in the united states court of appeals aspire · pdf fileaspire commodities lp raiden...

No. 15-20125

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

Aspire Commodities, L.P.; Raiden Commodities, L.P.,

Plaintiffs-Appellants,

v.

GDF SUEZ Energy North America, Inc.; Ennis Power Company, L.L.C.; Wise County Power Company, L.L.C.;

Midlothian Energy, L.L.C.; Hays Energy, L.L.C.; Wharton County Generation, L.L.C.; Coleto Power, L.P.,

Defendants-Appellees.

On Appeal from the United States District Court for the Southern District of Texas, Houston Division

BRIEF OF APPELLEES

Jeffrey L. Oldham Stephen B. Crain Tony L. Visage BRACEWELL & GIULIANI LLP 711 Louisiana Street, Suite 2300 Houston, Texas 77002-2770 Telephone: (713) 223-2300 Facsimile: (800) 404-3970 [email protected]

ATTORNEYS FOR APPELLEES GDF SUEZ ENERGY NORTH AMERICA, INC. ET AL.

Case: 15-20125 Document: 00513137894 Page: 1 Date Filed: 07/31/2015

CERTIFICATE OF INTERESTED PARTIES

No. 15-20125 Aspire Commodities LP and Raiden Commodities, LP v. GDF SUEZ Energy North America, Inc. et al.

The undersigned counsel of record certifies that the following listed persons and entities as described in the fourth sentence of Rule 28.2.1 have an interest in the outcome of this case. These representations are made in order that the judges of this Court may evaluate possible disqualification or recusal.

Plaintiffs-Appellants

Aspire Commodities LP Raiden Commodities, LP

Counsel for Plaintiffs-Appellants

Roger D. Townsend ALEXANDER DUBOSE JEFFERSON & TOWNSEND LLP 1844 Harvard Street Houston, Texas 77008 Dana Livingston Susan S. Vance ALEXANDER DUBOSE JEFFERSON & TOWNSEND LLP 515 Congress Avenue Austin, Texas 78701 Kenneth M. Krock Barrington M. Hammond, Jr. RAPP & KROCK, PC 3050 Post Oak Blvd., Suite 1425 Houston, Texas 77056 T. Joseph Wendt BARNES & THORNBURG LLP 11 South Meridian Street Indianapolis, Indiana 46204


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Defendants-Appellees

GDF SUEZ Energy North America, Inc. Ennis Power Company, LLC Wise County Power Company, LLC Midlothian Energy, LLC Hays Energy, LLC Wharton County Generation, LLC Coleto Creek Power, LP

Counsel for Defendants-Appellees

Jeffrey L. Oldham Stephen B. Crain Tony L. Visage Amy E. Parker J. Erick Sandlin Leslie D. Wilson BRACEWELL & GIULIANI LLP 711 Louisiana Street, Suite 2300 Houston, Texas 77002

/s/ Jeffrey L. Oldham Jeffrey L. Oldham

Attorney of record for Appellees GDF SUEZ Energy North America, Inc. et al.


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STATEMENT REGARDING ORAL ARGUMENT

This appeal may be appropriate for decision without oral argument because

the record is limited and the legal basis on which the district court dismissed this

suit by Plaintiffs-Appellants (“Plaintiffs”) is narrow. The district court correctly

held that the Commodity Futures Trading Commission’s (CFTC) April 2, 2013

final order (“Final Order”)—which exempts certain transactions “from all

provisions of the CEA [Commodity Exchange Act], except” a list of enumerated

CEA provisions that undisputedly does not include the CEA’s private right of

action provision—bars Plaintiffs’ private action aimed at conduct covered by the

Final Order. That straightforward holding should be affirmed.

Defendants-Appellees (collectively, “GDF”) recognize, however, that oral

argument may benefit the Court. The issues are important, the facts arising out of

Texas’s electricity market operated by the Electric Reliability Council of Texas

(ERCOT) are complex, and the CFTC’s unusual statements in its May 21, 2015

“proposed” Southwest Power Pool order create a new issue on appeal. Further,

GDF has several independent bases for dismissal that it advanced below. In the

event the Court would like oral argument, GDF requests the opportunity to present

its position.


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TABLE OF CONTENTS

Page

CERTIFICATE OF INTERESTED PARTIES ......................................................... i

STATEMENT REGARDING ORAL ARGUMENT ............................................ iii

TABLE OF AUTHORITIES ............................................................................... viiii

STATEMENT OF ISSUES PRESENTED............................................................... 1

INTRODUCTION .................................................................................................... 2

STATEMENT OF THE CASE ................................................................................. 4

I. Regulatory Background. ................................................................................. 4

A. Texas’s electricity market (ERCOT). .................................................. 4

B. Primary regulatory role of FERC/PUCT. ............................................. 6

C. Derivatives markets (including ICE). .................................................. 7

D. CFTC’s regulatory role and the CEA. .................................................. 8

E. CFTC’s exemption of ERCOT transactions from the CEA. ................ 8

II. Plaintiffs’ Lawsuit. ....................................................................................... 10

III. District Court Proceedings. ........................................................................... 11

IV. CFTC’s SPP Proposed Order. ...................................................................... 12

SUMMARY OF THE ARGUMENT ..................................................................... 13

ARGUMENT .......................................................................................................... 15

I. The District Court’s Dismissal Based On The Final Order’s Exemption Was Correct And Is Unaffected By The SPP Proposed Order. ............................................................................................ 15

A. The Final Order’s exemption unambiguously includes the CEA’s private-action provision. ......................................................... 16


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B. The CFTC’s SPP Proposed Order does not affect the district court’s holding. ...................................................................... 18

1. The SPP Proposed Order is non-final. ..................................... 18

2. Regardless, the CFTC’s preamble language could not change the district court’s conclusion. ............................... 19

a. The Final Order is unambiguous, which means the CFTC’s subsequent views carry no weight. ........................................................................... 20

b. Alternatively, the CFTC’s views are not controlling under settled Auer deference exceptions. ..................................................................... 23

c. Alternatively, the CFTC’s views are not controlling here because they cannot apply retroactively, especially given the strong reliance interests. ........................................................... 25

d. Alternatively, no deference is owed to agencies’ interpretations of their prior adjudications. ................................................................. 27

C. Plaintiffs’ policy arguments are irrelevant and flawed. ..................... 28

D. The Final Order applies to Plaintiffs’ allegations. ............................. 30

1. That the Final Order preserves the CFTC’s anti-fraud power does not help Plaintiffs. ....................................... 31

2. The Final Order covers GDF’s alleged activity, contrary to Plaintiffs’ new appellate argument. ....................... 31

3. Enforcing the Final Order is consistent with the CEA. ......................................................................................... 37

4. Plaintiffs’ allegations of cross-market impact offer no basis for avoiding the Final Order. ..................................... 39


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II. Alternatively, The District Court’s Order May Be Affirmed On Any Ground Advanced Below. .................................................................... 42

A. Plaintiffs fail the CEA’s interstate-commerce requirement. .............. 42

B. The filed-rated doctrine bars Plaintiffs’ claims. ................................. 44

C. Plaintiffs’ complaint fails to state a claim. ......................................... 49

1. Plaintiffs failed to plead scienter, which defeats all claims. ...................................................................................... 50

2. Plaintiffs failed to plead fraud under the heightened standard. ................................................................................... 56

3. Plaintiffs failed to allege GDF caused an artificial price, which defeats their manipulation claim. ........................ 57

4. Plaintiffs failed to adequately allege aiding and abetting. .................................................................................... 58

5. Plaintiffs’ allegations about trading on non-public information allege no CEA violation. ...................................... 58

D. Raiden’s purely intrastate claims at least must be dismissed. ........................................................................................... 59

E. The declaratory- and injunctive-relief claims must be dismissed. ........................................................................................... 59

CONCLUSION ....................................................................................................... 59

CERTIFICATE OF SERVICE ............................................................................... 61

CERTIFICATE OF COMPLIANCE WITH RULE 32(a) ..................................... 62


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TABLE OF AUTHORITIES

Page(s)

Cases

Abrams v. Baker Hughes Inc., 292 F.3d 424 (5th Cir. 2002) .............................................................................. 54

Amacker v. Renaissance Asset Mgmt. LLC, 657 F.3d 252 (5th Cir. 2011) .............................................................................. 58

In re Amaranth Natural Gas Commodities Litig., 587 F. Supp. 2d 513 (S.D.N.Y. 2008), aff’d, 730 F.3d 170 (2d Cir. 2013) ................................................................................................ 51, 55

In re Amaranth Natural Gas Commodities Litig., 612 F. Supp. 2d 376 (S.D.N.Y. 2009), aff’d, 730 F.3d 170 (2d Cir. 2013) ...................................................................................................... 50

Andrus v. Glover Constr. Co., 446 U.S. 608 (1980) ............................................................................................ 17

In re Appletree Mkts., Inc., 19 F.3d 969 (5th Cir. 1994) ................................................................................ 19

In re ArthroCare Corp. Sec. Litig., 726 F. Supp. 2d 696 (W.D. Tex. 2010) .............................................................. 53

Ashcroft v. Iqbal, 556 U.S. 662 (2009) .......................................................................... 41, 49, 50, 52

Auer v. Robbins, 519 U.S. 452 (1997) ............................................................. 19, 20, 21, 23, 24, 27

Barnhart v. Peabody Coal Co., 537 U.S. 149 (2003) ............................................................................................ 17

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988) ............................................................................................ 25

CFTC v. Wilson, 27 F. Supp. 3d 517 (S.D.N.Y. 2014) .................................................................. 49


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Chase Bank USA, N.A. v. McCoy, 562 U.S. 195 (2010) ............................................................................................ 21

Chevron U.S.A. Inc. v. Echazabal, 536 U.S. 73 (2002) .............................................................................................. 16

Chill v. Gen. Elec. Co., 101 F.3d 263 (2d Cir. 1996) ............................................................................... 51

Christensen v. Harris Cnty., 529 U.S. 576 (2000) ...................................................................................... 21, 26

Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156 (2012) ............................................................................ 24, 25, 26

In re Commodity Exch., Inc. Silver Futures and Options Trading Litig., 560 F. App’x 84 (2d Cir. 2014)................................................................ 52

In re Condor Ins. Ltd., 601 F.3d 319 (5th Cir. 2010) ........................................................................ 17, 21

In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 767 F. Supp. 2d 880 (N.D. Ill. 2011) ...................................................... 47, 48, 49

Decker v. Nw. Envtl. Def. Ctr., 133 S. Ct. 1326 (2013) ........................................................................................ 27

E. & J. Gallo Winery v. EnCana Corp., 503 F.3d 1027 (9th Cir. 2007) ............................................................................ 46

FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307 (2012) ........................................................................................ 26

Gen. Motors Corp. v. Romein, 503 U.S. 181 (1992) ............................................................................................ 26

Gen. Servs. Admin. v. Fed. Labor Rel. Auth., 86 F.3d 1185 (D.C. Cir. 1996) ............................................................................ 19

In re Green Hills Dev. Co., 741 F.3d 651 (5th Cir. 2014) .............................................................................. 42


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Hershey v. Energy Transfer Partners, L.P., 610 F.3d 239 (5th Cir. 2010) ............................................................ 49, 50, 53, 57

Ind. Elec. Workers’ Pension Trust Fund IBEW v. Shaw Grp., Inc., 537 F.3d 527 (5th Cir. 2008) .............................................................................. 54

Ladd v. Colonial Sav., F.A., 2014 WL 1393038 (N.D. Tex. Apr. 10, 2014) ................................................... 59

Landgraf v. USI Film Prods., 511 U.S. 244 (1994) ...................................................................................... 25, 26

In re LIBOR-Based Fin. Instruments Antitrust Litig., 962 F. Supp. 2d 606 (S.D.N.Y. 2013) ................................................................ 51

In re LIBOR-Based Fin. Instruments Antitrust Litig., 27 F. Supp. 3d 447 (S.D.N.Y. 2014) ...................................................... 50, 52, 55

Lorillard v. Pons, 434 U.S. 575 (1978) ............................................................................................ 34

Madonna v. United States, 878 F.2d 62 (2d Cir. 1989) ................................................................................. 41

Marcus v. AT&T Corp., 138 F.3d 46 (2d Cir. 1998) ................................................................................. 47

Medco Energi US, L.L.C. v. Sea Robin Pipeline Co., 729 F.3d 394 (5th Cir. 2013) (per curiam) ................................................... 44, 45

MLSMK Invs. Co. v. JP Morgan Chase & Co., 737 F. Supp. 2d 137 (S.D.N.Y. 2010), aff’d, 651 F.3d 268 (2d Cir. 2011) ...................................................................................................... 53

Moore v. Hannon Food Serv., Inc., 317 F.3d 489 (5th Cir. 2003) ........................................................................ 21, 22

Navarro-Miranda v. Ashcroft, 330 F.3d 672 (5th Cir. 2003) ........................................................................ 23, 24

Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984) ............................................................................................ 26


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Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199 (2015) ........................................................................................ 27

R2 Invs. LDC v. Phillips, 401 F.3d 638 (5th Cir. 2005) .............................................................................. 13

Sherman v. Sokoloff, 570 F. Supp. 1266 (S.D.N.Y. 1983) ................................................................... 53

Skidmore v. Swift & Co., 323 U.S. 134 (1944) ............................................................................................ 22

Sobranes Recovery Pool I, LLC v. Todd & Hughes Constr. Corp., 509 F.3d 216 (5th Cir. 2007) .............................................................................. 28

Sullo & Bobbitt, P.L.L.C. v. Milner, 765 F.3d 388 (5th Cir. 2014) (per curiam) ......................................................... 31

Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254 (2011) .................................................................................. 21, 23

Telvest, Inc. v. Bradshaw, 618 F.2d 1029 (4th Cir. 1980) ............................................................................ 19

Tex. Clinical Labs, Inc. v. Sebelius, 612 F.3d 771 (5th Cir. 2010) .............................................................................. 22

