Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00143/USCOURTS-caed-2_05-cv-00143-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1446 Petition for Removal

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

PEOPLE OF THE STATE OF CALIFORNIA ) 2:05-cv-143-GEB-PAN 

EX REL. BILL LOCKYER, ATTORNEY )

GENERAL OF THE STATE OF )

CALIFORNIA, )

) ORDER

Plaintiff, )

)

v. ) 

)

POWEREX CORP., a Canadian )

Corporation, dba POWEREX ENERGY )

CORP., and DOES 1 - 100, )

)

Defendants. )

)

Plaintiff moves to remand this action to Sacramento County

Superior Court. Defendant Powerex Corp. opposes the motion,

contending that federal question removal jurisdiction exists. 

Further, Defendant moves to dismiss Plaintiff’s complaint under

Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes this

dismissal motion.

BACKGROUND

The California energy crisis of 2000-2001 provides the

backdrop to this litigation. From 1998 to the present, Defendant, a

Canadian corporation, has conducted electricity transactions in the

California markets. (Compl. ¶¶ 4, 43.) Plaintiff alleges that from

1999 through 2001, Defendant engaged “in a number of unlawful, unfair,

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fraudulent, and manipulative trading schemes to the detriment of the

People of the State of California,” in violation of California’s

Unfair Competition Law (Cal. Bus. & Prof. Code § 17200, et seq.)

(“UCL”) and the California Commodity Law of 1990 (Cal. Corp. Code

§ 29500, et seq.). (Compl. ¶¶ 1, 19, 44.) Plaintiff’s complaint

seeks an injunction, restitution, disgorgement, damages, civil

penalties, and other equitable relief. (Id. ¶ 2.) 

DISCUSSION

Motion to Remand

Plaintiff argues this action must be remanded to state court

because there is no federal question removal jurisdiction. Plaintiff

contends its complaint “is a law enforcement action brought against

Powerex to enforce California’s antifraud and consumer protection laws

. . . .” (Pl.’s Mot. to Remand at 2.) Further, Plaintiff contends

that “the Attorney General’s case solely addresses the fraudulent

market manipulation and gaming strategies employed by Powerex which

adversely impacted the citizens of California.” (Id.) Plaintiff

further contends that “Powerex[’s] removal [cannot be] based on the

Foreign Sovereign Immunity Act” and that “compelling the Attorney

General to move its state-law related case to federal court would

violate the Eleventh Amendment’s provision protecting a state’s

sovereign immunity.” (Id. at 13-14.)

Defendant counters that removal was proper for two

independent reasons: (1) there is federal question jurisdiction under

the Federal Power Act, 16 U.S.C. § 825p (“FPA”), and (2) Defendant’s

“foreign state” status as defined by the Foreign Sovereign Immunities

Act, 28 U.S.C. § 1603 et seq. (“FSIA”). Defendant contends federal

question removal jurisdiction exists since “[t]he Attorney General’s

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claims arise under federal law because he alleges misconduct in

wholesale power transactions, which are exclusively the province of

federal law, and implicate specific federal tariffs governing the

transactions at issue.” (Def.’s Opp’n to Pl.’s Mot. at 13.) 

Defendant also contends it was “entitled to remove this action because

it satisfies the statutory criteria of a foreign state codified in

[FSIA since] it is both an agent and instrumentality of the Province

of British Columbia and . . . is also a wholly owned subdivision of

the Province’s statutory agent BC Hydro.” (Id. at 2.) 

A. Standard

An action filed in state court can be removed to federal

court if it “originally could have been filed in federal court.” 

Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987); see also 28

U.S.C. § 1441(b) (“Any civil action of which the district courts have

original jurisdiction founded on a claim or right arising under the

Constitution, treaties or laws of the United States shall be removable

without regard to the citizenship or residence of the parties.”) 

Defendant bears the burden of establishing federal jurisdiction, “and

the removal statute is strictly construed against removal

jurisdiction.” Prize Frize, Inc. v. Matrix (U.S.) Inc., 167 F.3d

1261, 1265 (9th Cir. 1999). 

“The presence or absence of federal-question jurisdiction is

governed by the ‘well-pleaded complaint rule,’ which provides that

federal jurisdiction exists only when a federal question is presented

on the face of the plaintiff’s properly pleaded complaint. . . . The

rule makes the plaintiff the master of the claim; [it] may avoid

federal jurisdiction by exclusive reliance on state law.” Caterpillar

Inc. v. Williams, 482 U.S. 386, 392 (1987). 

