Simon v. Keyspan Corporation, No. 11-2265 (2d Cir. 2012)
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Plaintiff, a retail consumer of electricity in New York City, sued KeySpan, a producer of electricity in New York, alleging that it colluded with one of its rivals to increase installed capacity prices. Plaintiff also alleged that Morgan Stanley, a financial firm, facilitated KeySpan's anticompetitive conduct. Plaintiff subsequently appealed from the district court's dismissal of his federal and state antitrust claims against KeySpan and Morgan Stanley. The court agreed with the district court that plaintiff lacked standing to pursue his federal claims because he was an indirect purchaser and that his claims were otherwise barred by the filed rate doctrine.
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11-2265-cv Simon v. Keyspan Corporation 1 2 UNITED STATES COURT OF APPEALS 3 FOR THE SECOND CIRCUIT 4 5 6 August Term 2011 (Argued: February 28, 2012 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Decided: September 20, 2012) Docket No. 11-2265-cv -----------------------------------------------------x CHARLES SIMON, on behalf of himself and all others similarly situated, Plaintiff-Appellant, -- v. -KEYSPAN CORPORATION, MORGAN STANLEY CAPITAL GROUP INC., Defendants-Appellees. -----------------------------------------------------x B e f o r e : WALKER, LYNCH, and DRONEY, Circuit Judges. Plaintiff-appellant Charles Simon appeals from an order of 26 the United States District Court for the Southern District of New 27 York (Shira A. Scheindlin, Judge), dismissing his federal and 28 state antitrust claims against defendants-appellees KeySpan 29 Corporation and Morgan Stanley Capital Group Inc. 30 the district court that plaintiff-appellant lacks standing to 31 pursue his federal claims because he was an indirect purchaser 1 We agree with 1 and that his claims are otherwise barred by the filed rate 2 doctrine. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 AFFIRMED. DANIEL J. SPONSELLER, Law Office of Daniel J. Sponseller, Sewickley, PA, (Karin E. Fisch, Judith L. Spanier, Natalie S. Marcus, Abbey Spanier Rodd & Abrams, LLP, New York, NY, on the brief) for Plaintiff-Appellant. John H. Lyons, Tara S. Emory, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC for Defendant-Appellee KeySpan Corporation. JON R. ROELLKE, Bingham McCutchen LLP, Washington, DC (Anthony R. Van Vuren, Bingham McCutchen LLP, Washington, DC, Jeffrey Q. Smith, Laila Abou-Rahme, Bingham McCutchen LLP, New York, NY, on the brief) for Defendant-Appellee Morgan Stanley Capital Group Inc. J. DOUGLAS RICHARDS, Cohen Milstein, New York, NY (Benjamin D. Brown, Cohen Milstein, New York, NY; Richard M. Brunell, American Antitrust Institute, Washington, DC; Christopher L. Sagers, Cleveland-Marshall College of Law, Cleveland State University, Cleveland, OH) for amicus curiae American Antitrust Institute. JOHN M. WALKER, JR., Circuit Judge: This appeal requires us to consider whether plaintiff- 39 appellant Charles Simon ( Simon ), a retail consumer of 40 electricity in New York City, can maintain an antitrust action 41 against defendant-appellee KeySpan Corporation ( KeySpan ), a 2 1 producer of electricity in New York that allegedly colluded with 2 one of its rivals to increase installed capacity prices, and 3 defendant-appellee Morgan Stanley Capital Group Inc. ( Morgan 4 Stanley ), a financial firm that allegedly facilitated KeySpan s 5 anticompetitive conduct. 6 the Southern District of New York (Shira A. Scheindlin, Judge) 7 dismissed plaintiff-appellant s claims principally on the grounds 8 that he lacked antitrust standing and that his claims were barred 9 by the filed rate doctrine.1 The United States District Court for We agree and conclude that 10 plaintiff-appellant, as an indirect purchaser, lacks standing to 11 bring his federal antitrust claims. 12 filed rate doctrine bars plaintiff-appellant s state and federal 13 claims even though the allegedly supracompetitive rate was the 14 product of a market-based auction. We further hold that the 15 BACKGROUND 16 In reviewing a motion to dismiss, we accept all factual 17 claims in the complaint as true and draw all reasonable 18 inferences in the plaintiff s favor. 19 Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010). 20 necessary, we take judicial notice of the regulatory structure 21 governing the New York City electricity market. 1 Famous Horse Inc. v. 5th Where The district court also concluded that Simon s state law claims were preempted and insufficiently pled. Because we hold that the state law claims are barred by the filed rate doctrine, we need not consider whether the district court was correct on these points. 