Free Response to Motion - District Court of Federal Claims - federal

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ELECTRONICALLY FILED ON JUNE 13, 2007

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) PLAINTIFF THE PEOPLE'S OPPOSITION TO DEFENDANT'S MOTION TO STAY PROCEEDINGS AND STATEMENT OF NON-OPPOSITION TO DEFENDANT'S ALTERNATIVE MOTION FOR ENLARGEMENT OF TIME

I.

INTRODUCTION

Defendant's Motion to Stay Proceedings1 is an attempt to delay adjudication of this matter and avoid an adverse result. The request is unwarranted and unsupported in law, and accordingly should be denied. 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"), brought this action to hold Defendant to its contractual obligations to return millions of dollars in overcharges for wholesale electric power by the Bonneville Power Administration ("BPA") and Western Area Power Administration ("WAPA") during the 2000-2001 California Defendant has filed identical motions to stay in two directly related actions pending before this court by California investor-owned utilities ("IOUs"), Pacific Gas & Elec. Co., et al. v. United States, No. 07-157C (LAS), and San Diego Gas & Elec. Co. v. United States, No. 07167C (LAS). Those cases are now consolidated under lead case number 07-157C.
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Energy Crisis. The People seek this relief for the benefit of California ratepayers who continue to pay off debts resulting from the overcharges more than six years after the Energy Crisis ended. Defendant's attempt to avoid resolution of the People's refund claims is based entirely on a professed concern for judicial economy given the mere possibility that the People or the California IOUs might seek a writ of certiorari before the United States Supreme Court in another proceeding, Bonneville Power Admin. v. F.E.R.C., 422 F.3d 908, 911-14 (9th Cir. 2005) ("Bonneville"), that the petition might be granted, that the Supreme Court might then reverse Bonneville, and that such an outcome may obviate the People's need to pursue some of their claims here. This is no basis for a stay. Defendant does not and could not argue that a reversal in Bonneville would moot all of the People's claims in this action. Moreover, in contradiction to its position here, Defendant opposed any stay of the Ninth Circuit's mandate in Bonneville, arguing that any grant of certiorari and reversal by the Supreme Court was "exceedingly unlikely." Defendant has not shown any pressing need to delay adjudication of this case, and all of the other relevant considerations do not support issuance of a stay: there is no pending duplicative litigation; Defendant's motive in seeking the stay appears to be to avoid an adverse decision; and a stay would cause substantial harm to California's ratepayers who continue to pay for Defendants' overcharges through surcharges on their monthly utility bills. This Court must timely adjudicate cases properly under its jurisdiction and should allow this case to proceed. II. THE FACTS

CERS purchased electric power from BPA and WAPA (together, "the Agencies") during a period of unusually high energy prices in 2000 and 2001 in energy exchanges through California's wholesale electricity auction markets operated by the California Power Exchange ("PX") and the state's Independent System Operator ("ISO"), in certain emergency transactions on behalf of the ISO, and from BPA in bilateral sales outside of the ISO and PX markets. Complaint, ¶¶ 1, 22, 25. The ISO and PX were regulated by the Federal Energy Regulatory Commission ("FERC"). 2

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As a condition of bidding electricity into the PX and ISO auction markets, the Agencies signed written contracts agreeing to comply in all respects with the federal tariffs that governed those markets. Id. ¶¶ 8, 24, 33, 37, 38. The tariffs established the prices for all transactions in those markets, allowed FERC to review and amend those prices pursuant to its exclusive jurisdiction under the Federal Power Act ("FPA"), 16 U.S.C. §§ 791a, et seq., and required sellers such as BPA and WAPA to charge no more than the FERC-approved prices and to refund amounts collected in excess of lawful prices. Id. ¶¶ 35-38. By incorporating the FERC tariffs in the contracts, the Agencies agreed to be bound by FERC's determination of what constituted just, reasonable and lawful prices in the ISO and PX markets and to refund overcharges if FERC corrected the prices at which they, along with all other sellers, sold power. Id. FERC ruled as early as November 2000 that the extraordinarily high prices prevailing in the California markets during the Energy Crisis were unjust, unreasonable and unlawful. San Diego Gas & Elec. Co., 93 F.E.R.C. ¶ 61,121 at 61,349-50 (2000). The Commission later set out a methodology for determining the just and reasonable rate at any given time during the period from October 2, 2000 to June 20, 2001 (the "Refund Period"), and ordered all sellers, including government entities, to refund their windfall profits over the lawful rate during this period to buyers. San Diego Gas & Elec. Co., 96 F.E.R.C. ¶ 61,120 at 61,511-13 (2001). The parties appealed various aspects of FERC's rulings, and in Bonneville, the Ninth Circuit concluded that FERC lacked statutory authority to enforce refund liability against government sellers such as BPA and WAPA. Bonneville, 422 F.3d at 911. The Court noted, however, that the sales of energy were governed not only by FERC-approved tariffs but also by contractual relationships, and suggested that government entities could be required to pay refunds in a court action based on the parties' contractual obligations. Id. at 925-26. Following the Ninth Circuit's decision, the People promptly filed claims under the Contract Disputes Act, 41 U.S.C. § 601 et seq., based on the Agencies' contractual refund obligations, and timely sued Defendant in this Court after its claims were denied.