Tex. Commercial Energy v. TXU Energy, Inc., 413 F.3d 503 (5th Cir. 2005) ........................................................ 4, 31, 43, 44, 45

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) ............................................................................................ 23

TRW Inc. v. Andrews, 534 U.S. 19 (2001) ........................................................................................ 17, 34

United States v. Brooks, 681 F.3d 678 (5th Cir. 2012) .............................................................................. 33

United States v. Radley, 632 F.3d 177 (5th Cir. 2011) ......................................................32, 33, 34, 35, 36


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United States v. Radley, 659 F. Supp. 2d 803 (S.D. Tex. 2009), aff’d, 632 F.3d 177 (5th Cir. 2011) ..................................................................................................... 57

United States v. Redd, 562 F.3d 309 (5th Cir. 2009) .............................................................................. 28

United States v. Reliant Energy Servs., Inc., 420 F. Supp. 2d 1043 (N.D. Cal. 2006) ........................................................ 41, 42

Walker v. City of Lakewood, 272 F.3d 1114 (9th Cir. 2001) ............................................................................ 21

Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17 (2d Cir. 1994) ................................................................................... 44

United States ex rel. Williams v. Bell Helicopter Textron Inc., 417 F.3d 450 (5th Cir. 2005) .............................................................................. 54

Yohey v. Collins, 985 F.2d 222 (5th Cir. 1993) .............................................................................. 16

Constitutional Provision and Statutes

16 TEX. ADMIN. CODE § 25.1 (2003) ......................................................................... 6

16 TEX. ADMIN. CODE §§ 25.501–25.507 (1998) ...................................................... 6

5 U.S.C. § 704 .......................................................................................................... 19

7 U.S.C. § 2(a)(1)(A) ............................................................................................... 33

7 U.S.C. § 2(a)(1)(I) ................................................................................................... 8

7 U.S.C. § 2(g) ......................................................................................................... 32

7 U.S.C. § 6(c)(1) (i.e., CEA § 4(c)(1)) ......................................................... 8, 25, 37

7 U.S.C. § 6(c)(2) (i.e., CEA § 4(c)(2)) ..................................................................... 8

7 U.S.C. § 6(c)(6) (i.e., CEA § 4(c)(6)) ........................................................... 8, 9, 37

7 U.S.C. § 6(d) ......................................................................................................... 37


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7 U.S.C. § 6r(a) ........................................................................................................ 22

7 U.S.C. § 6r(c) ........................................................................................................ 22

7 U.S.C. § 6s ............................................................................................................ 22

7 U.S.C § 9 (i.e., CEA § 6(c)) .................................................................................. 49

7 U.S.C. § 9(1) (i.e., CEA § 6(c)(1)) ........................................ 10, 43, 49, 54, 56, 58

7 U.S.C. § 9(2) (i.e., CEA § 6(c)(2)) ....................................................................... 10

7 U.S.C. § 9(3) (i.e., CEA § 6(c)(3)) ........................................ 10, 43, 49, 50, 51, 57

7 U.S.C. § 13a-1(a) .................................................................................................. 59

7 U.S.C. § 13a-1(d)(3) ............................................................................................. 30

7 U.S.C. § 25 (i.e., CEA § 22) ..........................................................................passim

7 U.S.C. § 25(a)(2) ................................................................................................... 59

15 U.S.C. § 78t(e) .................................................................................................... 29

15 U.S.C. § 80b-6 ..................................................................................................... 29

16 U.S.C. § 824v ...................................................................................................... 29

U.S. CONST. amend. V ............................................................................................. 26

Regulations and Rules

17 C.F.R. § 180.1(a) (2011) ............................................................................... 54, 55

17 C.F.R. § 180.2 (2011) ......................................................................................... 50

FED. R. CIV. P. 8 ....................................................................................................... 50

FED. R. CIV. P. 9(b) ............................................................................................ 49, 56

PUCT Project No. 31972, Order Adopting Am. to § 25.502, New § 25.504 and New § 25.505 as Approved at the Aug. 10, 2006, Open Meeting (Aug. 23, 2006), https://goo.gl/etYg1s ......................................... 7


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P.U.C. SUBST. R. 25.504(c) ........................................................................................ 7

P.U.C. SUBST. R. 25.505(g)(6)(B) ........................................................................... 45

Other Authorities

76 Fed. Reg. 41,398 (July 14, 2011): p. 41,398 ........................................................................................................ 49, 50 p. 41,402 .............................................................................................................. 58 p. 41,403 .............................................................................................................. 58 p. 41,404 .............................................................................................................. 54 p. 41,405 .............................................................................................................. 55 p. 41,407 .................................................................................................. 49, 50, 51

77 Fed. Reg. 52,138 (Aug. 28, 2012) (“ERCOT Proposed Order”): p. 52,138 ................................................................................................................ 4 pp. 52,138–52,173 ................................................................................................ 9 p. 52,139 ............................................................................................................ 6, 8 p. 52,140 ............................................................................................................ 4, 6 p. 52,141 ............................................................................................................ 4, 6 p. 52,157 .............................................................................................................. 35

78 Fed. Reg. 19,880 (Apr. 2, 2013) (“Final Order”): p. 19,880 .......................................................................................................... 9, 18 p. 19,881 .............................................................................................................. 44 p. 19,882 .............................................................................................................. 44 p. 19,883 .............................................................................................................. 34 p. 19,884 .............................................................................................................. 18 p. 19,887 .............................................................................................................. 43 p. 19,888 .............................................................................................................. 43 p. 19,889 .............................................................................................................. 44 p. 19,894 .......................................................................................................... 9, 37 p. 19,895 .............................................................................................. 9, 18, 37, 38 p. 19,903 .................................................................................................... 9, 18, 39 p. 19,904 .................................................................................................... 9, 18, 39 p. 19,905 ........................................................................................................ 18, 30 p. 19,911 .............................................................................................................. 18 p. 19,912 ........................................................................... 9, 16, 18, 22, 31, 35, 44 p. 19,913 .............................................................................................. 9, 31, 34, 36


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80 Fed. Reg. 29,490 (May 21, 2015) (“SPP Proposed Order”): p. 29,490 .............................................................................................................. 12 p. 29,491 .............................................................................................................. 12 p. 29,493 ............................................................................... 12, 13, 20, 24, 29, 30 p. 29,516 .............................................................................................................. 12 p. 29,522 .............................................................................................................. 13

6/22/15 Am. Pub. Power Assoc. et al. Ltr. to CFTC, http://goo.gl/cJgxN3 ..................................................................................... 28, 29

6/22/15 Aspire Ltr. to CFTC, http://goo.gl/ntXD5u ................................................ 22

6/22/15 PUCT Ltr. to CFTC, http://goo.gl/xtBjU5 ........................................... 28, 29

6/22/15 FERC Ltr. to CFTC, http://goo.gl/0Siili ..................................................... 29

6/22/15 “ISO-RTO Commenters” (including ERCOT) Ltr. to CFTC, http://goo.gl/Gl32a0 ...................................................................................... 28, 29

BLACK’S LAW DICTIONARY (8th ed. 2004) .............................................................. 33

Comments for Orders & Other Announcements: 80 Fed. Reg. 29,490, http://goo.gl/arjmzO (last viewed July 30, 2015) ......................................... 13, 28

FERC Strategic Plan, FY 2014-18 (Mar. 2014), http://goo.gl/H38e57 ..................... 6

In re Ind. Farm Bureau Coop., COMM. FUT. L. REP. ¶ 21796, CFTC 75-14, 1982 WL 30249 (Dec. 17, 1982) .................................................. 50

In re Roger J. Wright, COMM. FUT. L. REP. ¶ 29412, CFTC No. 97-2, 2003 WL 548760 (Feb. 25, 2003) ...................................................................... 43


STATEMENT OF ISSUES PRESENTED

1. Whether the district court correctly dismissed Plaintiffs’ suit, which attacks GDF’s conduct in the ERCOT market, because the CFTC’s Final Order applies to that conduct and unambiguously exempts private rights of action under the CEA. (Plaintiffs’ Issues 1 & 2)

2. Alternatively, whether the district court’s dismissal order can be affirmed, in whole or part, because (Plaintiffs’ Issue 3):

(a) Plaintiffs’ allegations do not meet the CEA’s “interstate commerce” requirement, warranting dismissal of all claims;

(b) Plaintiffs’ lawsuit is barred by the filed-rate doctrine because it unavoidably challenges the rates charged in ERCOT;

(c) Plaintiffs failed to adequately plead CEA claim(s) because:

(i) they did not sufficiently plead scienter;

(ii) they did not adequately plead a fraudulent or manipulative act;

(iii) their allegations cannot establish GDF caused an “artificial price”;

(iv) their allegations of aiding and abetting are insufficient; and

(v) their allegations about trading on non-public information plead no CEA violation.

(d) At minimum, Raiden’s claims must be dismissed because they relate to ERCOT-only conduct; or

(e) The declaratory- and injunctive-relief claims should be dismissed because the CEA does not authorize such relief.


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INTRODUCTION

Plaintiffs’ case is a fishing expedition. Their amended complaint (“FAC”)

alleges GDF engaged in lawful and transparent conduct in the Texas electricity

market operated by ERCOT—conduct expressly authorized by the market’s

regulator—to manipulate prices in futures markets, namely the InterContinental

Exchange (ICE). Yet the bulk of Plaintiffs’ allegations simply explain how the

ERCOT and ICE markets work and detail GDF’s lawful ERCOT conduct.

Plaintiffs do not allege any specific position taken by GDF in futures markets that

benefited from GDF’s ERCOT conduct. So Plaintiffs resort to speculating GDF

“can” do so or making a conclusory (and unfounded) accusation that the only

reason for GDF’s ERCOT activity is to benefit positions in other markets.

Plaintiffs’ case, based purely on conjecture, appropriately was terminated quickly.

The district court dismissed Plaintiffs’ CEA suit because the CFTC’s Final

Order unambiguously exempts GDF from private CEA actions. It “[e]xempts”

ERCOT transactions “from all provisions of the CEA, except...the [CFTC’s]

general anti-fraud and anti-manipulation authority, and scienter-based prohibitions,

under CEA sections” then listed. The CEA’s private-action provision, CEA § 22

(i.e., 7 U.S.C. § 25),1 is part of the “exempt[ion]” because it unquestionably is a

1 As the district court noted, the CEA section numbers do not always

correspond to the U.S. Code section numbers. ROA.1353 n.32. GDF generally refers to CEA section numbers, with citations to U.S. Code section numbers.


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“provision[] of the CEA” and “all” means “all”; further, § 22 is not included in the

list of “except[ions]” to the exemption. That is the district court’s straightforward

basis for dismissing this action, and it is assuredly correct.

On appeal, Plaintiffs do not even try to explain how the Final Order can be

construed to allow private actions. Plaintiffs instead rely on the CFTC’s May 21,

2015 proposed order in an entirely different proceeding pertaining to Southwest

Power Pool (SPP) (“SPP Proposed Order”), which contains an unusual paragraph

purporting to state the CFTC’s “intent” and “belief” that, notwithstanding the Final

Order, private actions can proceed. Those statements have no effect here for many

reasons given below, including that they are contrary to the Final Order’s

unambiguous text. There is also nothing to Plaintiffs’ misplaced policy pleas and

mistaken contentions that the Final Order does not cover the conduct alleged here.

In the end, this case illustrates well why it would be a mistake to allow

private actions in this context. GDF’s ERCOT activity is scrutinized by a market

monitor, ERCOT, and the Public Utility Commission of Texas (PUCT)—which

can respond to allegations by market participants that can and do watch whatever

GDF does. GDF’s complained-of activity was undisputedly lawful under ERCOT

and PUCT rules. Yet Plaintiffs’ position is that even where regulators approve

conduct, market participants that are motivated by a desire for private gain can

attack that conduct and have juries and judges second-guess the regulators—and


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even declare the rules or basic design of markets unlawful. Plaintiffs’ suit is

unabashedly an attack on ERCOT’s market design. Denying private rights of

action makes sense where the subject conduct is heavily regulated and private

actions would have courts second-guess regulators. These and other good policy

reasons (discussed below) fully support the Final Order’s exemption of CEA

private actions. This Court should affirm.

STATEMENT OF THE CASE

I. Regulatory Background.

A. Texas’s electricity market (ERCOT).

By regulatory design, American markets for wholesale electricity generation

generally are administered through regional transmission organizations (“RTOs”)

and other independent system operators (“ISOs”). See 77 Fed. Reg. 52,138,

52,140–52,141 (Aug. 28, 2012) (CFTC’s proposed order on exemption request by

ERCOT and other RTO/ISOs) (“ERCOT Proposed Order”). While differences

exist in how each RTO/ISO operates, they are subject to the same basic regulatory

framework, which seeks to ensure open access and foster competition among

wholesale generators in providing electricity to ultimately be used by consumers.

See id. The wholesale electricity market for most of Texas is operated by ERCOT,

which operates exclusively in Texas. ROA.1344; see Tex. Commercial Energy v.

TXU Energy, Inc., 413 F.3d 503, 506 n.1 (5th Cir. 2005).


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According to Plaintiffs’ allegations (credited by the district court at this

stage), ERCOT balances the supply and demand for electricity by matching bids to

buy with offers to sell, which establishes the market price (called the Locational

Marginal Price (LMP)). ROA.1345-46. ERCOT can require additional electricity

generation in emergency conditions, ROA.401, but generally, generators offer

electricity on a voluntary basis, ROA.1345-46.

To make this system work, generators provide “offer curves”—which tell

ERCOT the price/quantity at which the generators will offer electricity—and the

generators can change their offer curves throughout each day. ROA.1346. As the

district court explained, “ERCOT uses [the offer curves] to balance the system by

using the next lowest-cost energy to serve the next unit of demanded energy,”

which then affects the LMP because, for example, if the next lowest-cost offer is

above the current LMP, the LMP will rise to capture that energy. Id.

