Gate Ave., Suite 11000 San Francisco, CA 94102 Tel: (415) 703-5615 Fax: (415) 703-5480 [email protected]

ATTORNEYS OF RECORD FOR PLAINTIFFS THE PEOPLE OF THE STATE OF CALIFORNIA, and the CALIFORNIA DEPARTMENT OF WATER RESOURCES, BY AND THROUGH ITS CALIFORNIA ENERGY RESOURCES SCHEDULING DIVISION

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OF COUNSEL: 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 [email protected]

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