Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-02570/USCOURTS-ca8-05-02570-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-2570

___________

United States Commodity Futures *

Trading Commission, *

*

Plaintiff - Appellant, *

* Appeal from the United States 

v. * District Court for the 

* District of Minnesota.

NRG Energy, Inc., *

*

Defendant - Appellee. *

___________

Submitted: May 15, 2006

Filed: August 4, 2006

___________

Before MURPHY, JOHN R. GIBSON, and BENTON, Circuit Judges.

___________

MURPHY, Circuit Judge.

The Commodity Futures Trading Commission (Commission) brought this

action in the District of Minnesota to enjoin NRG Energy, Inc. (NRG) from reporting

inaccurate market information in violation of the Commodity Exchange Act (the Act).

NRG moved to dismiss for lack of jurisdiction because of its Chapter 11 case in the

bankruptcy court in the Southern District of New York. The district court granted the

motion, and the Commission appeals. We reverse. 

NRG, which until 2004 was based in Minnesota, is in the business of

generating, operating, trading, and marketing energy commodities, including natural

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gas and power. It filed for Chapter 11 bankruptcy relief in the United States

Bankruptcy Court in the Southern District of New York on May 14, 2003. The

Commission had been investigating whether NRG had violated provisions of the Act,

and on August 20, 2003 it filed a proof of claim in NRG's bankruptcy case for

"potential civil monetary penalties and/or restitution or disgorgement for violations

of the Commodity Exchange Act, based on pre-petition conduct".

The bankruptcy court entered a confirmation order and plan of reorganization

on November 24, 2003, which enjoined all entities with claims against NRG from

“commencing or continuing in any manner any action or other proceeding of any kind

with respect to any such Claim or Equity Interest” and from commencing any “claims,

obligations, suits, judgments, damages, demands, debts, rights, causes of actions or

liabilities released pursuant to the NRG Plan”. The bankruptcy court order and plan

also contained provisions retaining in the bankruptcy court "exclusive jurisdiction of

all matters arising out of, or related to, the Chapter 11 Case and the NRG Plan". 

NRG filed an objection to claims which included an objection to the

Commission's proof of claim. The Commission did not respond or appear at the

hearing on the objections, and on May 18, 2004 the bankruptcy court "expunged and

discharged in its entirety" the Commission's proof of claim but retained jurisdiction

over "all matters arising out of the First Omnibus Objection." On June 10, the

Commission moved for reconsideration, and NRG responded with a motion to

enforce the plan of reorganization. The bankruptcy court heard oral argument on the

motions on November 17, 2004, but it has yet to rule on them. 

The Commission filed this enforcement action against NRG on July 1, 2004 in

the United States District Court for Minnesota. It alleges that from its headquarters

in Minneapolis NRG's employees intentionally reported false information regarding

natural gas prices and transactions. The Commission further alleges that the reporting

of false information to an industry newsletter, "Platts' Gas Daily" (Gas Daily),

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influenced the daily index published by Gas Daily and affected the price of natural

gas sold and traded in interstate commerce, in violation of § 9(a)(2) of the Act, 7

U.S.C. § 13(a)(2). Because of these past acts, the Commission seeks to enjoin NRG

from committing future violations of the Act and for "such other and further remedial

and ancillary relief as [the court] may deem necessary and appropriate". 

NRG moved in the district court to dismiss the enforcement action for lack of

jurisdiction or alternatively to transfer venue. It asserted that this action in the federal

district court in Minnesota is barred by the bankruptcy court orders issued in the

Chapter 11 case. NRG claimed further that the bankruptcy court has exclusive

jurisdiction over the matter because the facts underlying the Commission's complaint

are the same facts on which its proof of claim was based. The motion was referred

to a magistrate judge who recommended that the case be dismissed or transferred,

after concluding that this action is "with respect to" the Chapter 11 proceedings so the

bankruptcy court retained exclusive jurisdiction and was in a better position to

determine the effect of its orders. The Commission objected that its enforcement

action is not “with respect to” the claim it filed in the bankruptcy court and that court

was without authority to divest the district court of subject matter jurisdiction over

this case. The district court adopted the magistrate judge’s recommendation and

dismissed the action for lack of jurisdiction. 