ERCOT operates a “real-time” market, in which electricity is physically

sold, and a “day-ahead” market, in which parties trade in anticipation of the next

day’s sales. ROA.1345. Day-ahead trades are only financially binding, as parties

commit to either deliver that volume of electricity or buy it back at the spot price

in the real-time market. ROA.377-78. ERCOT also has a market for “virtual”

trades, where parties (including non-generators like Raiden) can speculate on


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differences between the real-time and day-ahead prices. ROA.1345. These futures

markets allow generators to hedge for swings in real-time prices. ROA.352-54.

B. Primary regulatory role of FERC/PUCT.

The Federal Energy Regulatory Commission (FERC) regulates the interstate

wholesale electricity market. FERC Strategic Plan, FY 2014-18, at 3 (Mar. 2014),

http://goo.gl/H38e57. FERC helped create the market design promoting

competition among generators within RTO/ISOs, and closely regulates the

operation of the interstate markets with the goal of protecting consumers—

including through market-monitoring, investigative, and enforcement efforts.

77 Fed. Reg. at 52,139–52,141; FERC Strategic Plan, supra, at 12-13.

Because ERCOT is purely intrastate, the PUCT is ERCOT’s primary

regulator instead of FERC. ROA.1345; 77 Fed. Reg. at 52,141. ERCOT has rules

to address the PUCT’s requirements, including market-design issues, pricing

safeguards, and market monitoring. See 16 TEX. ADMIN. CODE §§ 25.501–25.507

(1998); see also 77 Fed. Reg. at 52,141. Like FERC, the PUCT provides rigorous

oversight and enforcement over the ERCOT market, aimed at ensuring consumers

are able to purchase electricity on a reliable and affordable basis. 16 TEX. ADMIN.

CODE § 25.1 (2003).

One aspect of the ERCOT market design is particularly relevant here. The

PUCT generally prohibits the withholding of energy from the market by generators


-7-

that have “ERCOT-wide market power,” but it enacted a “small fish” rule

providing that “[a] single generation entity that controls less than 5% of the

installed generation capacity in ERCOT…is deemed not to have ERCOT-wide

market power.” P.U.C. SUBST. R. 25.504(c) (ROA.958). At all relevant times,

GDF was a “small fish.” ROA.982; ROA.1346-47. In a March 2013 “Settlement

Agreement and Voluntary Mitigation Plan” (“VMP”), the PUCT (as well as the

market monitor) agreed GDF’s adherence to the VMP gave it “an absolute defense

against an allegation pursuant to” Texas law or PUCT regulations “of an abuse of

market power through economic withholding.”2 ROA.981-85; ROA.1347. VMPs

and the “small fish” rule are instrumental to ERCOT market design, which relies

on a competitive market to attract market participants and encourage investment in

new generation. See, e.g., ROA.1032-33; PUCT Project No. 31972, Order

Adopting Am. to § 25.502, New § 25.504 and New § 25.505 as Approved at the

Aug. 10, 2006, Open Meeting, at 6, 89-90 (Aug. 23, 2006), https://goo.gl/etYg1s.

C. Derivatives markets (including ICE).

Particularly on appeal, Plaintiffs try to shift focus from GDF’s ERCOT

activity—which consumes the vast majority of their FAC—to derivatives markets.

2 “Economic” withholding involves avoiding sales through pricing

strategies; “physical” withholding involves generating units being offline. See infra p. 10.


-8-

In derivatives markets like ICE, parties can trade ERCOT-related futures contracts

that are derived from ERCOT’s market prices. ROA.357-67.

D. CFTC’s regulatory role and the CEA.

The CFTC is charged with enforcing the CEA and has jurisdiction over

futures and swaps traded on CFTC-regulated exchanges. 77 Fed. Reg. at 52,139.

But Congress clarified that FERC and state agencies like the PUCT preserve their

authority over such agreements, contracts, and transactions that are not traded on

CFTC-regulated exchanges or that are traded on RTO/ISO exchanges. Id.;

7 U.S.C. § 2(a)(1)(I)(i)–(ii).

E. CFTC’s exemption of ERCOT transactions from the CEA.

Under CEA § 4(c)(6), if the CFTC “determines that the exemption would be

consistent with the public interest and the purposes of” the CEA, it “shall…exempt

from the requirements of [the CEA] an agreement, contract, or transaction that is

entered into” pursuant to a FERC- or state-approved tariff. 7 U.S.C. § 6(c)(6).3

According to then-Chairman Gensler, Congress allowed such exemptions because

3 CEA § 4(c)(6) requires the CFTC to act “in accordance with” § 4(c)(1) and

(2), which, inter alia, allow it to act after notice-and-comment to “exempt any agreement, contract, or transaction (or class thereof) that is otherwise subject to [§ 4(a)’s exchange-trading requirements] (including any person or class of persons offering, entering into, rendering advice or rendering other services with respect to, the agreement, contract, or transaction), either unconditionally or on stated terms or conditions or for stated periods and either retroactively or prospectively, or both, from any of the requirements of [§ 4(a)], or from any other provision of this chapter” except two provisions not relevant here. 7 U.S.C. § 6(c)(1).


-9-

these transactions “are subject to extensive regulatory oversight by [FERC]

or…the [PUCT].” ROA.1037.

In February 2012, ERCOT and other RTO/ISOs requested a § 4(c)(6)

exemption. See 77 Fed. Reg. at 52,138–52,173. The Final Order issued with the

following exemptive language:

[The CFTC] [e]xempts, subject to the conditions and limitations specified herein, the execution of the electric energy-related agreements, contracts, and transactions that are specified in paragraph 2 of this Order and any person or class of persons offering, entering into, rendering advice, or rendering other services with respect thereto, from all provisions of the CEA, except, in each case, the Commission’s general anti-fraud and anti-manipulation authority, and scienter-based prohibitions, under CEA sections 2(a)(1)(B), 4(d), 4b, 4c(b), 4o, 4s(h)(1)(A), 4s(h)(4)(A), 6(c), 6(d), 6(e), 6c, 6d, 8, 9, and 13 and any implementing regulations promulgated under these sections including, but not limited to, Commission regulations 23.410(a) and (b), 32.4, and part 180.

78 Fed. Reg. 19,880, 19,912 (Apr. 2, 2013). Covered agreements, contracts, and

transactions include “energy transactions,” defined therein. Id. at 19,912–19,913.

Notably, the Final Order discussed potential manipulation of electricity

prices to impact futures markets, finding the exemption would not impact the

CFTC’s or other regulators’ abilities to address misconduct given the extensive

regulatory means in place. Id. at 19,903–19,904. The CFTC found the requested

exemption consistent with the public interest and the CEA’s purposes, relying on

FERC/PUCT’s extensive regulation and oversight. Id. at 19,894–19,895.


-10-

II. Plaintiffs’ Lawsuit.

Plaintiffs are speculators in the ERCOT virtual (Raiden) or ICE (Aspire)

markets that sued GDF, seeking damages under CEA § 22, for allegedly violating

CEA § 6(1)–(3) (i.e., 7 U.S.C. § 9(1)–(3)) by supposedly affecting prices in futures

markets through its ERCOT activity.4 ROA.433-40; ROA.1344-45. Plaintiffs

have also made other (unsuccessful) attacks on ERCOT’s design or the PUCT—

including a petition to the PUCT to eliminate the “small fish” rule, which was

denied. ROA.1347; see ROA.996-1010 (petition); ROA.1013-24 (PUCT order).

According to Plaintiffs’ FAC, GDF has occasionally economically withheld

electricity during times of peak demand by increasing its offer price to around

$5,000/MWh (the maximum rate ERCOT then permitted) for a brief period of one

or two hours, which purportedly increased the LMP and impacted futures prices.

ROA.370-97. Plaintiffs also allege GDF has physically withheld electricity by

designating generation units offline or available for emergencies only, which

purportedly impacted futures prices. ROA.398-432. Plaintiffs’ core allegation is

that GDF, “through its actions within ERCOT,” committed fraud and manipulated

prices, which caused Plaintiffs harm. E.g., ROA.367-70; ROA.434-36.

4 Plaintiffs later abandoned their CEA § 6(c)(2) claim. ROA.1353 n.31.

Plaintiffs’ FAC also alleges conspiracy and aiding and abetting, and asks for injunctive and declaratory relief. ROA.436-40.


-11-

Plaintiffs’ FAC describes how GDF’s ERCOT activity allegedly impacted

futures markets like ICE,5 but acknowledges the ERCOT activity was legal and

PUCT-approved. ROA.355-56. And Plaintiffs have no evidence GDF benefitted

from its ERCOT activity with any specific futures trade. Plaintiffs allege GDF

generally trades in ICE and speculate that GDF “can” make more in ICE, that

profits from “any long positions” in ICE would exceed losses incurred by

withholding, and that this must be the reason to withhold. ROA.369; ROA.375;

ROA.385. But they plead no facts supporting the conclusion that GDF has had an

ICE position that benefitted from its ERCOT activity. Plaintiffs’ counsel was

publicly reported as “conced[ing]…he does not have proof that GDF…had

derivatives positions that benefited from its ERCOT bidding activities.” ROA.977.

III. District Court Proceedings.

Plaintiffs filed a 23-page complaint, ROA.9-31, then responded to GDF’s

initial motion to dismiss by filing the FAC that added 72 pages of length (mostly

about lawful ERCOT activity), yet contributed no new substance, ROA.348-442.

GDF again moved to dismiss. ROA.462-508.

The district court dismissed the lawsuit, holding that “GDF’s transactions

within ERCOT are exempted transactions under the Final Order,” that “[t]he Final

5 As Plaintiffs do, GDF sometimes will refer just to ICE in discussing

futures markets generally.


-12-

Order exempts these transactions ‘from all provisions of the CEA,’ which

includes” the private-action provision, and that this provision “is not included in

the Final Order’s listing of CEA sections retained.” ROA.1357-58. Even

“assuming arguendo” GDF’s ERCOT activity was meant to influence ICE, “all of

the conduct…Plaintiffs challenge took place entirely within” ERCOT, and the

FAC “does not identify a single ICE transaction in which GDF…engaged.”

ROA.1358. Because Plaintiffs’ CEA claims were dismissed, their collateral claims

were as well. ROA.1358-59.

IV. CFTC’s SPP Proposed Order.

Plaintiffs rely on an intervening event on appeal. SPP had (in October 2013)

requested the same exemption as is in the Final Order, yet just days before

Plaintiffs filed their appellate brief, the CFTC issued the SPP Proposed Order.

80 Fed. Reg. 29,490, 29,490–29,491 (May 21, 2015). The SPP Proposed Order’s

ordering language is identical to the Final Order, exempting SPP “from all

provisions of the CEA, except” the listed statutes (again, not including § 22). Id. at

29,516. The SPP Proposed Order’s preamble, however, has remarks that are not

included in the Final Order and that vary from the text of both the Final Order and

the SPP Proposed Order’s ordering paragraphs. Id. at 29,493. The preamble

language recognizes that as to the Final Order’s exceptions from the exemption,

“[n]either the proposed nor the final RTO-ISO Order discussed, referred to, or


-13-

mentioned CEA [§] 22.” Id. But it then claims the CFTC “did not intend to

create…a limitation [on private actions], and believes that the [Final Order] does

not prevent private claims for fraud or manipulation under the” CEA. Id.

The SPP Proposed Order is subject to notice-and-comment review. Id. at

29,522. It triggered extensive comments from industry participants and regulators

(including the PUCT and ERCOT) that are mostly critical of injecting private

actions in this context. See Comments for Orders & Other Announcements:

80 Fed. Reg. 29,490, http://goo.gl/arjmzO (last viewed July 30, 2015).6 Comments

were due June 22, 2015; the CFTC has yet to take further action.

SUMMARY OF THE ARGUMENT

The district court’s basis for dismissing Plaintiffs’ lawsuit is straightforward:

The Final Order unambiguously exempts transactions like GDF’s “from all

provisions of the CEA, except…the [CFTC’s] general anti-fraud and anti-

manipulation authority...under CEA sections” specifically listed therein. CEA

§ 22, which provides a right of action for persons harmed by CEA violations, is a

“provision[] of the CEA,” yet it is not included among the “except[ions]” to the

exemption. Under the Final Order’s plain text, CEA § 22 is unquestionably part of

the exemption. The Court should affirm that holding.

6 The Court can take judicial notice of these comments publicly filed with

the CFTC. See R2 Invs. LDC v. Phillips, 401 F.3d 638, 639 n.2 (5th Cir. 2005).


-14-

The SPP Proposed Order’s preamble language does not affect that holding.

The language comes in a non-final order that is under notice-and-comment review,

so the language is not entitled to any weight.

Even treating the language as a formal agency interpretation would not

undermine the district court’s holding. The Final Order’s text is unambiguous in

exempting covered transactions from the CEA’s private-action provision, which

means no deference is owed to the CFTC’s views on that question because

agencies receive deference only when construing ambiguous regulations or orders.

Alternatively, the CFTC’s views are not controlling even under agency-deference

principles: its views are plainly erroneous and inconsistent with the Final Order,

since they would contravene the Final Order’s clear meaning, and those views

cannot be said to reflect the agency’s fair and considered judgment given the

irregularity of the proceedings and the massive potential liability the CFTC’s views

would seek to impose on parties who relied on the Final Order’s plain text. At

minimum, the CFTC’s views cannot control in this case because Plaintiffs’ only

viable claims are for past relief, yet the CFTC’s newfound position on the Final

Order does not clearly apply retroactively and cannot legally do so, particularly in

light of the significant reliance interests by GDF and others. For these and other

reasons, the Court should affirm regardless of the SPP Proposed Order.