3 1 I. The New York City Electricity Market 2 The market for electricity in New York City is overseen by 3 the New York Independent System Operator ( NYISO ).2 4 wholesale side, the market is based on the producers installed 5 capacity, i.e. the amount of electricity that the producer can 6 supply at a given time. 7 purchase enough installed capacity from producers to meet their 8 expected peak demand plus a share of reserve capacity. 9 system is designed to ensure that the amount of electricity On the Retail sellers of electricity must The 10 eventually sold to consumers is consistent with the total 11 production capacity of the producers. 12 In order to determine the price at which producers can sell 13 their capacity, NYISO has established an auction system that 14 results in a market-based rate ( MBR ). 15 indicating the amount of capacity they can produce and the lowest 16 per unit price at which they are willing to sell. 17 then stacked from lowest to highest price until the total 18 demand for capacity has been met. 19 met determines the market price for installed capacity and every 2 Producers submit bids The bids are The point at which demand is NYISO is an Independent System Operator ( ISO ) created to administer the retail electricity market in New York. See generally Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, 61 Fed. Reg. 21,540 (Apr. 24, 1996) (codified at 18 C.F.R. pts. 35 & 385); see also Cal. Indep. Sys. Operator Corp. v. FERC, 372 F.3d 395, 397 (D.C. Cir. 2004) (describing FERC s efforts to encourage public utilities to create ISOs). 4 1 producer stacked below that price point can sell its full 2 capacity for the market price. 3 price can sell as much of its capacity as is necessary to meet 4 demand. 5 than the market price cannot sell its capacity. 6 The producer whose bid set the The rest remains unsold. Any producer that bid higher The New York City capacity market is highly concentrated. 7 Three firms defendant-appellee KeySpan, NRG Energy, Inc. 8 ( NRG ), and Astoria Generating Company ( Astoria ) control a 9 substantial portion of the total generating capacity.3 The total 10 demand for installed capacity cannot be met without at least some 11 of the capacity from each of these three firms. 12 NYISO has imposed a price cap on these firms bids and barred 13 them from selling electricity outside of the auction process. 14 KeySpan s bid cap is the highest of the three. Accordingly, 15 16 II. The Anticompetitive Agreement 17 As a result of the prevailing market conditions from June 18 2003 to December 2005, most of KeySpan s capacity was necessary 19 to satisfy total demand. 20 price cap and set the market price at that level. KeySpan therefore routinely bid at its 3 However, These firms were created in 1998 when Consolidated Edison Company of New York, Inc. ( Con Ed ) divested most of its generating capacity. The three firms are known collectively as Divested Generation Owners ( DGOs ). See Order Conditionally Approving Proposal, 122 FERC ¶ 61,211, ¶ 3 (2008) ( 2008 Market Power Modification Order ). 5 1 because other producers would be bringing new plants online, 2 KeySpan anticipated that in 2006, supply would increase, leaving 3 KeySpan to either bid below its cap or risk selling only a small 4 amount of its capacity. 5 KeySpan indirectly entered into an agreement with Astoria ( the 6 agreement ). 7 facto agreed to pay Astoria a fixed income in exchange for any 8 potential profits (after a certain point) from Astoria s 9 generating capacity.4 10 To avoid these unappealing options, Using Morgan Stanley as an intermediary, KeySpan de The agreement consisted of two separate deals: the KeySpan 11 Swap and the Astoria Hedge. 12 January 18, 2006, provided that if the market price after auction 13 were set above $7.57 per KW-month ( the fixed price ), Morgan 14 Stanley would pay KeySpan the difference between the market price 15 and the fixed price multiplied by 1800 megawatts ( MW ). 16 market price were lower than the fixed price, KeySpan would pay 17 the difference (times 1800 MW) to Morgan Stanley. 18 Hedge, executed on January 11, 2006, provided that if the market 19 price were higher than $7.07 per KW-month, Astoria would pay 20 Morgan Stanley the difference times 1800 MW. 21 below $7.07, Morgan Stanley would pay the difference (times 1800 22 MW) to Astoria. 4 The KeySpan Swap, executed on If the The Astoria If the price were The net effect of the agreement was that Astoria KeySpan had considered acquiring Astoria s physical generating assets, but did not pursue this approach due to antitrust concerns. 6 1 was assured of always receiving exactly $7.07 per KW-month for 2 its capacity while KeySpan received any profits (if the market 3 price were above $7.57) and subsidized any losses (if the market 4 price were below $7.07) from the sale of Astoria s capacity. 