 

The Commission appeals, arguing that the district court erred because the

bankruptcy court orders do not apply to this enforcement action and in the alternative

that the bankruptcy court lacked authority to deprive a district court of jurisdiction

to hear an enforcement action arising under the Act. NRG asserts that the bankruptcy

court orders bar the district court from exercising jurisdiction over this case and that

the Commission cannot collaterally attack the validity of those orders in the district

court in Minnesota. Our review of a dismissal for lack of subject matter jurisdiction

is de novo. Sierra Club v. United States Army Corps of Engineers, 446 F.3d 808, 813

(8th Cir. 2006). 

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The nonconstitutional jurisdiction of all federal courts, including bankruptcy

courts, is fixed by Congress. Kontrick v. Ryan, 540 U.S. 443, 452 (2004). Congress

has provided that if the Commission determines that any entity or other person has

violated a provision of the Act, it may "bring an action in the proper district court of

the United States . . . to enjoin such act or practice, or to enforce compliance" with

the act. 7 U.S.C. § 13a-1. Jurisdiction over bankruptcy proceedings is governed by

28 U.S.C. § 1334(a)-(b), which provides that district courts have "original and

exclusive jurisdiction of all cases under title 11" and "original but not exclusive

jurisdiction of all civil proceedings arising under title 11, or arising in or related to

cases under title 11." See In re Marlar, 432 F.3d 813, 814 (8th Cir. 2005). District

courts may refer to bankruptcy judges any or all cases "under title 11 and any or all

proceedings arising under title 11 or arising in or related to a case under title 11". 28

U.S.C. § 157(a).

NRG's voluntary petition for bankruptcy protection under title 11 in the

Southern District of New York was referred to a judge of the bankruptcy court, who

was then vested with "limited authority" under the jurisdictional scheme created by

Congress. Bd. of Governors v. McCorp Fin., Inc., 502 U.S. 32, 40 (1991). The

purpose of title 11 protection is to allow an entity to "restructure . . . finances" and

enter a plan of reorganization so that it is able to "continue to operate, provide its

employees with jobs, pay its creditors, and produce a fair return for its stockholders."

In re Cedar Shore Resort, Inc., 235 F.3d 375, 379 (8th Cir. 2000). 

Pursuant to its referred jurisdiction under 28 U.S.C. § 157(a) and consistent

with the purposes of chapter 11, the bankruptcy court entered a confirmation order

restricting the commencement of collateral proceedings which could adversely affect

the bankruptcy estate. Entry of a confirmation order discharges all debts arising prior

to the date of confirmation. 11 U.S.C. § 1141(d); McSherry v. Trans World Airlines,

Inc., 81 F.3d 739, 740 (8th Cir. 1996). The bankruptcy code defines debt as "liability

on a claim", 11 U.S.C. § 101(12), and claim as a "right to payment . . . or right to an

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equitable remedy for breach of performance if such breach gives right to a right to

payment." 11 U.S.C. § 101(5). 

With this enforcement action the Commission seeks only to restrict NRG from

committing future violations of the Act. Its rejected claim in NRG's Chapter 11 case

was based on "prepetition conduct of the debtor, NRG, Energy, Inc., that is currently

under investigation" and the potential monetary recovery would be for that conduct.

Here, the Commission seeks injunctive relief rather than monetary penalties,

restitution, or disgorgement. If it were successful in obtaining an injunction and if

NRG were to violate its terms in the future, any penalties the Commission might then

seek would be based on such future conduct rather than on NRG's prepetition acts on

which its proof of claim were based. Because the injunction itself would only restrict

NRG from committing future acts, this enforcement action is not a claim for purposes

of § 101(5). Ohio v. Kovacs, 469 U.S. 274 (1985); In re Udell, 18 F.3d 403, 409-10

(7th Cir. 1994). Neither is the Commission's enforcement action a facet of the

bankruptcy proceedings, nor was it discharged by entry of the confirmation order. Id.