-15-

Plaintiffs’ contentions that the Final Order does not cover GDF’s alleged

conduct here also lack merit. The district court correctly rejected the argument that

the Final Order does not exempt ICE transactions because that is not the question

here. Plaintiffs’ allegations unquestionably target GDF’s ERCOT activity, which is

exempted. Further, Plaintiffs have not alleged a single specific ICE transaction by

GDF that benefited from its ERCOT activity. The district court also properly

disregarded Plaintiffs’ policy contentions, which offer no reason to ignore the Final

Order. Plaintiffs argue (for the first time on appeal) that the Final Order covers

only “completed transactions” and therefore not all of GDF’s alleged conduct, but

that argument is waived and is contrary to the Final Order’s plain language, to this

Court’s precedent interpreting identical language, and to common sense.

Affirmance is warranted based on the Final Order. Alternatively, the Court

can affirm on any or all of the other grounds set forth below.

ARGUMENT

I. The District Court’s Dismissal Based On The Final Order’s Exemption Was Correct And Is Unaffected By The SPP Proposed Order.

The central issue decided below was whether the Final Order’s exemption

bars CEA private actions. ROA.1355-58. Conspicuously absent from Plaintiffs’

brief, however, is any attempt to interpret the Final Order to address that question.

Instead, Plaintiffs cite the SPP Proposed Order as “controlling” and discuss policy

arguments for why a private right of action should exist. BR.23-26. Plaintiffs’


-16-

failure to brief the issue of how to interpret the Final Order constitutes waiver.

Yohey v. Collins, 985 F.2d 222, 224-25 (5th Cir. 1993). But it is easy to appreciate

why Plaintiffs did not brief the issue: the Final Order’s exemption unambiguously

includes the CEA private-action provision (Part I.A below). That is decisive here

because the SPP Proposed Order does not help Plaintiffs (Part I.B), Plaintiffs’

policy arguments provide no basis to ignore the Final Order (Part I.C), and the

Final Order covers the conduct Plaintiffs allege to be actionable (Part I.D).

A. The Final Order’s exemption unambiguously includes the CEA’s private-action provision.

The Final Order’s exemptive text could not be clearer. Certain transactions

are “[e]xempt[]…from all provisions of the CEA[.]” 78 Fed. Reg. at 19,912. The

exceptions to that exemption are then specified: “except…the [CFTC’s] general

anti-fraud and anti-manipulation authority, and scienter-based prohibitions, under

CEA sections” explicitly listed “and any implementing regulations.” Id. It cannot

be denied that § 22 is a “provision[] of the CEA” or that “all” means “all” when

stating what is exempted. Nor can it be disputed that § 22 is not listed or even

alluded to when the Final Order states the “except[ions]” to that exemption. It is

really that simple: covered transactions are exempt from CEA § 22 private actions.

The expressio unius est exclusio alterius canon—that “expressing one item

of an associated group or series excludes another left unmentioned”—supports this

conclusion. Chevron U.S.A. Inc. v. Echazabal, 536 U.S. 73, 80 (2002) (quotation


-17-

marks and alterations omitted). Where, as here, a listing of some items is given

(i.e., some CEA provisions as “except[ions]”), but associated items are omitted

(i.e., other CEA provisions), this canon “justif[ies] the inference that items not

mentioned were excluded by deliberate choice, not inadvertence.” Barnhart v.

Peabody Coal Co., 537 U.S. 149, 168 (2003) (quotation marks omitted).

The Supreme Court and this Court have specifically applied the canon to

hold that where a general rule is stated, but “there are enumerated exceptions[,]

‘additional exceptions are not to be implied.’” In re Condor Ins. Ltd., 601 F.3d

319, 324 (5th Cir. 2010) (quoting Andrus v. Glover Constr. Co., 446 U.S. 608,

616-17 (1980)). The statute in Condor provided for “any appropriate

relief…except for relief available under sections 522, 544, 545, 547, 548, 550, and

724(a).” Id. at 322-23 (quotation marks omitted). As this Court held, the statute

“includes no other language suggesting that other relief might be excepted,” and if

Congress wished to exclude other relief, “it could have stated so; it did not.” Id. at

324. Likewise in Andrus, the Supreme Court ruled that “omission” of a statutory

provision as an exception to a general prohibition allows “only one inference”: the

omission was purposeful and must be given effect. 446 U.S. at 616-17; see also

TRW Inc. v. Andrews, 534 U.S. 19, 28-29 (2001) (similarly applying expressio

unius canon). The Final Order’s exception of specific CEA provisions means CEA

§ 22 is not excepted from the exemption.


-18-

Other aspects of the Final Order bolster this conclusion. The Final Order

repeatedly states it is “the [CFTC’s]” anti-fraud and anti-manipulation authority

that is being retained. See 78 Fed. Reg. at 19,880, 19,884, 19,895, 19,903–19,904,

19,905 (multiple times), 19,911–19,912. The CFTC’s retention of its authority is

even given as an answer to concerns about potential cross-market impacts of price

manipulation. Id. at 19,903–19,904. The Final Order’s consistency about what is

retained leaves no doubt that private actions are exempted.

In sum, the Final Order’s exemption unambiguously includes the CEA’s

private-action provision. Plaintiffs’ silence on how to interpret the Final Order to

allow a private action speaks louder than words.

B. The CFTC’s SPP Proposed Order does not affect the district court’s holding.

The Final Order’s textual clarity is surely why Plaintiffs just pin their hopes

on the SPP Proposed Order, as if it changes everything. It does not. For a host of

reasons, the SPP Proposed Order’s preamble language has no effect on, and

certainly is not dispositive of, the issue before this Court.

1. The SPP Proposed Order is non-final.

For starters, Plaintiffs wrongly pass off the SPP Proposed Order like it were

final agency action. It is merely proposed, subject to comment and CFTC review,

and could be substantially revised—including potential retraction of the preamble

statements. We simply do “‘not know when, if ever, [it] will become effective.’”


-19-

In re Appletree Mkts., Inc., 19 F.3d 969, 973 (5th Cir. 1994) (quoting Telvest, Inc.

v. Bradshaw, 618 F.2d 1029, 1036 n.10 (4th Cir. 1980)); see also id. at 972-73

(“[P]roposed regulations are not entitled to judicial deference and carry no more

weight than a position advanced in a brief by one of the parties.”). This includes

proposed interpretive regulations.7 See id. at 973.

Accordingly, the Court may resolve this appeal without regard for the SPP

Proposed Order. At this point, the preamble language cannot be said to represent

the CFTC’s “official interpretation” or “fair and considered judgment on the

matter” that would be entitled to deference. See Auer v. Robbins, 519 U.S. 452,

462 (1997); Gen. Servs. Admin. v. Fed. Labor Rel. Auth., 86 F.3d 1185, 1188 (D.C.

Cir. 1996). The Court should affirm regardless of the SPP Proposed Order.

2. Regardless, the CFTC’s preamble language could not change the district court’s conclusion.

Even if the SPP Proposed Order’s preamble statements have effect now, or

even if the CFTC were to issue a final order with similar statements, that would

change nothing here. Those statements are irrelevant because the Final Order is

unambiguous in exempting covered transactions from the CEA’s private-action

provision, or (alternatively) not controlling as explained below in Parts I.B.2.b–d.

7 The SPP Proposed Order is not even ripe for review. See 5 U.S.C. § 704.


-20-

As an initial matter, it would be charitable to call the CFTC’s “intent” and

“belief” statements an “interpretation.” The only part of the preamble statements

that purports to interpret the Final Order is that § 22 is not “discussed, referred to,

or mentioned” when listing exceptions to the exemption. 80 Fed. Reg. at 29,493.

That alone supports affirmance. See supra Part I.A. The other preamble language

discusses policy and merely states—without reference to the Final Order’s text—

the CFTC “did not intend to create…a limitation” on private actions and “believes

that the RTO-ISO Order does not prevent private claims.” 80 Fed. Reg. at 29,493.

Such statements of previously unexpressed “intent” and unexplained “belief” are

not “interpretive” of the Final Order in any meaningful sense, which is reason

enough to give them no weight. Regardless, even if these statements “interpret”

the Final Order, they deserve no respect here for the reasons explained below.

a. The Final Order is unambiguous, which means the CFTC’s subsequent views carry no weight.

Plaintiffs immediately cite Auer8 deference principles to argue the SPP

Proposed Order’s preamble has “controlling weight.” BR.25. But Plaintiffs’

reliance on the SPP Proposed Order falters before getting to that point.

Under settled precedent, an agency’s interpretation of its regulation or

adjudication may receive deference only if the regulation or adjudication is

8 Auer v. Robbins, 519 U.S. 452 (1997).


-21-

ambiguous. See Talk Am., Inc. v. Mich. Bell Tel. Co., 131 S. Ct. 2254, 2260-61

(2011) (citing Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 207-08 (2010));

Christensen v. Harris Cnty., 529 U.S. 576, 588 (2000). A regulation is ambiguous

only “if it is susceptible to more than one reasonable interpretation or more than

one accepted meaning.” Condor, 601 F.3d at 321. If a regulation is ambiguous,

then (and only then) do Auer deference principles apply. Id. As the Supreme

Court has explained, to defer to an agency’s interpretation of its own unambiguous

regulation “would permit the agency, under the guise of interpreting a regulation,

to create de facto a new regulation.” Christensen, 529 U.S. at 588.

Further, “[t]he presence or lack of ambiguity in a regulation should be

determined without reference to proposed interpretations.” Moore v. Hannon Food

Serv., Inc., 317 F.3d 489, 497 (5th Cir. 2003). An agency cannot manufacture an

ambiguity—to then claim deference is owed—simply by stating an interpretation,

no more than a party can create standing simply by filing suit. See Walker v. City

of Lakewood, 272 F.3d 1114, 1124 n.3 (9th Cir. 2001). The Court must decide if

there is an ambiguity by reference to the Final Order’s text.

Here, the Final Order is unambiguous, plainly exempting transactions from

CEA § 22 when it exempts “from all provisions of the CEA, except” the CFTC’s

authority as stated in the list of provisions that does not include § 22. See supra

Part I.A. The language is not reasonably susceptible to any other meaning.


-22-

In comments to the CFTC regarding the SPP Proposed Order, Aspire argued

that because the Final Order does not refer to § 22 by name, it is not exempted.

6/22/15 Aspire Ltr. to CFTC, at 2, http://goo.gl/ntXD5u. That position is

borderline frivolous, ignoring that the exemption is from “all provisions of the

CEA” and is only “subject to the conditions and limitations specified herein.”

78 Fed. Reg. at 19,912. Accepting Aspire’s argument would render the exemption

meaningless because many other CEA provisions are not listed by name. For

example, under Aspire’s view, market participants and RTO/ISOs themselves that

are covered by the Final Order apparently could also have to comply with any

number of reporting, record-keeping, or registration requirements under the CEA

that are not specifically listed in the Final Order. See 7 U.S.C. §§ 6r(a), 6r(c), 6s.

There is no good-faith basis for claiming the Final Order is ambiguous. The

CFTC’s preamble statements are not entitled to deference.

Rather, for an unambiguous regulation, courts consider an agency’s view

only for its persuasive power. Tex. Clinical Labs, Inc. v. Sebelius, 612 F.3d 771,

776 (5th Cir. 2010) (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

The CFTC’s preamble statements could be called many things, but “persuasive” is

not one of them due to the Final Order’s text. See Moore, 317 F.3d at 497-98

(“Though we afford the [agency’s] interpretation its due respect under Skidmore, it

is insufficient to overcome the interpretation’s contradiction with the plain


-23-

language of the regulation”). The Court should not give the CFTC’s preamble

statements any weight.

b. Alternatively, the CFTC’s views are not controlling under settled Auer deference exceptions.

Even for ambiguous regulations, deference is not owed if the agency’s

“interpretation is plainly erroneous or inconsistent with the regulation[s] or there is

any other reason to suspect that the interpretation does not reflect the agency’s fair

and considered judgment on the matter in question.” Talk Am., 131 S. Ct. at 2261

(quotation marks omitted).

Here, the CFTC’s views are not entitled to controlling weight because they

are “plainly erroneous” and “inconsistent with the” Final Order. Id. Courts “defer

to the [agency’s] interpretation unless an alternative reading is compelled by the

regulation’s plain language or by other indications of the [agency’s] intent at the

time of the regulation’s promulgation.” Thomas Jefferson Univ. v. Shalala, 512

U.S. 504, 512 (1994) (quotation marks omitted). To receive deference, “the

interpretation must rationally flow from the language of the regulation.” Navarro-

Miranda v. Ashcroft, 330 F.3d 672, 675 (5th Cir. 2003) (quotation marks omitted).

For the reasons given above, the CFTC’s views are plainly erroneous and

inconsistent with the Final Order because they conflict with its plain text and other

clear indications of the CFTC’s intent when issuing the Final Order. See supra

Parts I.A & I.B.2.a. The Final Order exempts § 22 and preserves only the CFTC’s


-24-

authority, which is confirmed by repeated references to the CFTC’s retention of

authority. In no sense do the CFTC’s preamble views flow rationally from the

Final Order’s language, Navarro-Miranda, 330 F.3d at 675, as the CFTC admits

§ 22 is not listed among the “except[ions]” before stating—in conclusory

fashion—its supposed prior “intent” and unexplained “belief” about private suits.

80 Fed. Reg. at 29,493. The preamble statements deserve no weight.

There is also good reason to doubt the preamble statements are the CFTC’s

“fair and considered judgment on the matter.” Auer, 519 U.S. at 462-63. Not only

do the statements come in a proposed order, they arise in an entirely different

proceeding pertaining to a different party’s request for a new exemption, yet they

purport to impose the potential for massive liability on numerous parties covered

by the Final Order for their conduct occurring before the CFTC’s views were

announced. See Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 2166-

68 (2012). As the Supreme Court stated in holding an agency could not get

deference for a new interpretation first announced in an enforcement proceeding:

It is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency’s interpretations in advance or else be held liable….