5 combination of the KeySpan Swap and the Astoria Hedge enabled 6 Morgan Stanley to receive a fixed rate of fifty cents per KW- 7 month in exchange for facilitating the deal. 8 9 The As a result of the agreement, it remained lucrative for KeySpan to continue to bid as high as its cap permitted and set 10 the market price at that level. If it then sold only a small 11 amount of its own capacity, it would still receive substantial 12 profits from Astoria s capacity. 13 or all of Astoria s capacity would be required by the market, 14 KeySpan stood to make a substantial profit by setting the price 15 as high as possible, i.e., at its cap. 16 agreement, KeySpan would likely have had to bid competitively, 17 which might have lowered the market price of capacity. 18 borne out by experience: KeySpan continued to bid at its cap, 19 setting the market price and leaving a significant portion of its 20 capacity unsold. 21 despite an industry-wide increase in generating capacity. Since either all of KeySpan s In the absence of the This was Thus the market price of capacity did not drop 22 7 1 III. Investigations of the Agreement 2 In May 2007, the United States Department of Justice ( DOJ ) 3 began an investigation into the KeySpan agreement based on its 4 anticompetitive effect. 5 complaint alleging that KeySpan had unlawfully restrained trade. 6 KeySpan entered into a stipulation with the DOJ to settle the 7 case. 8 States $12 million and the case was resolved without trial or 9 adjudication of any issue of fact or law. 5 In February 2010, it filed a civil Pursuant to a consent decree, KeySpan paid the United 10 FERC also conducted an investigation of the agreement. Its 11 enforcement office issued a detailed report concluding that 12 KeySpan had not violated FERC s regulations prohibiting market 13 manipulation. The report noted that 14 15 16 17 18 19 20 21 22 23 24 Market participants in the in-city ICAP [installed capacity] market have always known that KeySpan, pursuant to the applicable market mitigation rules, was permitted to offer at its cap and set the marketclearing price. In addition, as noted, KeySpan s offering behavior was consistent with market rules and the Commission s announced expectations that DGOs, such as KeySpan, would (in the absence of sufficient capacity additions) offer their capacity at their caps. FERC Enforcement Staff Report, Feb. 28, 2008, at 17; Joint 25 Appendix ( J.A. ) 89. 5 FERC agreed with the enforcement staff s The United States also recently settled a civil suit with Morgan Stanley arising from these same facts. See United States v. Morgan Stanley, --- F. Supp. 2d ---, 2012 WL 3194969 (S.D.N.Y. Aug. 7, 2012). There, the consent decree required Morgan Stanley to disgorge to the United States Treasury $4.8 million of the net revenues that it had earned from the agreement. Id. at *2-*3. 8 1 report and noted that it had expected KeySpan s cap to set the 2 market price. 3 4 5 IV. The Complaint Plaintiff-appellant Simon purchased electricity as a retail 6 customer from Con Ed between 2006 and 2009. Con Ed in turn 7 purchased electricity in the form of installed capacity through 8 the previously described New York City auction process. 9 16, 2010, Simon filed this complaint in the district court On July 10 alleging that the defendant-appellees conduct had caused him to 11 be unlawfully overcharged for electricity. 12 represent a class of customers who had purchased electricity from 13 Con Ed between 2006 and 2009. 14 of federal antitrust law as well as New York law. 15 He sought to The complaint claimed violations On March 22, 2011, the district court dismissed all of 16 Simon s federal and state claims with prejudice. 17 KeySpan Corp., 785 F. Supp. 2d 120 (S.D.N.Y. 2011). 18 court concluded that Simon lacked standing to bring his federal 19 claims because he was an indirect purchaser. 20 further found that all of his claims were barred by the filed 21 rate doctrine, which precludes legal challenges to rates set or 22 approved by federal agencies, because the rate he sought to 23 challenge was authorized by FERC. 24 court also held that Simon s state law claims were preempted and 9 Simon v. The district Id. at 134-37. Id. at 138-39. It The district 1 denied leave to amend on the basis of futility. Id. at 139-41. 2 On May 27, 2011, it denied Simon s motion for reconsideration. 3 Simon v. KeySpan Corp., No. 10 Civ. 5437 (SAS), 2011 WL 2135075 4 (S.D.N.Y. May 27, 2011). 5 claims were barred by the filed rate doctrine even though it 6 acknowledged that those rates were set at a market-based auction 7 rather than filed directly with FERC. 8 appeals. It reiterated its holding that Simon s See generally id. Simon 9 10 11 DISCUSSION We review a district court s decision to grant a motion to 12 dismiss under Rule 12(b)(6) de novo, accepting all factual claims 13 in the complaint as true and drawing all reasonable inferences in 14 the plaintiff s favor. 15 survive a motion to dismiss, a complaint must contain sufficient 16 factual matter, accepted as true, to state a claim for relief 17 that is plausible on its face. 18 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 19 544, 570 (2007)). 