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III. A.

ARGUMENT

There is No Basis for Staying This Action Pending Exhaustion of Proceedings in Bonneville

Defendant's sole ground for requesting a stay is its professed concern for judicial economy based on the what Defendant itself contends is an "exceedingly unlikely" chance that, if certiorari is sought in Bonneville, the Supreme Court might grant certiorari and issue an opinion that could "alter or affect" the People's claims here. Def. Mot. at 7-8. This is an insufficient ground for a stay. As an initial matter, the People have not finally determined whether they will seek certiorari of the Ninth Circuit's ruling in Bonneville, and none of the other Bonneville parties has yet filed for certiorari. Regardless, even if a petition for certiorari is filed in Bonneville, there would be no basis to stay this action. Defendant cites no case, and our research discloses none, in which a court has stayed an action pending the outcome of a cert petition (much less, an as-yet unfiled petition) in another proceeding. Such a stay would be unsupported under the governing legal standard, which Defendant's brief fails to cite or discuss. The Federal Circuit has set out the following standard for deciding whether to stay a lawsuit pending the outcome of other litigation: (1) [A] trial court must first identify a pressing need for the stay; (2) The court must then balance interests favoring a stay against interests frustrated by the action; and (3) Overarching this balancing is the court's paramount obligation to exercise jurisdiction timely in cases properly before it. Cherokee Nation of Oklahoma v. United States, 124 F.3d 1413, 1416 (Fed. Cir. 1997); see Cellco Partnership v. United States, 54 Fed. Cl. 260, 262 (2002) (citing Cherokee Nation). Where a related case is pending in another court, a trial court may also consider principles of comity, judicial economy, avoidance of duplicative litigation, and the motives of the party seeking the stay, "with courts disfavoring stays where the movant is seeking to avoid adverse precedent."

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Cellco, 54 Fed. Cl. at 262; Commonwealth Edison Co. v. United States, 46 Fed. Cl. 29, 34 (2000). All of these factors require denying any stay here. 1. There is No "Pressing Need" for a Stay

The Supreme Court has held that a party seeking a stay of indefinite duration "must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to some one else." Landis v. North Am. Co., 299 U.S. 248, 255 (1936). Defendant does not even suggest that there is any such "pressing need" (id.) for a stay. Defendant implicitly acknowledges that even if the Supreme Court were to reverse Bonneville's exclusion of government sellers from FERC's refund authority, such a decision would by no means moot this case. As noted, the People seek recovery in this action for, among other things, BPA's overcharges in bilateral energy sales to CERS outside of the PX and ISO auction markets. The Ninth Circuit last year affirmed a FERC ruling that CERS' bilateral transactions were beyond the scope of the Commission's existing proceeding to review and remedy overcharges during the Energy Crisis. Public Utils. Comm'n v. F.E.R.C., 456 F.3d 1027, 1062-64 (9th Cir. 2006). Thus, any reversal in Bonneville would have no effect on the People's bilateral contract claims against BPA in this action. Defendant asserts that the People's fourth, fifth, and sixth claims (for, respectively, breach of the covenant of good faith and fair dealing; declaratory relief relating to contract formation; and for rescission and restitution) "could be affected" by the hypothetical reversal of Bonneville to the extent they relate to transactions that could by such a decision become subject to FERC's refund authority. Def. Mot. at 7. However, the People's fourth, fifth, and sixth claims also pertain to CERS' bilateral contract claims that would remain unaffected by any reversal of the Bonneville decision. Defendant is simply wrong in suggesting that Bonneville is "duplicative litigation." Def. Mot. at 6, 8. There is no parallel litigation here in which related claims are being actively litigated in different venues. The Ninth Circuit's decision in Bonneville is final -- its mandate 5