Id. at 2168. That principle should apply here, too, where the CFTC’s course of

proceeding is far from the process agencies should follow when attempting to


-25-

impact regulated parties like GDF. See id. This is yet another reason the CFTC’s

“interpretation” merits no deference.

c. Alternatively, the CFTC’s views are not controlling here because they cannot apply retroactively, especially given the strong reliance interests.

In effect, through its purported “interpretation,” the CFTC is impermissibly

trying to retroactively take back the Final Order’s exemption that included § 22. If

the CFTC issued a new order for ERCOT specifically excepting § 22 from the

Final Order’s exemption, it would apply only prospectively for the reasons given

below. Yet Plaintiffs have no valid claims for prospective relief. See infra Part

II.E (injunctive- and declaratory-relief claims are baseless). On this alternative

basis, the Court should affirm.

The Supreme Court has made clear, in the rulemaking context, that

“[r]etroactivity is not favored in the law.” Bowen v. Georgetown Univ. Hosp., 488

U.S. 204, 208 (1988); see also Landgraf v. USI Film Prods., 511 U.S. 244, 263-86

(1994). An agency may not enact a retroactive rule unless Congress expressly

authorized retroactive rulemaking and the agency clearly expressed that the rule

have retroactive effect. Bowen, 488 U.S. at 208.

Here, Congress authorized the CFTC to exempt certain transactions “either

retroactively or prospectively, or both.” 7 U.S.C. § 6(c)(1). Yet Congress nowhere


-26-

expressly authorized the CFTC to retroactively revoke an exemption. Nor did the

SPP Proposed Order clearly express an intent to apply retroactively.

Plaintiffs may argue these rules are inapplicable because interpretations are

inherently retroactive, but accepting that argument would permit any regulation-

by-interpretation. Cf. Christensen, 529 U.S. at 588. Allowing such fundamental

retroactive change to the Final Order’s exemption would fly in the face of fair

notice and result in unfair surprise. See Christopher, 132 S. Ct. at 2167; FCC v.

Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012).

Moreover, any attempt to retroactively take back the § 22 exemption would

violate due process. “Retroactive legislation presents problems of unfairness that

are more serious than those posed by prospective legislation, because it can deprive

citizens of legitimate expectations and upset settled transactions.” Gen. Motors

Corp. v. Romein, 503 U.S. 181, 191 (1992); see also Landgraf, 511 U.S. at 266.

The Due Process Clause is violated when retroactive action is “particularly harsh

and oppressive” and there is no “legitimate legislative purpose furthered by

rational means.” Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717,

729, 733 (1984) (quotation marks omitted); see U.S. CONST. amend. V.

Here, an entire industry has reasonably relied on the Final Order’s text

exempting private-action CEA liability. It would be fundamentally unfair and

“particularly harsh and oppressive” to GDF for the CFTC to retroactively revoke


-27-

the § 22 exemption—or to accomplish that result under the guise of interpretation.

Nor should Plaintiffs be permitted to claim ambiguity in the Final Order merely

because the CFTC made its SPP Proposed Order statements. Because Plaintiffs

have no viable claims for prospective relief, and because the preamble statements

do not—and cannot—apply retroactively, the Court should affirm.

d. Alternatively, no deference is owed to agencies’ interpretations of their prior adjudications.

GDF recognizes Auer and its progeny are binding authority, but if the Court

finds the CFTC’s views worthy of deference under that precedent, GDF argues—

for preservation purposes and because several Justices are interested in revisiting

that precedent—that agency interpretations of their prior adjudications deserve no

deference. See Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1225 (2015)

(Thomas, J., concurring) (call to reconsider Auer); Decker v. Nw. Envtl. Def. Ctr.,

133 S. Ct. 1326, 1338-39 (2013) (Roberts, C.J., concurring; joined by Alito, J.)

(same); id. at 1339-42 (Scalia, J., concurring in part and dissenting in part) (same).

The reasons for refusing to defer to agencies’ interpretations of their work have

been well-aired: agencies have no special expertise in construing text; agencies

should be bound by prior rules, not later-claimed intent; agencies should not be

allowed to regulate-by-interpretation; and such deference raises grave

constitutional questions. See, e.g., id. at 1339-42 (Scalia, J.). Certainly in a case

like this, there is no justifiable basis for Auer deference principles.


-28-

C. Plaintiffs’ policy arguments are irrelevant and flawed.

Plaintiffs highlight policy points. BR.24-26. But resolving policy was for

the CFTC, and the only question here is what the CFTC said in the Final Order.

See United States v. Redd, 562 F.3d 309, 313 (5th Cir. 2009); Sobranes Recovery

Pool I, LLC v. Todd & Hughes Constr. Corp., 509 F.3d 216, 227 (5th Cir. 2007).

In any event, a far more persuasive policy case supports exempting CEA

private actions. The PUCT, ERCOT, and groups representing market participants

have advanced that case to the CFTC. See Comments for Orders & Other

Announcements: 80 Fed. Reg. 29,490, http://goo.gl/arjmzO. Briefly:

• Certainty: Eliminating third-party liability gives market participants certainty about potential exposure. See 6/22/15 Am. Pub. Power Assoc. et al. Ltr. to CFTC, at 4-7, http://goo.gl/cJgxN3; 6/22/15 “ISO-RTO Commenters” (including ERCOT) Ltr. to CFTC, at 3-4, http://goo.gl/Gl32a0. That reduces the costs of operating—and operating in—those markets, which reduces costs to consumers. See 6/22/15 PUCT Ltr. to CFTC, at 4-7, http://goo.gl/xtBjU5.

• Avoiding regulatory conflicts: Exemptions from private actions avoid the specter of market participants having all regulators’ approval for tariffed activities, yet having a federal court hold that same conduct violates the CEA. That perverse outcome would undermine certainty and the ability of market participants to rely on the primacy of the regulators’ authority. See Am. Pub. Power Assoc. Ltr., at 4-7; ISO-RTO Commenters Ltr., at 4. It also would undermine efforts by regulators to provide an orderly market and would harm consumers. See PUCT Ltr., at 5-8. Precisely these sorts of concerns animate the filed-rate doctrine. See infra Part II.B.

• Avoiding collateral attacks on regulatory systems: Regulators carefully structure RTO/ISO markets, but allowing private parties to sue could undermine those structures. See PUCT Ltr., at 6. For example, this suit


-29-

is part of Plaintiffs’ broader attack on ERCOT’s market design and the PUCT’s considered judgment, as it openly targets the “small fish” rule—a rule designed to benefit consumers and that the PUCT has reaffirmed. Id. at 8-10. Allowing such second-guessing of market rules would make it impossible for ERCOT participants to rely on the rules and would change the way the market works—which is exactly what Plaintiffs want.

• Avoiding other problems associated with over-regulation: RTO/ISOs are “regulated to a greater extent than other commodity markets” and indeed “are regulated by FERC more extensively than other public utilities.” 6/22/15 FERC Ltr. to CFTC, http://goo.gl/0Siili. ERCOT is similarly subject to extensive regulation by the PUCT. See PUCT Ltr., at 2, 5-7. Further, RTO/ISOs are subject to oversight by independent market monitors and to the CFTC’s authority over interstate commerce. See id. Allowing private suits would add an unnecessary additional layer of potentially costly and conflicting regulatory oversight.

• Deprivation of legitimate business expectations: For two years, the RTO/ ISOs—and countless participants in those markets—have relied on the Final Order’s exemption. Any attempt to change it retroactively, to allow private suits targeting pre-May 21, 2015 conduct, is unlawful and bad policy. See Am. Pub. Power Assoc. Ltr., at 5-7; ISO-RTO Commenters Ltr., at 3-9; PUCT Ltr., at 3-5.

The SPP Proposed Order suggested it would be “highly unusual” for the

CFTC to reserve its powers while denying private actions. 80 Fed. Reg. at 29,493;

see also BR.25. In fact, that regulatory approach happens all the time, with

Congress granting authority only to regulators to bring certain actions. See, e.g.,

16 U.S.C. § 824v (no private actions under Federal Power Act’s manipulation

provision); 15 U.S.C. § 78t(e) (SEC enforcement only for aiding-and-abetting

Exchange Act claims); 15 U.S.C. § 80b-6 (no private actions for Investment

Advisers Act fraud provision). Further, this approach is the norm for CFTC


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exemptions, as explained by ERCOT and others in comments to the CFTC. See

ISO-RTO Commenters Ltr., at 6-8; see also 78 Fed. Reg. at 19,905 (CFTC noting

“reservation of enforcement authority is standard practice with exemptive orders”).

Finally, Plaintiffs claim they have no remedy absent this action. BR.26. In

fact, for example, the CFTC can seek restitution for persons sustaining losses from

CEA violations. See 80 Fed. Reg. at 29,493 (citing 7 U.S.C. § 13a-1(d)(3)).

There were sound policy reasons to exempt covered transactions from the

CEA’s private-action provision. But the key is that the CFTC specifically did so.

D. The Final Order applies to Plaintiffs’ allegations.

Contrary to Plaintiffs’ arguments, BR.27-42, the Final Order squarely covers

the activities alleged here, which are all “agreements, contracts, or transactions”:

(a) that are “for the purchase and sale of…electric energy-related products” within the definition of “Energy Transactions,” which includes “transactions in a ‘Day-Ahead Market’ or ‘Real-Time Market’…for the purchase or sale of a specified quantity of electric energy at a specified location (including virtual and convergence bids and offers)….”;

(b) whose parties are an “appropriate person” or an “eligible contract participant” or a “person who actively participates in the generation, transmission, or distribution of electric energy,” which GDF unquestionably is; and

(c) that are “offered or sold pursuant to [an RTOs/ISOs’] Tariff and that Tariff has been approved or permitted to take effect by [PUCT/FERC],” which is undisputed here.


-31-

78 Fed. Reg. at 19,912–19,913. GDF is also unquestionably in the “class of

persons” entitled to invoke the exemption. Id. at 19,912. None of Plaintiffs’

attempts to avoid dismissal are credible.

1. That the Final Order preserves the CFTC’s anti-fraud power does not help Plaintiffs.

Initially, Plaintiffs note the Final Order preserves the CEA’s anti-fraud and

anti-manipulation provisions. BR.27. But the fact that the Final Order excepted

those substantive provisions from its exemption and preserved the CFTC’s

authority to enforce them says nothing about whether third parties can sue. Third

parties have a CEA right of action only because of § 22, but the Final Order plainly

exempts that provision. See supra Parts I.A–B.

2. The Final Order covers GDF’s alleged activity, contrary to Plaintiffs’ new appellate argument.

Plaintiffs now argue the Final Order exempts only “completed transactions.”

BR.27-30. Plaintiffs never raised this below, so it cannot be considered for the

first time on appeal. E.g., Sullo & Bobbitt, P.L.L.C. v. Milner, 765 F.3d 388, 393

(5th Cir. 2014) (per curiam); Tex. Commercial Energy, 413 F.3d at 510. Plaintiffs

argued below that the Final Order does not apply here, but only on the theory that

it does not apply to ICE transactions (along with a closing paragraph on the CEA’s

purposes). See ROA.1056-57. Waiver doctrine exists to avoid such an effort to

reverse a district court based on an argument about which it was never apprised.


-32-

Regardless, Plaintiffs’ contention—that the Final Order’s exemption of

“agreements, contracts, and transactions” covers only “completed transactions,”

not GDF’s conduct when allegedly withholding electricity, BR.27-30—lacks merit.

First, it is contrary to this Court’s precedent giving effect to the plain

meaning of a materially identical phrase in the CEA and holding that it includes

offers and other related activity. See United States v. Radley, 632 F.3d 177, 182-84

(5th Cir. 2011). There, traders were indicted under the CEA for “plac[ing]

bids…without intending to enter into a transaction…but rather for the purpose of

misleading other market participants about the demand for [the commodity],” for

“withholding supply from the market,” and for making false statements related to

that activity. Id. at 181, 183. The traders argued their conduct was shielded by

7 U.S.C. § 2(g), which used to exempt certain off-exchange “agreement[s],

contract[s], or transaction[s]” in non-agricultural commodities. Id. at 181 (citing

7 U.S.C. § 2(g)).9 This Court interpreted § 2(g) to decide if the traders’ actions

were “transactions,” squarely rejecting the claim that “transaction” encompasses

only activities “which create legally enforceable obligations,” including because

that would render “transaction” superfluous from “contract.” Id. at 181-82.

9 That version of § 2(g) was repealed in 2011, but the current § 2(g) retains

“agreement, contract, or transaction.” See Radley, 632 F.3d at 181 n.1.


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Instead, the Court looked to the CEA’s text, concluding “[t]he CEA’s own

language belies the argument that ‘transaction’ refers only to a completed and

enforceable contract” because one CEA provision broadly defines “agreement” and

“transaction” to include bids and offers. Id. at 182 (quoting 7 U.S.C. § 2(a)(1)(A)).

The Court also relied on the dictionary definition of “transaction”: “‘the act or an

instance of conducting business or other dealings.’” Id. at 183 (quoting BLACK’S

LAW DICTIONARY 1535 (8th ed. 2004)). The Court concluded the traders’ bids

were exempt because they fell within the CEA’s meaning of “transaction” (which

includes bids and offers) and the ordinary meaning of “transaction” (because they

were part of “conducting business”). Id. The Court reached the same conclusion

as to the traders’ withholding, negotiations, and communications or statements

designed to conceal the traders’ (protected) bidding strategy—all of which were

part of “conducting business.” Id. at 184.

So under recent precedent, “agreement, contract, or transaction” in the CEA

includes the conduct alleged here: offers, alleged withholding, and other activity

while “conducting business” in ERCOT. See also United States v. Brooks, 681

F.3d 678, 694 n.10 (5th Cir. 2012) (noting Radley’s holding that phrase is “not

limited to legally enforceable agreements, but also covers ‘conducting business’”).