20 plaintiff pleads factual content that allows the court to draw 21 the reasonable inference that the defendant is liable for the 22 misconduct alleged. 23 to state a plausible antitrust claim both because he lacks Famous Horse Inc., 624 F.3d at 108. To Ashcroft v. Iqbal, 556 U.S. A claim has facial plausibility when the Id. We hold that Simon s complaint fails 10 1 federal antitrust standing and because all of his claims are 2 barred by the filed rate doctrine. 3 4 I. Antitrust Standing 5 Simon s federal claims are barred because he was an indirect 6 purchaser and therefore lacks standing to sue under section 4 of 7 the Clayton Act, 15 U.S.C. §§ 12, et seq.6 8 direct purchasers have standing to bring civil antitrust claims. 9 See Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977); Hanover 10 Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968). 11 rule has two rationales. 12 multiple liability. 13 are too many uncertainties and difficulties in analyzing price 14 and out-put decisions in the real economic world rather than an 15 economist s hypothetical model. 16 quotation marks omitted); see also id. at 741-44. 17 words, it is nearly impossible for a court to determine which 18 portion of an overcharge is actually borne by the direct 19 purchaser and which portion is borne by a subsequent indirect 20 purchaser. 6 Generally, only This First, defendants may otherwise face Ill. Brick, 431 U.S. at 730. Second, there Id. at 731-32 (internal In other The Supreme Court has therefore established a general We need not determine whether Simon qualified for antitrust standing under New York law, see generally Ho v. Visa U.S.A. Inc., 787 N.Y.S.2d 677 (Table) (N.Y. Sup. Ct. 2004), because we conclude that his state claims are barred by the filed rate doctrine. 11 1 rule that the direct purchaser is the only appropriate antitrust 2 plaintiff. 3 An indirect purchaser may have standing, however, if it had 4 a pre-existing cost-plus contract with the direct purchaser, 5 meaning that the indirect purchaser has agreed in advance to 6 purchase a fixed quantity, paying the direct purchaser s costs 7 plus a predetermined additional fee. Id. at 736. 8 9 10 11 12 13 14 15 16 17 Id. 18 apportioning the overcharge because the indirect purchaser paid 19 the direct purchaser s entire cost. 20 indirect purchaser decreased its demand because it had previously 21 agreed to purchase a fixed quantity. 22 of duplicative liability; the defendant would have a valid pass- 23 on defense against the direct purchaser because the latter 24 suffered no injury. 25 In such a situation, the purchaser is insulated from any decrease in its sales as a result of attempting to pass on the overcharge, because its customer is committed to buying a fixed quantity regardless of price. The effect of the overcharge is essentially determined in advance, without reference to the interaction of supply and demand that complicates the determination in the general case. In this type of situation, there is no difficulty There is no chance that the Finally, there is no risk See id. at 735-36. The cost-plus contract exception to the indirect purchaser 26 bar is a narrow one that is only appropriate when the contract 27 has removed all doubts about who bore the antitrust injury. 28 the exception to apply, the contract quantity must be determined 12 For 1 prior to the overcharge to avoid uncertainty about what effect a 2 change in a company s price will have on its total sales. 3 Hanover Shoe, 392 U.S. at 493. 4 all of its costs may still suffer an antitrust injury if passing 5 on increased costs decreased its sales and therefore its profits. 6 Additionally, there must be no possibility that the direct 7 purchaser would have raised his prices absent the overcharge. 8 Id. 9 A direct purchaser that passes on Simon contends that he qualifies for the cost-plus contract 10 exception because Con Ed passed on 100% of its installed capacity 11 costs to its consumers. The complaint alleges: 12 13 14 15 16 17 18 19 20 21 22 23 J.A. 10. 24 utilities like Con Ed typically are not permitted to make a 25 profit on the sale of electricity or capacity. 26 33-34. 27 Each month from at least May 2006 through February 2008, Con Ed passed through 100% of Con Ed s costs for the purchase of installed capacity in the NYC Capacity Market to its customers. Its customers, including Plaintiff, were contractually required to pay and did pay 100% of such costs as supply charges on their monthly billing statements. The quantity of installed capacity for which Plaintiff was required to pay Con Ed was contractually fixed prior to the time the price for such capacity was known and charged to Plaintiff. Further, he argues that [r]etail distribution Appellant s Br. The Supreme Court has previously addressed the applicability 28 of the cost-plus contract exception to regulated utilities and 29 their retail customers. In Kansas v. UtiliCorp United, Inc., 497 13 1 U.S. 199 (1990), natural gas wholesalers were sued by several 2 public utilities as well as Kansas and Missouri, acting as parens 3 patriae for their citizens. 