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B. Federal Question Jurisdiction Under the Federal Power Act

Plaintiff argues this action must be remanded because “[t]he

Attorney General’s well-pleaded Complaint solely asserts state causes

of action based on California’s consumer protection and commodities

laws [that] protect California citizens from fraud and deceit.” 

(Pl.’s Mot. to Remand at 13.) Plaintiff argues: 

In particular, the Attorney General’s Complaint

alleges that Powerex’s market manipulation and

gaming strategies constituted “unfair” and

“fraudulent” business practices pursuant to

California Business and Professions Code § 17200

(Complaint, ¶¶ 64, 65), and that Powerex’s market

manipulation and gaming strategies constituted

“unlawful” business practices within the meaning

of § 17200 “because they violate California law,

including but not limited to California

Corporations Code § 29536.” (Complaint ¶ 66).

Additionally, the Complaint alleges that Powerex’s

market manipulation and gaming strategies violated

the California Commodity Law because they involved

willful and fraudulent acts involving offers to

sell, sales, offers to purchase, and purchases of

commodities and commodity options. 

***

[B]ecause the Complaint does not rely on any

federal law to create the causes of action or to

seek relief, it is clear that the Attorney

General’s well-pleaded Complaint does not present

a federal question. Thus, removal is improper

based on the face of the Complaint. 

(Id. at 5-6.) 

Defendant rejoins that Plaintiff cannot rely on

the well-pleaded complaint rule since Plaintiff’s complaint is

“artfully pled” to avoid federal jurisdiction. Defendant contends

“the Attorney General’s state law claims necessarily implicate

substantial disputed questions concerning the FPA [and] the Attorney

General’s state law claims are completely preempted by the FPA.” 

(Def.’s Opp’n to Pl.’s Mot. at 13.) Plaintiff counters that “courts

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have long recognized that there is no complete pre-emption under the

FPA” and “Powerex has failed to demonstrate that the Attorney

General’s Consumer Protection Action is an ‘artfully pleaded’ federal

cause of action.” (Pl.’s Reply at 4, 9.) 

The artful pleading doctrine applies to a situation “where a

plaintiff articulates an inherently federal claim in state-law terms.” 

Brennan v. S.W. Airlines Co., 134 F.3d 1405, 1409 (9th Cir. 1998). 

“The . . . doctrine allows courts to delve beyond the face of the

state court complaint and find federal question jurisdiction by

recharacteriz[ing] a plaintiff’s state-law claim as a federal claim.” 

Lippitt v. Raymond James Fin. Servs., Inc., 340 F.3d 1033, 1041 (9th

Cir. 2003) (internal quotation marks and citations omitted). “Whether

the [doctrine] applies requires an analysis of whether plaintiff[’s]

claims ‘arise under’ federal law.” In re Cal. Retail Natural Gas &

Elec. Antitrust Litig., 170 F. Supp. 2d 1052, 1056 (D. Nev. 2001). 

“[C]ourts have used the . . . doctrine in: (1) complete preemption

cases, and (2) substantial federal question cases. Subsumed within

this second category are those cases where the claim is necessarily

federal in character, or where the right to relief depends on the

resolution of a substantial, disputed federal question.” Lippitt, 340

F.3d at 1041-42 (internal citations omitted).

A state law claim is completely preempted if federal law

“provide[s] the exclusive cause of action for the claim asserted and

also set[s] forth procedures and remedies governing that cause of

action.” Id. at 1042 (citing Beneficial Nat’l Bank v. Anderson, 539

U.S. 1, 8 (2003)). Complete preemption is rare; the Supreme Court has

only found complete preemption in three categories of cases: certain

causes of action under the Labor Management Relations Act, the

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Employee Retirement Income Security Act, and the National Banking Act. 

Beneficial Nat’l Bank, 539 U.S. at 8. 

“[T]he artful pleading doctrine [also] allows federal courts

to [exercise] jurisdiction over state law claims that implicate a

substantial federal question.” Lippitt, 340 F.3d at 1042. “[A] case

is ‘necessarily federal’ when it falls within the express terms of a

statute granting federal courts exclusive jurisdiction over the

subject matter of the claim.” Hendricks v. Dynegy Power Mtkg., Inc.,

160 F. Supp. 2d 1155, 1161 (S.D. Cal. 2001). Further, “[e]ven where 

. . . state law creates the cause of action, . . . federal

jurisdiction may still lie if ‘it appears that some substantial,

disputed question of federal law is a necessary element of one of the

well-pleaded state claims.’” Arco Envtl. Remediation, LLC v. Dep’t of

Health & Envtl. Quality, 213 F.3d 1108, 1114 (9th Cir. 2000) (citing

Rains v. Criterion Sys., Inc., 80 F.3d 339, 345 (9th Cir. 1996)). 