NRG contends, nonetheless, that the district court lacks jurisdiction to hear this

case because the exclusive jurisdiction provisions in the plan and order apply to "all

matters arising out of, or related to, the Chapter 11 Case and the NRG Plan". In the

event the exclusive jurisdiction provisions were determined to be inapplicable, it

asserts that the district court would still be barred from hearing this dispute because

of the language in the plan and order enjoining the commencement of "any action or

other proceeding of any kind with respect to any such Claim” and any “claims,

obligations, suits, judgments, damages, demands, debts, rights, causes of actions or

liabilities released pursuant to the NRG Plan."

The exclusive jurisdiction provisions relied upon by NRG are labeled as

"Retention of Jurisdiction" provisions, and bankruptcy courts are unable to expand

their own jurisdiction by order. Harstad v. First America Bank, 39 F.3d 898, 902 n.7

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(8th Cir. 1994). Since this enforcement action was not subject to discharge and the

bankruptcy court never had exclusive jurisdiction over it, the retention provisions in

the plan and order do not apply to it. Similarly, the injunctive provisions in the plan

and order do not apply because this enforcement action was not discharged pursuant

to entry of the plan. Moreover, injunctive relief against future law violations would

not be with respect to a proof of claim seeking relief in bankruptcy proceedings based

on prepetition conduct. See King v. United States, 390 F.2d 894 (Ct. Cl. 1968), rev'd

on other grounds, United States v. King, 395 U.S. 1 (1969). This is particularly true

here where the bankruptcy court has entered a confirmation order and the proof of

claim has been expunged. See In re Fairfield Communities, Inc., 142 F.3d 1093, 1095

(8th Cir. 1998). Given that Congress granted district courts jurisdiction over

enforcement proceedings brought under the Act, that the bankruptcy court has limited

jurisdiction over bankruptcy proceedings, and that the relief currently sought is

distinct from that at issue during the bankruptcy proceedings, we conclude that the

district court has jurisdiction over this enforcement action. 

NRG fails to cite any authority that would permanently authorize the

bankruptcy court to prevent the Commission from bringing this enforcement action.

NRG cites 11 U.S.C. § 105 for the proposition that bankruptcy courts can “issue any

order, process, or judgment that is necessary or appropriate to carry out the provisions

of this title”, but § 105(a) may only be invoked "if the equitable remedy utilized is

demonstrably necessary to preserve a right elsewhere provided in the Code." In re

Ludlow Hosp. Soc., Inc., 124 F.3d 22, 28 (1st Cir. 1997); Johnson v. First Nat'l Bank

of Montevideo, 719 F.2d 270, 273 (8th Cir. 1983). NRG has cited no authority

permitting bankruptcy courts completely to eliminate an agency’s ability to pursue

an enforcement action seeking only injunctive relief. Such a reading of the order and

plan would be invalid as a matter of law.

To support its position that the Commission is required to seek permission from

the bankruptcy court to pursue this action, NRG relies on Celotex Corp. v. Edwards,

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514 U.S. 300 (1995). In Celotex, the Supreme Court barred a creditor from

collaterally attacking the merits of a bankruptcy injunction in a different district. Id.

at 313. Since we conclude that the injunction in NRG's bankruptcy case does not

apply to this enforcement action looking to future conduct and that the bankruptcy

court would have been without authority to issue such an order, Celotex is

inapplicable. Under the circumstances here, the Commission does not need to seek

relief from the bankruptcy order in the Southern District Court of New York to

proceed because the injunction does not apply to this case. 

Accordingly, the judgment is reversed and the matter is remanded to the district

court for further proceedings consistent with this opinion.

______________________________

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