4 utilities, as direct purchasers, were proper plaintiffs. 5 declined to create an exception to the indirect purchaser rule 6 for situations where regulated public utilities pass on 100% of 7 their costs to consumers. 8 utility might still suffer an antitrust injury because it might 9 be unable to effect a rate increase that would have otherwise The Court held that only the Id. at 208-17. The Court noted that a 10 been possible. 11 presence of government regulation as a complicating, rather than 12 simplifying, factor. 13 have to examine whether the regulator would have allowed a rate 14 increase in the absence of the overcharge in addition to 15 determining whether the utility would have sought an increase. 16 Id. at 209-10. 17 Id. at 209. It Moreover, the Court viewed the This was so because a reviewing court would The Kansas Court also rejected the states argument, even 18 without a general exception, they qualified for the cost-plus 19 exception because the utilities had passed on 100% of their costs 20 to their retail customers. 21 22 23 24 25 26 27 28 29 The Court noted that [t]he utility customers made no commitment to purchase any particular quantity of gas, and the utility itself had no guarantee of any particular profit. Even though the respondent raised its prices to cover its costs, we cannot ascertain its precise injury because . . . we do not know what might have happened in the absence of an overcharge. Id. at 218. 14 1 Simon s attempts to differentiate this case from Kansas are 2 unavailing. We credit the complaint s claim that Con Ed passed 3 on 100% of its installed capacity costs to consumers each month 4 as supply charges, a portion of the overall bill.7 5 Court s central concern, however, remains applicable: We cannot 6 say with any certainty what would have occurred in the absence of 7 an overcharge. 8 might have requested and received permission to increase its 9 rates. The Kansas If the price for capacity had been lower, Con Ed Additionally, increased supply charges might have driven 10 down Con Ed s customers electricity usage, diminishing its 11 profits. 12 sale of electrical capacity, it does make a profit on its 13 distribution of electricity. 14 overhead costs, and the rates it charges reflect a variety of 15 factors in addition to its supply costs. 16 increased its rates by exactly the amount it was overcharged for 17 installed capacity, it does not follow that Con Ed s sales and 18 profits were unaffected. Even though Con Ed does not make a profit on its retail Like any business, Con Ed has Even if Con Ed In short, Con Ed may have suffered an 7 We share the district court s skepticism that the markets for installed capacity and retail electricity are similar enough to allow a seamless pass-through in this way, but we nevertheless assume for the present that Simon could prove this to be the case at trial. See Simon, 785 F. Supp. 2d at 137 ( [T]he proposition that Con Ed is able to pass through one hundred percent of any overcharge to its consumers in the form of retail price increases is suspect given the differing nature of the two markets. ). 15 1 antitrust injury as a result of the agreement, and therefore 2 under Hanover Shoe and Illinois Brick, it is the only proper 3 plaintiff. 4 Simon points to the allegation in his complaint that [t]he 5 quantity of installed capacity for which Plaintiff was required 6 to pay Con Ed was contractually fixed prior to the time the price 7 for such capacity was known and charged to Plaintiff. 8 Although Simon is further attempting to analogize his situation 9 to that of a cost-plus contract, this argument fails. J.A. 10. Simon 10 neglects to account for the fact that he was not contractually 11 obligated in advance to purchase a fixed quantity of electricity 12 each month, we reject this contention as implausible. 13 like all electrical utilities of which we are aware, charges its 14 customers a metered fee based on their actual electricity usage. 15 See Simon, 785 F. Supp. 2d at 137 n.123 (taking judicial notice 16 of Judge Scheindlin s Con Ed bill, which bases the monthly charge 17 on electricity used). 18 electricity usage, and thereby his payments, if supply costs 19 became too high. 20 fixed quantity of electricity in advance, a contention that is 21 implausible, see Iqbal, 556 U.S. at 678, it would not alter our 22 conclusion because we would still be unable to determine whether Con Ed, Therefore, Simon was free to decrease his Further, even if Simon had contracted to buy a 16 1 Con Ed could have sought and received a rate increase in the 2 absence of the overcharge. 