Plaintiffs do not even cite Radley, and can offer no reason why the CFTC meant

the Final Order’s “agreements, contracts, and transactions” phrase differently than


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the CEA phrase interpreted in Radley—particularly because the CFTC was a party

in Radley and issued the Final Order two years later. Cf. Lorillard v. Pons, 434

U.S. 575, 581 (1978) (courts assume Congress is aware of judicial interpretations

when enacting legislation). Radley forecloses Plaintiffs’ argument.

Second, Plaintiffs’ argument flouts the Final Order’s text in other respects.

The Final Order covers “agreements, contracts, and transactions” “offered or sold.”

78 Fed. Reg. at 19,913 (emphasis added). If “transaction” meant “completed

transaction,” there would be no reason to include “offered or.” And like the CEA

provision relied on in Radley, the Final Order expressly contemplates offers in

defining “Energy Transactions”: “transactions…for the purchase or sale of a

specified quantity of electric energy at a specified location (including virtual and

convergence bids and offers).” Id. (emphasis added). Plaintiffs conveniently omit

this clause when paraphrasing the definition. BR.28. Plaintiffs also ignore the

Final Order’s statement “that Energy Transactions include virtual and convergence

bids and offers, as they are methods of conducting such Energy Transactions.”

78 Fed. Reg. at 19,883 n.46. Plaintiffs’ position cannot prevail without wrongly

making the “offer” language—language very similar to what Radley found

compelling—superfluous. See TRW, 534 U.S. at 31.

Notably, Plaintiffs cite nothing in the Final Order requiring “agreements,

contracts, and transactions” to be consummated to be covered. For instance, that


-35-

the Final Order exempts the “execution” of an offer does not help Plaintiffs; it

makes perfect sense to say a party executes (i.e., carries out) an offer. BR.28; see

78 Fed. Reg. at 19,912. Nor does “transaction” inherently mean “completed

transaction.” That Plaintiffs have to repeatedly add “completed” to the Final

Order’s text highlights the fact that their argument is anti-textual. E.g., BR.27-29.

Nothing in the Final Order requires a transaction to be consummated.

Third, Plaintiffs’ claim ignores that the ERCOT Proposed Order discussed

the exemption covering unconsummated offers. When considering whether the

RTO/ISOs were in compliance with certain core principles, the CFTC examined if

they were capable of identifying market participants “engaging in Energy

Transactions that repeatedly incur a loss”—including (as “example”) “submit[ting]

a large dollar amount of offers at an inflated price”—to benefit other positions.

77 Fed. Reg. at 52,157. So the CFTC expressly discussed unconsummated offers

as “engaging in Energy Transactions.” Plaintiffs cannot explain how the Final

Order would not exempt that activity. See ROA.1057 n.5 (Plaintiffs recognizing

Final Order incorporates ERCOT Proposed Order’s “Covered Transactions”).

Fourth, Plaintiffs’ argument would completely undermine the Final Order’s

exemption. When generators like GDF offer electricity, those are real offers that

could be accepted, but GDF does not know if they will clear because it depends on

market forces. See Radley, 632 F.3d at 183. An exemption that turns on whether a


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given offer clears would provide no protection or certainty at all. And “the fact of

a subsequent agreement cannot be decisive in whether early refusals [to sell] are

exempt” because, “otherwise, criminality attaches only when the allegedly

manipulative deal does not occur.” Id. at 184. Plaintiffs themselves failed to make

this distinction in their FAC; for example, some of GDF’s September 3rd offers

cleared, ROA.392-93, which in Plaintiffs’ view would mean they are exempted.

There is no logical or policy reason why the Final Order should give GDF certainty

for only those offers that happen to clear. See Radley, 632 F.3d at 183-84.

Finally, Plaintiffs’ suggestion that GDF’s “false reports” in the day-ahead

market are outside the exemption’s scope is flawed. BR.30. What Plaintiffs call

“reports” or “statements” are trades (or offers) to sell in the day-ahead market.

E.g., ROA.377-78. Trades in this market are only financially binding, as they

create no obligation to physically supply energy and are not statements of expected

generation. Id. But importantly here, they are simply trades or offers expressly

covered as “Energy Transactions.” 78 Fed. Reg. at 19,913. Moreover, even if they

were “reports,” they would still be “transactions” covered by the Final Order under

Radley. See 632 F.3d at 184. In sum, Plaintiffs’ “completed transaction” argument

is waived and lacks merit.


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3. Enforcing the Final Order is consistent with the CEA.

There is nothing to Plaintiffs’ contention that enforcing the Final Order as-

written would contravene the CEA or its purposes. BR.30-34. Plaintiffs suggest

the CFTC lacked authority to exempt parties from the CEA’s private-action

provision, but they cite no law supporting that position. Section 4(c)(6) authorizes

the CFTC to exempt certain transactions “from the requirements of [the CEA],”

and § 4(c)(1) allows exemptions “from any of the requirements of [§ 4(a)], or from

any other provisions of [the CEA]” except two provisions not relevant here.

7 U.S.C. § 6(c)(1), (6). Only the CFTC’s authority cannot be exempted. Id.

§ 6(d). Neither § 22 nor § 4(c) limits the CFTC’s ability to exempt private actions.

Further, for the policy reasons above, the exemption of private actions is

consistent with the CEA’s purposes. See supra Part I.C. Congress made clear the

CFTC should grant exemptions where appropriate and gave the purpose (which

Plaintiffs concede (BR.28-29)): to provide certainty, which promotes innovation

and fair competition. See 78 Fed. Reg. at 19,894–19,895. Exempting third-party

actions bolsters that interest. Congress’s decision to allow exemptions and the

CFTC’s decision to grant one also reflect the fact that these markets are heavily

regulated by FERC/PUCT, market monitors, and the CFTC. See id. The Final

Order’s exemption avoids regulatory conflicts, prevents over-regulation, and

circumvents collateral attacks on regulators’ markets and rules. See supra Part I.C.


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While a core CEA goal is to deter and detect price manipulation and fraud,

the Final Order’s regulatory choice—to fulfill that goal by agency enforcement and

other regulatory safeguards—was properly one for the CFTC to make. See 78 Fed.

Reg. at 19,895. Plaintiffs’ unsupported theories about such an exemption harming

the public are off-base, as they fail to account for existing regulatory checks—

among other deficiencies—but regardless, they are for the CFTC or Congress.

There is no “ambiguity” in the Final Order’s exemption of § 22 or its application

here, but even if there were, nothing in the CEA supports Plaintiffs’ position.

Plaintiffs claim the justification for exemptions “does not extend to the ICE

futures market,” BR.31, which misses the point because the question is not whether

ICE transactions are exempted by the Final Order. Plaintiffs have not alleged

specific conduct by GDF in the futures markets, and their claim is plainly about

“actions within ERCOT.” ROA.370; see infra Part I.D.4. The Final Order

exempts ERCOT transactions regardless of alleged cross-market impact. See id.

But importantly here, that result is fully consistent with the CEA and its purposes.

The Final Order achieves numerous CEA goals and, as it states, the goal of

deterring misconduct “is achieved by the [CFTC] retaining and exercising its

jurisdiction over these matters,” not to mention all the self-regulation and market-

monitoring systems. 78 Fed. Reg. at 19,895. The CEA’s text and purposes

strongly support the Final Order’s exemption of third-party actions.


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4. Plaintiffs’ allegations of cross-market impact offer no basis for avoiding the Final Order.

Plaintiffs discuss at length how GDF’s alleged ERCOT activity supposedly

impacted, and must have been motivated by, other markets (ICE), arguing that

because of this cross-market impact, the Final Order’s exemption does not apply.

BR.34-42. Noticeably absent from the discussion, though, is reference to anything

in the Final Order that supports this position. The Final Order exempts GDF from

private-action CEA liability for covered transactions, and nothing in it or the CEA

makes the exemption depend on the “intent” of a covered transaction or any cross-

market impact. The Final Order exempts transactions regardless of their purpose

or effect. None of the authorities Plaintiffs cite on cross-market manipulation or

purported CEA liability for conduct alleged here affects the question about the

Final Order’s exemption. BR.34-41. Plaintiffs’ unfounded speculation that GDF’s

ERCOT transactions were aimed at impacting other markets simply does not affect

the Final Order’s exemption of those transactions from private-action liability.10

In fact, refusing to enforce the exemption based on cross-market impact

would render the Final Order meaningless. According to Plaintiffs, all ERCOT

activity will impact derivatives markets. ROA.359. Holding the Final Order’s

10 This conclusion is particularly compelling because the Final Order

discussed the possibility of cross-market impact from covered transactions and emphasized the exemption would not impact other market regulators’ and the CFTC’s abilities to address that concern. 78 Fed. Reg. at 19,903–19,904.


-40-

exemption ineffective whenever there is cross-market impact would therefore

make the exemption ineffective in all cases.

This fact underscores that Plaintiffs’ cross-market manipulation theory is

misapplied here, where ERCOT’s design anticipates and even encourages GDF’s

pricing, and the prices of ERCOT-related ICE futures are intended to reflect

anticipated ERCOT settlement prices. Extending Plaintiffs’ cross-market theory to

this context would discard the design of the markets and necessarily second-guess

the market regulators. See supra pp. 6-7, 28-29, 37. Plaintiffs’ claim that a “small

fish” can wield market-moving power (BR.37-38), for example, is contrary to the

PUCT’s express statements and its design of the ERCOT market. Plaintiffs’ cross-

market manipulation arguments also wrongly presume an intent to manipulate

other markets. See infra Part II.C.1. Plaintiffs’ arguments are therefore mistaken

at the same time they are improper collateral attacks on the regulation and structure

of the ERCOT market. See BR.34-41.

Importantly here, though, none of these arguments affect the question about

the Final Order’s scope, as the reality is that Plaintiffs’ focus on futures markets

bears no relationship to the case pleaded. The district court correctly observed “all

of the conduct…Plaintiffs challenge took place entirely within…ERCOT….”

ROA.1358. The vast majority of the FAC documents GDF’s ERCOT activity. See

ROA.370-432. Plaintiffs’ alleged damages do not depend on any ICE transactions


-41-

by GDF; they are all about GDF’s ERCOT conduct and its alleged impact on

Plaintiffs’ derivatives positions. E.g., ROA.375-77. Plaintiffs’ brief underscores

the attack is on GDF’s ERCOT activity and its supposed “intent.” BR.38-41.

Further, the district court correctly found Plaintiffs’ FAC “does not identify

a single ICE transaction in which GDF…engaged.” ROA.1358. Plaintiffs vaguely

allege GDF generally trades in ICE and speculate GDF might have traded in ICE

to benefit from ERCOT activity, but that is it. ROA.369; ROA.375; ROA.385.

Plaintiffs also assert the only reason a party would “withhold” is to benefit from it

in other markets, ROA.371-72; ROA.375; ROA.385; ROA.398; BR.10, but that is

not true. The rational explanation for raising offer prices to the ERCOT cap is

recognized by Plaintiffs: to capture the highest price for valuable generation

capacity in times of scarce supply. ROA.392-96. The market monitor recognized

the reasons for bidding at the cap in endorsing the use of VMPs. ROA.1032-33.

Nor is the answer that Plaintiffs merely need discovery to find evidence of

ICE transactions by GDF; well-settled pleading standards preclude the use of

discovery as a tool to divine evidence. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79

(2009); Madonna v. United States, 878 F.2d 62, 66 (2d Cir. 1989). The Final

Order covers ERCOT activity regardless of cross-market impact.11

11 Plaintiffs rely on United States v. Reliant Energy Services, Inc., 420 F.

Supp. 2d 1043 (N.D. Cal. 2006). BR.41-42. But unlike here, no CEA exemption was at issue in that case, which involved a criminal prosecution by the government.


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In sum, the district court properly dismissed Plaintiffs’ lawsuit.12

II. Alternatively, The District Court’s Order May Be Affirmed On Any Ground Advanced Below.

Dismissal of Plaintiffs’ claims would also be proper, in whole or part, on one

or more alternative arguments GDF pressed below. ROA.484-505; see In re Green

Hills Dev. Co., 741 F.3d 651, 655-56 & nn.16-17 (5th Cir. 2014).

A. Plaintiffs fail the CEA’s interstate-commerce requirement.

Plaintiffs construe the district court’s opinion as holding, apparently separate

from the § 22 issue, that “GDF’s…manipulation is not actionable” under the CEA,

BR.23, specifically because GDF’s conduct occurred in ERCOT and is

“immunize[d]” from the CEA, BR.26. See also BR.xiii; BR.17. That conclusion

is correct because as GDF argued below, Plaintiffs’ allegations target conduct

occurring solely in ERCOT—all within Texas, as the Final Order confirms—so

Plaintiffs cannot satisfy the CEA’s interstate-commerce element. ROA.488-90.

And in this case, the conduct targeted was not just consistent with the market rules, it was specifically endorsed by a VMP and was encouraged as a critical part of the market design. See supra pp. 6-7. Further, there was no question there that the interstate-commerce element was met, unlike here. See infra Part II.A. Notably, that court refused to dismiss the suit under the filed-rate doctrine only because—unlike here—that was a criminal prosecution and the claims there did not require a calculation of damages based on what rates would have been achieved without the alleged misconduct. See 420 F. Supp. 2d at 1067; see infra Part II.B.

12 Plaintiffs do not debate the district court’s ruling that if their CEA claims are dismissed, all other claims must be dismissed. See ROA.1359.


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Plaintiffs invoke CEA § 22 for violations of CEA § 6(c)(1) and § 6(c)(3),

which require that a commodities contract be “in interstate commerce,” 7 U.S.C.

§ 9(1), (3), which means “sent from one State, with the expectation that [it] will

end [its] transit, after purchase, in another,” id. § 2(b). But here, Plaintiffs pled no

facts about any transaction by GDF “in interstate commerce.” GDF’s alleged

ERCOT activity is purely intrastate because ERCOT is within Texas—including

ERCOT’s virtual market. See 78 Fed. Reg. at 19,887–19,888. That is why the

PUCT regulates ERCOT. See Tex. Commercial Energy, 413 F.3d at 506 n.1.