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has issued, and under that decision, this Court is the only forum in which the People may pursue their contract-based claims to recover Defendant's overcharges.2 Defendant's principal cited authority, New York Power Auth. v. United States, 42 Fed. Cl. 795 (1999), involved true duplicative litigation, where--unlike this case--overlapping claims were being pursued in two separate venues, requiring duplicative discovery and resolution of the same factual and/or legal issues. Id. at 800-05 (granting stay where related district court action included constitutional claims and forms of relief unavailable in claims court action, district court decision would aid resolution of monetary claims, and stay would avoid risk of inconsistent rulings). Defendant's quotation from Far West Fed. Bank, S.B., v. Dir. Office of Thrift Supervision, 930 F.2d 883 (Fed. Cir. 1991) is further off the mark. In that case, the court counseled against duplication of litigation in rejecting an attempt by the defendant government agencies to sever one of the claims pending in the district court and have that claim transferred to this Court. Id. A stay was not at issue. Id. Neither of these decisions even suggests that an active suit, in the only forum available to the plaintiff, may be stayed on the chance that the Supreme Court might grant review in an another proceeding and decide that case in a way that would allow the plaintiff to pursue some, though not all, of its claims in another forum. Defendant's reliance on Pennsylvania R.R. Co. v. United States, 363 U.S. 202 (1960) and Loveladies Harbor, Inc. v. United States, 27 F.3d 1545 (Fed. Cir. 1994), is similarly misplaced. Those cases are inapposite. Pennsylvania R.R. merely holds that a party who loses an agency decision, which defeats its contract claim against the United States, is entitled to seek review of Defendant misleadingly contends that a stay is warranted until the Bonneville decision "becomes final." Def. Mot. at 6. However, it is already "final." Defendant successfully opposed the Bonneville plaintiffs' motion to stay issuance of the Ninth Circuit's mandate, and the mandate has issued, rendering its judgment final unless and until the Supreme Court grants certiorari. See Calderon v. United States Dist. Ct. (Beeler), 128 F.3d 1283, 1286 n.2 (9th Cir. 1997) (noting that judgment following appeal in federal court becomes final when "case is returned to district court and the mandate is spread") (citing 16A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3987, at 687 n. 2 (2d ed. 1996)). 6
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the decision before the Court of Federal Claims enters judgment against it on its contract claim. 363 U.S. at 205. Loveladies does not pertain to issuance of a stay, but rather refers to Pennsylvania R.R. in support of its decision on a jurisdictional issue. Loveladies, 27 F.3d at 1554-55. As discussed above, any Supreme Court review in Bonneville would not "determine the necessity for prosecuting" the People's claim in this court. Def. Mot. at 9 (citing Loveladies, 27 F.3d at 1554-55). For the reasons above, there is no "pressing need" or other justification for a stay of this action. 2. The Balance of Legitimate Interests Weighs Entirely Against a Stay.

"Against any purported need for a stay, the trial court must weigh the countervailing costs of the stay" to the other party. Cherokee, 124 F.3d at 1418. The costs of delay here would be real and substantial. Defendant requests a stay of indefinite duration, which could stretch on for years if a petition for certiorari is sought and granted. As the court observed in Cherokee, "to stay the [plaintiffs'] suit pending . . . speculative and protracted events is to place the [plaintiffs] effectively out of court." Id. at 1418. Every day of a stay further postpones the already long-delayed relief sought by the People on behalf of the state's ratepayers, and adds to the costs billed to ratepayers monthly resulting from overcharges by the Agencies and other sellers. Further delay would impede the People's ability to prove its claims: "With the passage of time, memories will fade, [and] litigation costs will balloon . . . ." Id. Contrary to its contentions here, Defendant took the position in Bonneville that a grant of certiorari and reversal by the Supreme Court of the Ninth Circuit's decision is "exceedingly unlikely," and opposed staying remand of the case to FERC. Opposition of Governmental Entities to Motion of the California Parties to Stay Issuance of the Mandate (Mar. 19, 2007) (Sondheimer Decl., Ex. A), at 4, 6. Defendant's concern for judicial economy appears to be selective and motivated more by the desire to avoid adjudication of the People's claims than its professed concerns for this Court's workload. "[T]his court need not countenance such legal gamesmanship[.]" Commonwealth Edison, 46 Fed. Cl. at 34. 7

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As the Federal Circuit emphasized in Cherokee, overarching a court's balancing of factors in determining the appropriateness of a stay is the court's "paramount obligation to exercise jurisdiction timely in cases properly before it." Cherokee, 124 F.3d at 1416 (emphasis added). In light of the absence of any compelling need or justification for a stay, Defendant's apparent motive in seeking a stay, and the real costs to the People of further delay, there is no basis to override the Court's primary obligation to timely adjudicate this matter. CONCLUSION For the foregoing reasons, the People respectfully request that the Court deny Defendant's Motion to Stay Proceedings. The People do not oppose Defendant's request in the alternative for an enlargement of time to respond to the People's complaint should the Court deny Defendant's Motion to Stay. DATED: June 13, 2007 Respectfully submitted, EDMUND G. BROWN JR. Attorney General of the State of California TOM GREENE Chief Assistant Attorney General MARK BRECKLER Senior Assistant Attorney General MARTIN GOYETTE Supervising Deputy Attorney General GARY ALEXANDER JOSHUA SONDHEIMER Deputy Attorneys General By: /s/ Julia Je JULIA JE Deputy Attorney General Office of the Attorney General 455 Golden Gate Ave., Suite 11000 San Francisco, CA 94102 Tel: (415) 703-5567 Fax: (415) 703-5480 [email protected]

ATTORNEYS 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 8

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WATER RESOURCES BY AND THROUGH ITS CALIFORNIA ENERGY RESOURCES SCHEDULING DIVISION 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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