3 Simon s other attempts to distinguish this case from Kansas 4 are similarly unavailing. 5 utilities were actually present in the lawsuit, making allocation 6 issues unavoidable. 7 rested its holding on the possibility of allocation difficulties, 8 not their imminence or likelihood. 9 a proper plaintiff to sue KeySpan for the same conduct implicates notes that, in Kansas, the This may be true, but the Supreme Court concerns about The fact that Con Ed would be 10 Illinois 11 apportionment. 12 question in Kansas stated that the utility passed on most or all 13 of the price increase to its customers. 14 (internal quotation marks omitted). 15 expressly alleges that all of the cost was passed on. 16 the Kansas Court did not leave open the possibility that the 17 plaintiffs could maintain a suit by proving as a matter of fact 18 that 19 Additionally, for the reasons discussed earlier, the allegation 20 here that 100% of the costs were passed on is not sufficient to 21 establish standing because it does not negate the possibility 22 that Con Ed might have sought and received a rate increase in the 23 absence of the overcharge. the Brick s He duplicative recovery and Simon also points to the fact that the certified utilities passed on 17 497 U.S. at 205-06 His complaint, in contrast, 100% of the However, overcharge. 1 For all of these reasons, we hold that Simon cannot qualify 2 for federal antitrust standing as an indirect purchaser. He did 3 not contract to buy a fixed monthly quantity of electricity from 4 Con Ed in advance, and we cannot determine whether Con Ed would 5 have been able to seek and obtain a rate increase in the absence 6 of the overcharge. 7 on indirect purchaser standing is therefore not applicable in 8 this case. The cost-plus contract exception to the bar 9 10 11 II. Filed Rate Doctrine Simon s state and federal claims are also foreclosed by the 12 filed rate doctrine. Simply stated, the doctrine holds that any 13 filed rate that is, one approved by the governing regulatory 14 agency is per se reasonable and unassailable in judicial 15 proceedings brought by ratepayers. 16 Corp., 27 F.3d 17, 18 (2d Cir. 1994). 17 previously addressed whether the filed rate doctrine applies to 18 rates set at market-based auctions as opposed to those set or 19 approved directly by the regulatory agency. 20 us to decide whether the filed rate doctrine always applies to 21 market-based auction rates. 22 the circumstances of this case, where the auction process was 23 circumscribed, and the MBR process was reviewed by the regulatory Wegoland Ltd. v. NYNEX This Circuit has not There is no need for But we do hold that it applies in 18 1 body which determined the resulting rate to be reasonable. 2 these circumstances, the filed rate doctrine forecloses Simon s 3 claims. 4 In The filed rate doctrine originated in the context of the 5 Interstate Commerce Act ( ICA ), 49 U.S.C. §§ 1, et seq. In 6 Keogh v. Chicago & N.W. Ry. Co., 260 U.S. 156, 160-65 (1922), the 7 Supreme Court addressed an antitrust claim against an association 8 of railroad companies that had colluded to set rates rather than 9 competing with one another. These rates, although the product of 10 collusion, were filed with and approved by the Interstate 11 Commerce Commission ( ICC ). 12 the Court held that because the ICC had determined the rates to 13 be lawful, they could not be challenged in court. 14 posited three rationales for the filed rate doctrine: the lack of 15 need for antitrust remedies in regulated industries (that 16 inherently involve some level of government oversight); the per 17 se legality of rates approved by a regulator; and the difficulty 18 of proving that an alternative lower rate would have been 19 approved by the regulator. 20 the ICA s requirement that rates be nondiscriminatory; if 21 customers were allowed to challenge the rate in court, varying 22 litigation outcomes might result in non-uniform rates. In an opinion by Justice Brandeis, The Court Central to the Court s reasoning was 19 1 Since Keogh, the filed rate doctrine has been extended 2 across the spectrum of regulated utilities. Ark. La. Gas Co. v. 3 Hall, 453 U.S. 571, 577 (1981) ( Arkla ). 4 claim is based on fraud or impropriety in the method by which the 5 rate is determined. 6 Bureau, Inc., 476 U.S. 409, 415 (1986) (filed rate doctrine bars 7 claim that shippers colluded to fix rate subsequently approved by 8 ICC). 9 context of wholesale electricity rates when it held that rates It applies even when a See Square D Co. v. Niagara Frontier Tariff The Supreme Court discussed the filed rate doctrine in the 10 filed with FERC are binding on state utilities. 11 Inc. v. La. Pub. Serv. Comm n, 539 U.S. 39, 47-51 (2003). 12 Entergy La., When the filed rate doctrine applies, it is rigid and 13 unforgiving. 14 e.g., Fax Telecommunicaciones Inc. v. AT&T, 138 F.3d 479, 491 (2d 15 Cir. 1998); Ting v. AT&T, 319 F.3d 1126, 1131 (9th Cir. 2003). 