Plaintiffs’ claims against ERCOT activity are not actionable under the CEA.13

Plaintiffs’ only counter is to point to ICE, claiming their allegation is about

manipulating ICE contracts. BR.58-60. Yet Plaintiffs do “not identify a single

ICE transaction in which GDF…engaged”; all the conduct they actually alleged

took place within ERCOT. ROA.1358; see supra pp. 38-41. Plaintiffs’ alleged

damages depend entirely on GDF’s supposed ERCOT activity. See supra pp. 40-

41. Further, Plaintiffs cannot satisfy the interstate-commerce element by saying

ERCOT activity affected interstate commerce because the CEA has a narrower “in

interstate commerce” requirement, as the CFTC has held. See In re Roger J.

Wright, COMM. FUT. L. REP. ¶ 29412, at *20 n.213, CFTC No. 97-2, 2003 WL

13 As explained above, Plaintiffs have a remedy. See supra p. 30.


-44-

548760 (Feb. 25, 2003). Because the only conduct alleged here was purely

intrastate, it is immune from CEA liability.

This conclusion is confirmed by the Final Order, which recognizes ERCOT

as purely intrastate and PUCT-governed, grants an exemption without expressing

an opinion on CFTC jurisdiction over ERCOT, and exempts ERCOT conduct

regardless of cross-market impact. See 78 Fed. Reg. at 19,881 n.15, 19,882,

19,889, 19,912; see supra Part I.D.4. When an entity like GDF acts within

ERCOT, its conduct is immune from private action, regardless of interstate effects,

because of the Final Order and CEA’s interstate-commerce requirement.

B. The filed-rated doctrine bars Plaintiffs’ claims.

Another basis for dismissing all claims is the filed-rate doctrine, which

forecloses suits like Plaintiffs’ that unavoidably attack rates allowed by regulators.

“The filed rate doctrine bars judicial recourse against a regulated entity based upon

allegations that the entity’s ‘filed rate’ is too high, unfair or unlawful.” Tex.

Commercial Energy, 413 F.3d at 507. The doctrine “is designed to insulate from

challenge the filed rate deemed reasonable by the regulatory agency.” Wegoland

Ltd. v. NYNEX Corp., 27 F.3d 17, 20 (2d Cir. 1994). It rests in part on non-

justiciability: preserving agency authority to determine the reasonableness of rates

by barring courts from second-guessing the agency’s approval of a filed rate—a

task to which courts are “ill-suited.” Id. at 21; see Medco Energi US, L.L.C. v. Sea


-45-

Robin Pipeline Co., 729 F.3d 394, 398 (5th Cir. 2013) (per curiam). Even where

pleaded claims conflict with rates indirectly, the filed-rate doctrine prohibits the

claims if they have the unavoidable effect of attacking the rate. See id. at 399.

This Court has held the doctrine bars damages claims stemming from rates

“filed” in ERCOT’s market-based approach. Tex. Commercial Energy, 413 F.3d at

509-10. Further, Plaintiffs admit GDF’s alleged activity was consistent with the

PUCT’s rules regarding pricing of bids. ROA.355-56; ROA.401-02. Under PUCT

rules, GDF could, at the times relevant here, raise its offer price to $5,000/MWh.

ROA.354; P.U.C. SUBST. R. 25.505(g)(6)(B). Moreover, the VMP authorized the

conduct Plaintiffs complain about. ROA.982. By challenging GDF’s activity

within these rules, Plaintiffs attack the PUCT’s “rates” and ask this Court to decide

what ERCOT’s electricity prices should have been on particular days.

Plaintiffs deny attacking ERCOT LMPs, BR.43, but their FAC refutes that

position. Plaintiffs repeatedly allege GDF’s actions caused LMPs in ERCOT to be

artificially high, which caused futures prices to settle at correspondingly different

amounts. E.g., ROA.374-77; ROA.380; ROA.386-90; ROA.395-97; ROA.408-09;

ROA.414; ROA.426-28; ROA.432-33. They allege strong correlation between

real-time ERCOT prices and futures contract prices. ROA.350; ROA.367; BR.9.

As alleged, ERCOT prices are a necessary target of this suit. See ROA.434-35.

Plaintiffs cannot establish liability without proving LMPs were too high.


-46-

Further, Plaintiffs’ attempt to show both liability and damages relies heavily

on “reconstructed supply and demand curves” yielding what LMP prices would

have been but-for GDF’s alleged ERCOT activity, proving rates are key to their

claims. ROA.368; ROA.371-433. They sometimes specifically allege damages

based on reconstructed LMP prices and the impact on ICE futures prices, showing

Plaintiffs seek to have a court dictate (through damages) what the ERCOT “filed”

rate should have been. E.g., ROA.377; ROA.386; ROA.390; ROA.397; see, e.g.,

E. & J. Gallo Winery v. EnCana Corp., 503 F.3d 1027, 1040 (9th Cir. 2007) (if

damages claims “require the court to set damages by assuming a hypothetical rate,”

filed-rate doctrine bars them). Given their pleading, Plaintiffs’ argument that their

claims do not seek a finding the LMPs were too high is silly. See also ROA.1069

n.10 (in addressing adequacy of pleadings, saying they “must” “creat[e]

hypothetical supply/demand curves to show the fact and magnitude of [GDF’s]

manipulations” and “[d]emonstrat[e] what prices would have been in the absence

of” GDF’s conduct). Their claims squarely attack filed rates and are precluded.

Plaintiffs resist the filed-rate doctrine by claiming they are not consumers.

BR.44-46. Plaintiffs concede ERCOT consumers bringing these claims would be

barred, BR.46; Aspire Ltr., at 3, but say this distinction makes all the difference.

Nothing about the doctrine’s rationale, however, limits it to consumer actions.

Non-justiciability goes to a court’s power to decide a dispute, and in the filed-rate


-47-

context, the rationale focuses on courts’ authority to decide an issue that rests

within an agency’s purview. See Marcus v. AT&T Corp., 138 F.3d 46, 58 (2d Cir.

1998). Plaintiffs argue ERCOT rates should have been lower, which also asks the

Court to second-guess the PUCT’s offer cap and the market design underpinning

the cap. And if the Court found Plaintiffs were entitled to relief based on inflated

ERCOT rates affecting ICE prices, that would affect ERCOT rates. The filed-rate

doctrine’s rationale applies regardless of who brings suit.

Plaintiffs’ consumer-only position relies on In re Dairy Farmers of America,

Inc. Cheese Antitrust Litigation, 767 F. Supp. 2d 880 (N.D. Ill. 2011), but that case

is distinguishable. There the defendants—who had bought 100% of available long

positions in milk futures contracts in one market—also bought large numbers of

spot cheese contracts to drive up cheese prices, knowing market participants would

think those rising prices would increase the government’s calculated minimum

milk price, which would increase demand for their long positions on milk futures.

Id. at 888-89. They then sold their long positions on milk futures at a profit before

the government’s milk prices settled. Id. Plaintiffs, who purchased milk futures,

spot cheese, or related products at high prices, sued for manipulating commodities

prices. Id. The district court found the filed-rate doctrine applicable to purchasers

of commodities “priced on the basis of the government minimum milk price,” but

inapplicable to purchasers of milk futures contracts. Id. at 893-97.


-48-

But as to the latter category of Dairy Farmers claimants, unlike here, there

was no attack on the government rate. Those plaintiffs did “not even state what the

actual government minimum milk price was during the relevant period”; it did not

matter. Id. at 895-96. The scheme was manipulating “cheese prices and futures

prices, rather than” government milk prices, to shift expectations about milk prices

and thereby cause other participants to raise the price of milk futures, which

position the defendants would then liquidate at a profit. Id. Neither liability nor

damages turned on what the actual government price was or would have been. Id.

Here, by contrast, Plaintiffs’ FAC attacks ERCOT transactions and resulting

LMPs, with liability turning on whether LMPs were too high and damages resting

in part on what actual LMPs would have been (and Plaintiffs’ resulting profits).

See supra pp. 38-41. Whereas the harm to milk futures buyers in Dairy Farmers

were “expectations” (not realized) about filed rates, Plaintiffs’ allegations

necessarily depend on the rates being affected—even if they also allege harm to

derivatives. 767 F. Supp. 2d at 895-97. This is not an argument that ICE

settlement prices are “the same as the filed rate,” BR.46, but that—by Plaintiffs’

own allegations—the relevant futures prices are derived from ERCOT’s

everchanging filed rates, which is why ERCOT rates are the focus of Plaintiffs’

FAC. See supra pp. 38-41.


-49-

Further, Dairy Farmers does not support Plaintiffs’ “consumer” distinction.

That court distinguished between purchasers “of products priced on the basis of

the” government milk price and those claiming injury because the scheme affected

milk futures without regard for actual government prices. 767 F. Supp. 2d at 895-

96. That is not a distinction between consumers and others, but between how

connected the claims are to filed rates. Plaintiffs’ allegations attack the propriety

of ERCOT LMPs, and some alleged damages are explicitly tied to what they think

the LMP should have been. See supra pp. 40-41. Their reliance on Dairy Farmers

is misguided. The filed-rate doctrine forecloses Plaintiffs’ claims.

C. Plaintiffs’ complaint fails to state a claim.

Even if Plaintiffs can sue under CEA § 22 for § 6(c) violations, the judgment

below should be affirmed because they failed to adequately plead § 6(c)(1) fraud or

§ 6(c)(3) manipulation. The Court accepts fact allegations as true, but Plaintiffs’

“[t]hreadbare recitals of the elements of a cause of action, supported by mere

conclusory statements, do not suffice.”14 Iqbal, 556 U.S. at 678.

14 Plaintiffs had to plead fraud with particularity. See FED. R. CIV. P. 9(b).

Plaintiffs conceded their § 6(c)(1) claim is governed by Rule 9(b). ROA.1058-59. As for § 6(c)(3), which the CFTC has said follows the traditional test developed by courts for manipulation claims, see 76 Fed. Reg. 41,398, 41,407 (July 14, 2011), this Court has not reached the issue whether Rule 9(b) applies, see Hershey v. Energy Transfer Partners, L.P., 610 F.3d 239, 245 n.12 (5th Cir. 2010), but other courts hold such claims must meet the heightened standard when sounding in fraud, see CFTC v. Wilson, 27 F. Supp. 3d 517, 532 (S.D.N.Y. 2014). Some courts subject all private manipulation claims to the heightened standard. See, e.g.,


-50-

1. Plaintiffs failed to plead scienter, which defeats all claims.

The most obvious pleading failure is Plaintiffs’ inability to allege facts

suggesting GDF meant to defraud or manipulate derivatives prices. To address

scienter on appeal, Plaintiffs simply copy-and-paste their speculative allegations,

as if they speak for themselves. BR.51-52, 55-57. But the only message conveyed

is that Plaintiffs have nothing on intent—just conjecture.

First, under § 6(c)(3), Plaintiffs had to allege “specific intent” to cause

artificial prices, Hershey v. Energy Transfer Partners, L.P., 610 F.3d 239, 246 (5th

Cir. 2010), which has been defined as acting “with the purpose or conscious

object” of influencing prices, In re Ind. Farm Bureau Coop., COMM. FUT. L. REP.

¶ 21796, at *7, CFTC No. 75-14, 1982 WL 30249 (Dec. 17, 1982); see also

76 Fed. Reg. 41,398, 41,407 (July 14, 2011) (citing Indiana Farm Bureau for

specific intent for § 6(c)(3) and its implementing rule, 17 C.F.R. § 180.2 (2011));

accord Hershey, 610 F.3d at 246 (quoting Indiana Farm Bureau).15

In re LIBOR-Based Fin. Instruments Antitrust Litig., 27 F. Supp. 3d 447, 458 (S.D.N.Y. 2014) (“LIBOR III”). Regardless, Plaintiffs have not properly alleged their claims even under Federal Rule of Civil Procedure 8 because they have not alleged facts that “allow[] the court to draw the reasonable inference that [GDF] is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

15 Some courts have stated specific intent can be pled by alleging either “motive and opportunity” to commit fraud or “strong circumstantial evidence of conscious misbehavior or recklessness.” In re Amaranth Natural Gas Commodities Litig., 612 F. Supp. 2d 376, 383 (S.D.N.Y. 2009) (“Amaranth II”), aff’d, 730 F.3d 170 (2d Cir. 2013). When issuing Rule 180.2 to implement


-51-

Plaintiffs offered no allegations that GDF acted with the specific purpose of

influencing derivatives prices—as opposed to the obvious purpose of conducting

lawful activity in ERCOT. Plaintiffs argue they pleaded motive and opportunity,

but they are wrong. To plead motive, Plaintiffs had to “assert a concrete and

personal benefit to the individual defendants resulting from the [alleged] fraud.” In

re Amaranth Natural Gas Commodities Litig., 587 F. Supp. 2d 513, 530 (S.D.N.Y.

2008) (“Amaranth I”), aff’d, 730 F.3d 170 (2d Cir. 2013). “[I]t is insufficient to

allege merely a ‘generalized motive’ that could be ‘imputed to any publicly-

owned, for-profit endeavor.’” In re LIBOR-Based Fin. Instruments Antitrust Litig.,

962 F. Supp. 2d 606, 616 (S.D.N.Y. 2013) (“LIBOR II”) (quoting Chill v. Gen.

Elec. Co., 101 F.3d 263, 268 (2d Cir. 1996)).

Plaintiffs’ FAC, however, fails to identify anything other than a hypothetical

motive to manipulate ICE. Plaintiffs have no evidence of a GDF derivatives

position that stood to benefit from alleged ERCOT activity.16 ROA.1358. Their

counsel admitted they have no such evidence. ROA.977. And any notion that

§ 6(c)(3), however, the CFTC made clear “recklessness will not suffice.” 76 Fed. Reg. at 41,407. That is presumably why Plaintiffs do not argue recklessness under § 6(c)(3). BR.55-57. But even if recklessness could suffice, Plaintiffs have not alleged facts sufficient to show it—as explained below.