The Ninth Circuit cautions that the artful pleading doctrine

“should [be] invoke[d] only in limited circumstances as it raises

difficult issues of state and federal relationships and often yields

unsatisfactory results. While the artful pleading doctrine is a

useful procedural sieve to detect traces of federal subject matter

jurisdiction in a particular case, it also has substantive

implications on the scope of federal jurisdiction and efficiency.” 

Lippitt, 340 F.3d at 1041 (internal quotation marks and citations

omitted). 

1. Complete Preemption

Defendant argues “the FPA completely preempts the Attorney

General’s purported state law claims,” contending that “[t]he FPA

creates an exclusive federal scheme for the regulation of wholesale

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electric power transactions, preempting state regulation.” (Def.’s

Opp’n at 21-22.) Plaintiff counters that “courts have long recognized

that there is no complete pre-emption under the FPA.” (Pl.’s Reply at

3, 4.) 

The FPA does not completely preempt Plaintiff’s state law

claims since the claims do not seek to enforce any “liability or duty

created by” the FPA. See Hendricks, 160 F. Supp. 2d at 1160; Calif.

ex rel Lockyer v. Mirant Corp., 2002 WL 1897669, at * 6 (N.D. Cal.

Aug. 6, 2001); In re Cal. Retail Natural Gas & Elec. Antitrust Litig.,

170 F. Supp. 2d 1052 (D. Nev. 2001); Indeck Maine Energy, LLC v. ISO

New England, Inc., 167 F. Supp. 2d 675, 687 (D. Del. 2001). The FPA

preempts only those claims that fall within the FPA’s exclusive

jurisdictional provision. This exclusive jurisdictional provision

provides that the federal courts “shall have exclusive jurisdiction of

violations of [the FPA] or the rules, regulations, and orders

thereunder, and of all suits in equity and actions at law brought to

enforce any liability or duty created by, or to enjoin any violation

of, [the FPA] or any rule, regulation, or order thereunder.” 16

U.S.C. § 825p.

2. Substantial Federal Question

Defendant also contends that Plaintiff’s removal was proper

because Plaintiff’s “state law claims necessarily implicate

substantial disputed questions concerning the FPA.” (Def.’s Opp’n at

13.) Defendant argues that Plaintiff’s claims arise under federal law

because they “cannot be judged without consideration of the . . .

tariffs [filed with the Federal Energy Regulatory Commission

(“FERC”)].” (Id. at 17.) Defendant contends Plaintiff’s complaint

was artfully pled in the guise of state claims “to avoid [alleging]

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explicit claims of violations of the ISO and the PX tariffs,” since

Plaintiff recognizes that “no court - state or federal - could

determine whether Powerex’s conduct was ‘unlawful, unfair or

fraudulent’ without resort to the tariffs.” (Id.) Defendant argues

that Plaintiff’s claims arise under federal law because Plaintiff

alleges misconduct in wholesale power transactions, which are

exclusively the province of federal law, and implicate specific

federal tariffs governing the transactions at issue.

Plaintiff counters that the artful pleading doctrine does

not apply because “The Complaint does not seek to enforce any federal

obligations that Powerex might have violated.” (Pl.’s Reply at 6.) 

Plaintiff argues that “any allusions to federally-regulated entities

like the ISO and PX, that were made in order to provide the context

for the gaming allegations, do not change the state causes of action

into federal ones.” (Id. at 7.) Moreover, Plaintiff argues that “the

Attorney General does not seek to enforce or challenge Powerex’s

agreements with the ISO or its obligations under the MMIP. Resolution

of any issues regarding federal tariffs is not necessary to resolve

the state law claims.” (Id.) 

Thus, the issue is “whether [Plaintiff] has artfully phrased

a federal claim by dressing it in state law attire.” Lippitt, 340

F.3d at 1041. “A careful reading of artful pleading cases shows that

no specific recipe exists for a court to alchemize a state claim into

a federal claim – a court must look at a complex group of factors in

any particular case to decide whether a state claim actually ‘arises’

under federal law.” Id. at 1042-43. 