16 It does not depend on the culpability of the defendant s conduct 17 or the possibility of inequitable results, nor is it affected by 18 the nature of the cause of action the plaintiff seeks to bring. 19 Marcus v. AT&T Corp., 138 F.3d 46, 58 (2d Cir. 1998). 20 whenever a claim would implicate its underlying twin principles 21 of preventing carriers from engaging in price discrimination as 22 between ratepayers and preserving the exclusive role of federal 23 agencies in approving rates. Indeed, some have argued that it is unjust. Id. 20 See, It applies And when the doctrine 1 applies, it bars both state and federal claims. 2 at 584-85 (1981). 3 Arkla, 453 U.S. FERC has exclusive authority over wholesale electricity 4 rates. See 16 U.S.C. § 824e (establishing FERC s power to fix 5 rates); Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 6 966 (1986) ( FERC clearly has exclusive jurisdiction over the 7 rates to be charged . . . [to] wholesale customers. ). 8 parties do not dispute that Simon s claims are based on the 9 premise that he paid a supracompetitive price for electricity. The 10 The only issue we must decide is whether the filed rate doctrine 11 can apply beyond rates set directly by an agency to MBRs set by a 12 regulatory auction scheme.8 13 Although we have not previously addressed whether the filed 14 rate doctrine applies to MBRs, other circuits that have addressed 15 the issue have concluded that the doctrine applies with equal 16 force to MBRs. 17 202 F.3d 408, 419 (1st Cir. 2000) (applying filed rate doctrine 18 to prices that FERC left to the free market because FERC is 19 still responsible for ensuring just and reasonable rates ); 20 Utilimax.com, Inc. v. PPL Energy Plus, LLC, 378 F.3d 303 (3d Cir. 8 See Town of Norwood, Mass. v. New Eng. Power Co., Simon also argues in his brief that the filed rate doctrine is limited to certain statutes and does not apply to rates set under the Federal Power Act, 16 U.S.C. §§ 796, et seq. This argument is unavailing, as Supreme Court precedent makes clear that the doctrine applies in all instances where rates are set by federal agencies. See Arkla, 453 U.S. at 577-78. 21 1 2004) (applying filed rate doctrine when market based rates were 2 in conformity with the requirements of the FERC and [local 3 authority]-approved market model ); Tex. Commercial Energy v. TXU 4 Energy, Inc. 413 F.3d 503, 509-10 (5th Cir. 2005) (applying filed 5 rate doctrine to MBR tariff in context of state agency that 6 regulated electric utilities); Pub. Util. Dist. No. 1 of Grays 7 Harbor Cnty. Wash. v. IDACORP Inc., 379 F.3d 641, 650-52 (9th 8 Cir. 2004) (rejecting argument that filed rate doctrine does not 9 apply to FERC MBR tariff on the basis that FERC takes steps to 10 ensure that the MBR complies with the statutory mandate that 11 rates be just and reasonable); see also Simon, 2011 WL 2135075, 12 at *2 n.21 (collecting other similar cases from these circuits as 13 well as district courts). 14 that the doctrine does not apply to MBRs.9 15 We are not aware of any court holding In affirming the application of the filed rate doctrine in 16 this case, we need not announce a per se rule and, in a case that 17 does not require it, are reluctant to do so. 18 us that the filed rate doctrine, and the rationales underlying 9 It is not clear to Simon s reliance on Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty., 554 U.S. 527, 546 (2008), is misplaced. Morgan Stanley dealt with the Mobile-Sierra doctrine, which applies to market based tariffs, i.e., bilateral contracts between wholesalers and purchasers that are not directly submitted for rate approval. Id. at 537-38. It does not implicate the filed rate doctrine. See Simon, 2011 WL 2135075, at *2-3 (describing and distinguishing Morgan Stanley opinion). 22 1 it, should preclude all court scrutiny of alleged anti- 2 competitive behavior affecting the setting of MBRs. 3 Court s three rationales from Keogh do not apply with equal force 4 to rates set by MBRs when the only involvement by a regulator is 5 creating the process ultimately corrupted by parties in the 6 market. 7 necessary as markets become increasingly deregulated by the MBR 8 system. 9 the filed rate doctrine applies have taken into account factors The Supreme This is so because antitrust remedies become more Indeed, some of our sister circuits who have held that 10 such as the level of FERC review. 11 202 F.3d at 418 (noting that the tariffs at issue were actively 12 at issue in the FERC proceedings ); Pub. Util. Dist. No. 1 of 13 Snohomish Cnty. v. Dynegy Power Mktg., Inc., 384 F.3d 756, 760-61 14 (9th Cir. 2004) (discussing three specific steps taken by the 15 FERC to exercise oversight over the MBR process). 16 See, e.g., Town of Norwood, Simon urges us to limit the filed rate doctrine to cases 17 where the regulatory agency itself chose or approved the rate. 18 We acknowledge that Simon s approach has some appeal. 