16 To illustrate, Plaintiffs allege “[a]ssuming GDF…sold just five…futures contract[s]…GDF…could have locked in a profit of $637,377….” ROA.420 (emphases added).


-52-

discovery should be allowed to see if such intent evidence could emerge ignores

settled pleading standards. See Iqbal, 556 U.S. at 678-79.

Lacking evidence of an identifiable futures position, Plaintiffs say there is

“no rational explanation for” GDF’s alleged conduct “unless it stood to gain…by

trading on ICE or trading ERCOT virtuals.” ROA.375. Plaintiffs make this

argument repeatedly, hoping repetition will breed truth. ROA.371-72; ROA.385;

ROA.398; BR.10, 56. Without more, though, “vague allegations of purportedly

‘uneconomic conduct’…[cannot] support an inference of intent.” In re Commodity

Exch., Inc. Silver Futures and Options Trading Litig., 560 F. App’x 84, 86-87 (2d

Cir. 2014). Regardless, there are rational, economic explanations for GDF’s

alleged conduct that even Plaintiffs have recognized. See supra p. 41.

Plaintiffs’ suggestion that GDF generally participates in ICE is also

insufficient to plead scienter. ROA.369; see In re LIBOR-Based Fin. Instruments

Antitrust Litig., 27 F. Supp. 3d 447, 468 (S.D.N.Y. 2014) (“LIBOR III”) (finding

insufficient plaintiffs’ allegation that defendants were motivated to manipulate

Eurodollar futures prices because they held positions in market); In re Commodity

Exch., 560 F. App’x at 86 (agreeing “an inference of intent cannot be drawn from

the mere fact that JPMorgan had a strong short position”).


-53-

Plaintiffs claim GDF’s supposed knowledge that ERCOT activity impacts

futures prices is enough, but this Court has held that “[u]nder a specific intent

standard, mere knowledge is not enough.” Hershey, 610 F.3d at 249.

Finally, Plaintiffs’ reliance on uncorroborated hearsay and “information and

belief” allegations is mistaken. For example, they attack GDF’s Stefaan Sercu,

alleging an unnamed witness “reported to Plaintiffs that…Sercu…comment[ed]

rhetorically ‘did we move the forward markets.’” ROA.368. The law on

admissibility of such confidential witness statements at the dismissal stage is

settled in the securities context and equally applicable here.17 Courts require

securities-fraud plaintiffs to describe confidential witnesses “with sufficient

particularity to support the probability that a person in the position occupied by the

source would possess the information pleaded.” In re ArthroCare Corp. Sec.

Litig., 726 F. Supp. 2d 696, 720 (W.D. Tex. 2010) (ellipsis and quotation marks

omitted). Plaintiffs failed to do so here.

Even outside the securities context, courts hold that while “[a]llegations may

be made on information and belief when ‘the facts are peculiarly within the

knowledge of the defendants,’…it is axiomatic that ‘the complaint must allege

facts demonstrating the basis for the information and belief.’” MLSMK Invs. Co. v.

17 See, e.g., Sherman v. Sokoloff, 570 F. Supp. 1266, 1269 n.9 (S.D.N.Y.

1983) (referring to securities law in CEA case).


-54-

JP Morgan Chase & Co., 737 F. Supp. 2d 137, 145 (S.D.N.Y. 2010) (RICO), aff’d,

651 F.3d 268 (2d Cir. 2011); see United States ex rel. Williams v. Bell Helicopter

Textron Inc., 417 F.3d 450, 454 (5th Cir. 2005) (“While fraud may be pled on

information and belief…plaintiff must still set forth the factual basis for his

belief.”). Plaintiffs failed to offer any detail regarding their confidential sources or

any corroborating evidence. The allegations from confidential sources are

insufficient to establish scienter. See, e.g., Ind. Elec. Workers’ Pension Trust Fund

IBEW v. Shaw Grp., Inc., 537 F.3d 527, 535 (5th Cir. 2008). Plaintiffs have not

pled specific intent.

Second, for Plaintiffs’ CEA § 6(c)(1) claim, they had to allege “intentional[]

or reckless[]” acts. 17 C.F.R. § 180.1(a) (2011) (implementing § 6(c)(1)). The

CFTC defines recklessness, consistent with securities-fraud law, as “an act or

omission that departs so far from the standards of ordinary care that it is very

difficult to believe the actor was not aware of what he or she was doing.” 76 Fed.

Reg. at 41,404 (quotation marks omitted). “Severe recklessness is limited to those

highly unreasonable omissions or misrepresentations that involve not merely

simple or even inexcusable negligence, but an extreme departure from the standard

of ordinary care, and that present a danger of misleading buyers or sellers which is

either known to the defendant or is so obvious that the defendant must have been

aware of it.” Abrams v. Baker Hughes Inc., 292 F.3d 424, 430 (5th Cir. 2002)


-55-

(quotation marks omitted). It takes “conscious behavior.” Amaranth I, 587 F.

Supp. 2d at 529. The CFTC made clear “Rule 180.1 will not affect market

participants engaged in legitimate market activity undertaken in good faith.”

76 Fed. Reg. at 41,405.

Plaintiffs have not alleged facts of actual intent to defraud, for the same

reasons specific intent is not alleged. See supra pp. 50-54. Nor have Plaintiffs

pled facts showing recklessness. The alleged statements by Sercu are woefully

insufficient. See supra pp. 53-54. And allegations of GDF’s supposed knowledge

that ERCOT prices impact derivatives prices are inadequate, even for recklessness,

where the targeted conduct is legitimate. “[E]ntering into a legitimate transaction

knowing that it will distort the market is not manipulation”; more is required.

Amaranth I, 587 F. Supp. 2d at 539; accord LIBOR III, 27 F. Supp. 3d at 470.

Only if alleged conduct is “illegitimate” does knowledge of market impact suffice.

Id. Even the CFTC recognizes “legitimate market activity undertaken in good

faith” is outside the purview of Rule 180.1. 76 Fed. Reg. at 41,405.

Here, GDF’s ERCOT activity was legitimate—and anything but reckless—

both because it was lawful (indeed, PUCT-endorsed) and because it served

legitimate purposes. See supra pp. 6-7, 41. Plaintiffs complain of “reports” to the

day-ahead market about expected generation, but those offers or trades not only

were lawful, they were financial commitments only and not promises of actual


-56-

generation. ROA.377-78. Likewise, it is immaterial that GDF changed its offer

curves because ERCOT rules entitled it to do so. ROA.1295-1301. And GDF was

not alleged to have violated any rules concerning the availability of its units.

In all events, Plaintiffs’ theory that knowledge is enough proves too much.

According to Plaintiffs, anyone who is aware of cross-market impacts when

conducting lawful trading activity in ERCOT has been “reckless” under the CEA.

But Plaintiffs also allege everyone knows about such impacts. ROA.367.

Plaintiffs’ recklessness theory would mean most market participants in ERCOT—

nevermind other RTO/ISOs—have been “reckless” under the CEA for years.

Fortunately the CEA, the CFTC, and case law avoid this result. Plaintiffs have not

pled recklessness, much less actual intent, which justifies affirmance.

2. Plaintiffs failed to plead fraud under the heightened standard.

Plaintiffs’ claims—certainly their § 6(c)(1) claim—are subject to Rule 9(b),

see supra p. 49-50 n.14, which means they also cannot proceed because Plaintiffs

have not adequately pled a fraudulent or manipulative act. Plaintiffs just speculate

about the existence of futures positions GDF benefitted from. See supra pp. 11,

40-41. And Plaintiffs cannot avoid the fact that GDF’s alleged bidding was

expressly endorsed by the PUCT and consistent with ERCOT’s design. See supra

p. 7. Plaintiffs complain of GDF’s day-ahead activity, but those offers were just

financial commitments and not promises about actual physical generation of


-57-

electricity. ROA.377-78. Plaintiffs say GDF’s “OFF”/“EMR” designations were

not “related to any physical need to have its units removed from generation,”

ROA.398, but they just speculate, and they cannot allege any violation of market

rules. Plaintiffs failed to identify fraudulent or manipulative acts with specificity.

3. Plaintiffs failed to allege GDF caused an artificial price, which defeats their manipulation claim.

Plaintiffs’ § 6(c)(3) claim also fails because they allege no facts supporting

the existence of an artificial price caused by GDF.18 Plaintiffs allege simply that

GDF sought a price above marginal cost. ROA.349; ROA.371. But a commodity

supplier cannot create an artificial price merely by demanding a higher price;

absent a fictitious trade or something else (not alleged here), a supplier seeking the

highest price possible cannot, as a matter of law, create artificial prices except if

the alleged withholding violates market rules or some other obligation to sell—

which never occurred here. See United States v. Radley, 659 F. Supp. 2d 803, 816

(S.D. Tex. 2009), aff’d, 632 F.3d 177 (5th Cir. 2011). Plaintiffs argue there was no

“legitimate reason” for GDF’s alleged conduct “other than to manipulate” ICE,

BR.54-55, but that is not true, see supra p. 41. Plaintiffs’ manipulation claim must

be dismissed.

18 To allege manipulation, one must plead facts to establish (1) the defendant

possessed an ability to influence market prices, (2) an artificial price existed, (3) the defendant caused the artificial price, and (4) the defendant specifically intended to cause the artificial price. Hershey, 610 F.3d at 247.


-58-

4. Plaintiffs failed to adequately allege aiding and abetting.

Even if Plaintiffs’ CEA claims could survive, Plaintiffs failed to adequately

plead aiding-and-abetting liability. Plaintiffs had to show the generator defendants

knew of GDF SUEZ’s intent to violate the CEA, had intent to further that

violation, and committed an act to further it. Amacker v. Renaissance Asset Mgmt.

LLC, 657 F.3d 252, 255-56 (5th Cir. 2011). But Plaintiffs admit these defendants

“do not have a will regarding their generation.” ROA.437. Without that, they

cannot be held liable for aiding and abetting. Amacker, 657 F.3d at 255-57.

5. Plaintiffs’ allegations about trading on non-public information allege no CEA violation.

Plaintiffs alleged GDF traded on material, nonpublic information, ROA.369,

so to be clear: unlike SEC Rule 10b-5, the CEA does not prohibit trading on

material, nonpublic information. See 76 Fed. Reg. at 41,402–41,403 (noting

different duties of disclosure under CEA than securities laws). CEA § 6(c)(1)

states “no [CFTC] rule or regulation…shall require any person to

disclose…nonpublic information that may be material to the market price…of the

commodity transaction, except as necessary to make any statement made…in

connection with the transaction not misleading in any material respect.” 7 U.S.C.

§ 9(1); see also 76 Fed. Reg. at 41,402 (“it is not a violation of…Rule 180.1 to

withhold information that a market participant lawfully possesses about market

conditions,” even when entering into transactions). Plaintiffs do not sufficiently


-59-

allege GDF made any statement to trigger the limited exception; indeed, their only

attempt was pointing to the day-ahead offers that were not promises of actual

generation, but merely financial commitments. ROA.377-78. Plaintiffs’

insinuations of misuse of nonpublic information are baseless.

D. Raiden’s purely intrastate claims at least must be dismissed.

At minimum, Raiden’s claims must be dismissed because they undisputedly

involve only ERCOT conduct. See ROA.436. Raiden cannot meet the interstate-

commerce element or avoid the Final Order. See supra Parts I, II.A.

E. The declaratory- and injunctive-relief claims must be dismissed.

Even if Plaintiffs’ damages claims could proceed, the declaratory- and

injunctive-relief claims cannot because CEA § 22(a)(2) makes clear its rights of

action “shall be the exclusive remedies under this chapter available to any person

who sustains loss as a result of any alleged violation of this chapter.” 7 U.S.C.

§ 25(a)(2). Further, the CEA gives the CFTC alone authority to seek an injunction.

See 7 U.S.C. § 13a-1(a). And the declaratory-relief claim is duplicative. See Ladd

v. Colonial Sav., F.A., 2014 WL 1393038, at *5 (N.D. Tex. Apr. 10, 2014).

Plaintiffs lack authority to pursue this relief.

CONCLUSION

The Court should affirm the judgment below.


-60-

Respectfully submitted, /s/ Jeffrey L. Oldham Jeffrey L. Oldham [email protected] Stephen B. Crain [email protected] Tony L. Visage [email protected] BRACEWELL & GIULIANI LLP 711 Louisiana Street, Suite 2300 Houston, Texas 77002-2770 Telephone: (713) 223-2300 Facsimile: (800) 404-3970 ATTORNEYS FOR APPELLEES


-61-

CERTIFICATE OF SERVICE

I certify that on July 31, 2015, I filed this Brief of Appellees in electronic

form with the Clerk of the Fifth Circuit through the Court’s CM/ECF system. I

will deliver paper copies to Federal Express for next day delivery to the Fifth

Circuit for filing when requested by the Clerk.

I also certify that on July 31, 2015, I served a copy of this Brief of Appellees

on the following counsel of record by filing it through the CM/ECF system:

Roger D. Townsend ALEXANDER DUBOSE JEFFERSON & TOWNSEND LLP 1844 Harvard Street Houston, Texas 77008 Dana Livingston Susan S. Vance ALEXANDER DUBOSE JEFFERSON & TOWNSEND LLP 515 Congress Avenue Austin, Texas 78701 Kenneth M. Krock RAPP & KROCK, PC 3050 Post Oak Blvd., Suite 1425 Houston, Texas 77056



-62-

CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

1. This brief complies with the type-volume limitations of FED. R. APP. P.

32(a)(7)(B) because this brief consists of 13,998 words, excluding the parts of the

brief exempted by FED. R. APP. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of FED. R. APP. P.

32(a)(5) and the type style requirements of FED. R. APP. P. 32(a)(6) because it has

been prepared in a proportionally-spaced typeface using Microsoft Word 2010 in

14-point Times New Roman font.


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