Defendant contends that California ex rel. Lockyer v.

Dynegy, 375 F.3d 831 (9th Cir. 2004) (“Dynegy”), mandates denial of

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Plaintiff’s motion, arguing that the Attorney General unsuccessfully

argued in Dynegy, as he does here, “that the core of his allegations

was not that defendants expressly violated the FPA, but that they

‘engaged in a pattern of fraudulent and unfair’ behavior in

furtherance of their scheme to manipulate California energy prices.” 

(Def.’s Opp’n at 18 (citing Dynegy, 375 F.3d at 841).) Defendant

contends that “Here, as in Dynegy, the Attorney General lacks an

independent state law basis for its Unfair Competition Law claim

because ‘California’s state claim represented a naked attempt to

enforce these federal obligations.’” (Def.’s Opp’n at 19 (citing

Dynegy, 375 F.3d at 843).) Defendant also contends that “Even if some

of the matters alleged in the Attorney General’s Complaint do not fall

within the exclusive jurisdiction provision of the FPA, the

allegations regarding ancillary services – which repeat the Attorney

General’s allegations in Dynegy – certainly do [and] [t]hose

allegations alone justify removal.” (Def.’s Opp’n at 19.) 

Plaintiff counters, arguing Dynegy is distinguishable:

In Dynegy, the state’s lawsuit was expressly based

on the defendants’ violation of the ISO tariff 

. . . . Thus, the cause of action was deemed

necessarily federal in character. . . . Here, the

Attorney General does not assert violations of the

ISO tariff. The allegation that Powerex

fraudulently offered to sell ancillary services is

asserted as one of the various gaming strategies

and fraudulent market manipulation schemes

employed by Powerex to deceive California

consumers. Moreover, not only does the Complaint

fail to allege the ISO tariff, but the issue of

whether Powerex violated the ISO tariff agreement

would not resolve whether anti-competitive conduct

occurred under state law.

(Pl.’s Reply at 8.) 

The Ninth Circuit found in Dynegy that the “relief [sought

was] ‘predicated on a subject matter committed exclusively to federal

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jurisdiction.’ The state lawsuit turn[ed], entirely, upon the

defendant’s compliance with a federal regulation. The tariff

define[d] the companies’ contractual obligation with respect to the

conduct at issue. Absent a violation of the FERC-filed tariff, no

state law liability could survive.” Dynegy, 375 F.3d at 841. The

Court further stated that “The very face of California's complaint

betrays that the gravamen of the complaint is the companies' alleged

violations of federal tariff obligations. It repeatedly cites the

federal tariff and alleges that the companies violated the agreement

embodied within it.” Id. at 841 n.6. The claim for unlawfulness in

Dynegy was “based entirely on alleged tariff obligations (i) to hold

ancillary services capacity in reserve prior to receipt of an ISO

dispatch instruction and (ii) to comply with ISO's dispatch

instructions. The federal tariff wholly govern[ed] the lawfulness of

the companies’ conduct. Similarly, with respect to the ‘unfair’ and

‘fraudulent’ terms, the claims depend[ed] entirely upon the federal

tariff.” Id.

Plaintiff’s reference to a federal tariff in its complaint

in the instant case is unlike the reference in Dynegy because

Plaintiff’s claims do not seek to enforce any federal law duty or

liability; rather, Plaintiff seeks only to enforce state law duties

and liabilities. See id.; Compl. ¶ 66. Therefore, this case is

distinguishable from Dynegy since in Dynegy, “[t]he state lawsuit

turn[ed], entirely, upon the defendant’s compliance with a . . . FERCfiled tariff. . . .” Id. at 841. Thus, in Dynegy, “the reference to

and necessity of relying upon federal law [was] unavoidable.” Id. at

841 n.7 (distinguishing Lippitt). 

Lippitt concerned allegations analogous to those alleged in

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Plaintiff’s complaint. The Ninth Circuit held in Lippitt that since

the plaintiff’s complaint alleged fraud and deceptive advertising

practices, rather than any violation of federal regulations, there was

no need for inquiry about federal law because Lippitt “merely . . .

allege[d] that Defendants’ conduct was either unfair or fraudulent”

and did not allege that the conduct was “unlawful” under federal law. 

Lippitt, 340 F.3d at 1043. 