19 FERC did not directly set the rate at issue here, it did not 20 specifically determine that the rate was reasonable. 21 KeySpan s alleged conduct undermined the competitive market 22 scheme FERC and NYISO had created. 23 that the rate arrived at was not the one envisioned by FERC. 23 Because Moreover, One could therefore conclude 1 However, we find that the MBR process established by the 2 FERC in this case was sufficiently safeguarded such that the 3 filed rate doctrine should apply. 4 filed rate doctrine is the desire to preserv[e] the exclusive 5 role of federal agencies in approving rates . . . by keeping 6 courts out of the rate-making process. 7 FERC has chosen to exercise its rate-setting authority in this 8 market by establishing an MBR auction process. 9 the final price to auction, FERC exercised tight control over the A central underpinning of the Marcus, 138 F.3d at 58. Despite leaving 10 rate by imposing price caps on the major producers. 11 when FERC capped these producers bids, it was aware that the 12 producers were pivotal (i.e., at least some of their capacity 13 would be required to meet demand), and therefore the market would 14 clear at their cap. 15 KeySpan s bid cap, specifically approved by FERC, in fact set the 16 market price from 1998 until 2006. 17 has observed, 18 19 20 21 22 23 24 25 26 Tellingly, 2008 Market Modification Order at ¶ 4. See id. As the Ninth Circuit the market-based rate regime established by FERC continues FERC s oversight of the rates charged. FERC only permits power sales at market-based rates after scrutinizing whether the seller and its affiliates do not have, or have adequately mitigated, market power in generation and transmission and cannot erect other barriers to entry. Grays Harbor, 379 F.3d at 651 (internal quotation marks omitted). 24 1 Importantly, FERC tightly controls the auction process and 2 has mechanisms in place to remedy the kind of misconduct that 3 allegedly occurred here. 4 fraud or deceit in connection with the sale of energy. 5 § 1c.2(a). 6 manipulation in the energy market, and exercised that authority 7 in this case when it investigated the KeySpan agreement for 8 unlawful manipulation. 9 investigation determined that KeySpan s conduct did not FERC has promulgated a rule barring 18 C.F.R. It has the authority to investigate market FERC s enforcement division s 10 constitute fraudulent market manipulation. 11 Staff Report, Docket Nos. IN08-2-000 & EL07-39-000, at 24 (Feb. 12 28, 2008). 13 continued bids at its cap were not only permissible under the 14 NYISO s [tariff] but consistent with the Commission s 15 expectations when the Commission approved [the 1998 divestiture 16 plan]. 17 Establishing Paper Hearing and Referring Certain Matters for 18 Investigation, 120 FERC ¶ 61,024, at ¶ 17 (July 6, 2007). 19 FERC Enforcement FERC adopted this report and concluded that KeySpan s 2008 Market Power Modification Order at ¶ 145; see Order The rationale behind the filed rate doctrine applies with 20 equal force to an MBR auction system such as NYISO s in which the 21 regulating agency tightly controls the auction process and has 22 exercised its ability to undertake individual review of the MBR 23 to ensure that anti-competitive practices did not undermine the 25 1 process it created. FERC employed a bid cap to curb the market 2 power of large firms and created a mechanism to investigate and 3 rectify fraudulent market manipulation. 4 intrude into FERC s carefully constructed system would directly 5 undermine the rationale of the filed rate doctrine. 6 permit courts to grant . . . greater relief than [plaintiffs] 7 could obtain from the Commission itself. 8 579. 9 reasonable rate, and we are not willing to say that KeySpan s bid For a federal court to It would Arkla, 453 U.S. at FERC s auction process was plainly designed to result in a 10 cap, specifically approved by FERC, was not reasonable. 11 conclude that the filed rate doctrine applies on these facts 12 where the regulator created a process for setting rates, reviewed 13 the resulting rates, and, after investigation, determined that 14 the anti-competitive behavior did not undermine its process and 15 that the resulting rates were reasonable. 16 us to reach the question of whether the filed rate doctrine would 17 apply to all MBRs irrespective of the oversight of the regulator, 18 and we leave that question for another day. 19 We There is no need for CONCLUSION 20 Because we conclude that Simon lacks standing to bring his 21 federal antitrust claims and his state and federal claims are 22 barred by the filed rate doctrine, we need not consider his 23 challenges to the district court s other holdings. 26 Accordingly, 1 for the reasons described above, the judgment of the district 2 court is AFFIRMED. 3 4 27
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