“Lippitt involved a private attorney general’s lawsuit under

Cal. Bus. & Prof. Code § 17200 et seq. (“UCL”) against several

brokerage firms for sales and marketing practices associated with

certain investment product.” Dynegy, 375 F.3d at 841 n.7. In the

instant case, as in Lippitt, 

Federal law is not a necessary element of

[Plaintiff]’s UCL claim. To bring a UCL claim, a

plaintiff must show either an (1) unlawful,

unfair, or fraudulent business act or practice, or

(2) unfair, deceptive, untrue or misleading

advertising. Because . . . section 17200 is

written in the disjunctive, it establishes three

varieties of unfair competition-acts or practices

which are unlawful, or unfair, or fraudulent. [A]

practice is prohibited as “unfair” or “deceptive”

even if not “unlawful” or vice versa. Therefore,

[Plaintiff] does not have to rely on a violation

of [the FPA or any federal tariffs] to bring a UCL

claim in California state court. [Plaintiff]

merely has to allege that Defendant[’s] conduct

was either unfair or fraudulent.

Lippitt, 340 F.3d at 1043. 

Plaintiff’s “allegations are sufficient to sustain the

elements of [its] § 17200 claim without resort to federal law,” since

Plaintiff “makes no effort to enforce [any federal rights or

obligations]. Rather, [Plaintiff] seeks to use . . . state

statute[s], namely California’s Unfair Competition Law [and the

California Commodity Law], as . . . vehicle[s] to hold Defendant[]

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liable for [market manipulation and gaming strategies].” Id. Whether

Plaintiff’s alleged activities underlying these state claims also

violated the FPA or a federal tariff is irrelevant since Plaintiff, as

master of its complaint, chose to allege that Defendant engaged in

conduct that was unlawful under state law, instead of alleging

violations of federal law. Caterpillar Inc., 482 U.S. at 392. “That

the specific goal of protecting California customers from dishonest

business practices . . . may comport with the broader . . . goals of

the [FPA] is not enough to sweep [Plaintiff]’s complaint within the

exclusive jurisdictional ambit of [16 U.S.C. § 825p].” Lippitt, 340

F.3d at 1043-44. 

Since Plaintiff’s complaint does not seek to enforce any

“liability or duty” created by the FPA, and Plaintiff alleges it can

show that Defendant violated the alleged California claims without

reliance upon federal law, Plaintiff’s complaint was not artfully pled

and Defendant lacked federal removal jurisdiction under the FPA.

C. Federal Question Jurisdiction Under the Federal Sovereign

Immunity Act

Defendant also contends removal was appropriate since it is

a foreign sovereign entitled to remove this action under FSIA. Under

28 U.S.C. § 1441(d), an action against a foreign state may be removed. 

A “foreign state” includes a political subdivision of a foreign state

or an agency or instrumentality of a foreign state. 28 U.S.C. 

§ 1603(a). An “agency or instrumentality of a foreign state” means

any entity (1) which is a separate legal person, corporate or

otherwise, and (2) which is an organ of a foreign state or political

subdivision thereof, or a majority of whose shares or other ownership

interest is owned by a foreign state or political subdivision thereof,

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1 Because of this ruling, neither Plaintiff’s Eleventh

Amendment argument nor Defendant’s motion to dismiss need be

addressed.

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and (3) which is neither a citizen of a State of the United States nor

created under the laws of any third country.” Id. § 1603(b). In

California v. NRG Energy, Inc., the Ninth Circuit held that Powerex is

“not a foreign instrumentality under FSIA." 391 F.3d 1011, 1026 (9th

Cir. 2004). 

But Defendant argues that NRG Energy is distinguishable

because in NRG Energy, Powerex was not then a wholly owned subdivision

of a province of Canada, and Powerex now is a wholly owned subdivision

of the Province of British Columbia’s statutory agent BC Hydro. Thus,

Defendant argues it is a foreign state for purposes of FSIA. However,

“only a direct ownership of a majority of shares by the foreign state

satisfies the statutory requirement [of FSIA].” Dole Food Co. v.

Patrickson, 538 U.S. 468, 474 (2003). Although Powerex is owned by BC

Hydro and BC Hydro is an agent of the Province, the Province does not

itself own a majority of the shares of Powerex. Therefore, Powerex is

not a foreign state for purposes of FSIA.

Since federal removal jurisdiction is lacking, Plaintiff’s

remand motion is granted.1 Therefore, this action is remanded to

Sacramento County Superior Court.

IT IS SO ORDERED.

Dated: August 22, 2005

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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