Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00518/USCOURTS-caed-2_05-cv-00518-7/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1442 Petition for Removal

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* This motion was determined to be suitable for decision

without oral argument. L.R. 78-230(h).

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

CALIFORNIA DEPARTMENT OF WATER ) 02:05-cv-0518-GEB-PAN

RESOURCES, )

)

 Plaintiff, )

)

v. ) ORDER*

)

POWEREX CORP., a Canadian )

Corporation, dba POWEREX ENERGY )

CORP., and DOES 1 - 100, )

)

 Defendants. )

Plaintiff California Department of Water Resources

(“Plaintiff”) moves to remand this action to Sacramento County

Superior Court, arguing that remand is appropriate because its Amended

Complaint involves only issues of state law. Defendant Powerex Corp.

(“Defendant”), a Canadian corporation, opposes the motion.

BACKGROUND

This dispute arises out of the California energy crisis

of 2000-2001. The California Legislature passed legislation charging

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Plaintiff with the task of procuring energy to provide California

consumers with a stable supply of electricity. See Cal. Water Code §§

80000-80270. Thereafter, Plaintiff entered into numerous energy

contracts with Defendant. 

On February 10, 2005, Plaintiff initiated this action in

Sacramento County Superior Court. Defendant removed the action to

this Court on March 16, 2005, asserting jurisdiction under the Federal

Power Act (“FPA”), 16 U.S.C. § 825p, and the Foreign Sovereign

Immunity Act (“FSIA”), 28 U.S.C. § 1603 et seq. Following removal,

Defendant moved to dismiss the action for failure to state a claim and

Plaintiff moved to remand the action to state court. On

August 22, 2005, Plaintiff’s motion to remand was denied since the

complaint was found to have been “artfully pled;” specifically

Plaintiff’s alleged state claims could only be resolved by determining

what constitutes a “just and reasonable rate” under the parties’

contracts for electrical energy, which is a decision to be made

exclusively by the Federal Energy Regulatory Commission (“FERC”). 

Defendant’s dismissal motion was granted and judgment was entered in

Defendant’s favor. 

On September 9, 2005, Plaintiff filed a motion which was

construed as a motion to amend the judgment and to grant Plaintiff

leave to file an amended complaint. The judgment was amended and

Plaintiff was granted leave to file an amended complaint. Plaintiff

subsequently filed an amended complaint, the face of which alleges

claims under California law. 

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DISCUSSION

Plaintiff argues since its Amended Complaint eliminates

federal questions no basis for federal jurisdiction exists, and this

action must be remanded under 28 U.S.C. § 1447(c). Section 1447(c)

states in pertinent part that “[i]f at any time before final judgment

it appears that the district court lacks subject mater jurisdiction,

the case shall be remanded.” Defendant counters § 1447(c) is

inapplicable because Sparta Surgical Corp. v. Nat’l Ass’n Sec.

Dealers, Inc., 159 F.3d 1209, 1213 (9th Cir. 1998), reveals that the

existence of federal jurisdiction must be analyzed on the basis of the

pleadings filed at the time of removal without reference to subsequent

amendments. (Def.’s P & A Opp’n Mot. Remand (“Def.’s Opp’n”) at 10.) 

Defendant correctly states the rule in Sparta. Therefore, Plaintiff

has not shown that remand is required even if the Amended Complaint

eliminates all federal questions.

Plaintiff also contends that this Court should exercise its

discretion by remanding this action since “there is no basis for

federal jurisdiction.” (Pl.’s Reply Def.’s Opp’n (“Pl.’s Reply”) at

10.) Plaintiff’s assertion that there is no basis for federal

jurisdiction is incorrect. “[A] federal court [still has] power to

hear claims that would not be independently removable even after the

basis for removal jurisdiction is dropped from the proceedings.” 

Harrell v. 20th Century Ins. Co., 934 F.2d 203, 205 (9th Cir. 1991)

(citations and quotation marks omitted). 

The essence of Plaintiff’s argument is that since the

Amended Complaint just contains state claims, the Court should cease

exercising supplemental jurisdiction over those claims. Defendant

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counters that two independent reasons prevent remand: (1) the Amended

Complaint contains a federal question under the FPA and (2) Defendant

has invoked federal jurisdiction under FSIA. (Def.’s Opp’n at 1-2.) 

Thus the remand issues are whether federal question jurisdiction

exists in this action, and if not, whether the Court should

discontinue exercising supplemental jurisdiction over Plaintiff’s

Amended Complaint.

I. Federal Question Jurisdiction under the FPA

“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. . . .” 

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

argues this action should be remanded pursuant to the “well-pleaded

complaint rule” because the Amended Complaint “does not rely on any

federal law to create the causes of action.” (Pl.’s Mot. at 7.) 

Defendant counters that Plaintiff’s Amended Complaint is

“artfully pled” to avoid making evident a federal question. (Def.’s

Opp’n at 13.) “The artful pleading 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). This doctrine applies under circumstances “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). 

“Whether the artful pleading exception to the well-pled complaint rule

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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 artful pleading 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); see also Arco Envtl.

Remediation, L.L.C. v. Dep’t of Health & Envtl. Quality, 213 F.3d

1108, 1114 (9th Cir. 2000); In re Cal. Retail Natural Gas & Elec.

Antitrust Litig., 107 F. Supp. 2d 1052, 1058 n.7 (D. Nev. 2001)

(stating that the two exceptions, for claims that are “necessarily

federal in character,” and claims raising a “substantial, disputed

federal question,” often “blend together in the case law.”) “[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). A claim raises a

substantial, disputed federal question “when its resolution requires

reference to or interpretation of federal law.” Id. 

A. Complete Preemption

Defendant argues “the FPA completely preempts [Plaintiff’s]

purported state law claims,” since “[t]he FPA creates an exclusive

federal scheme for the regulation of wholesale electric power

transactions, [and therefore] preempt[s] state regulation.” (Def.’s P

& A Opp’n Mot. Remand, May 17, 2005 at 12-13.) Plaintiff counters that

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“courts have long recognized that there is no complete preemption

under the FPA.” (Pl.’s Reply at 8.)

The FPA preempts only those claims that fall within its

exclusive jurisdictional provision. This 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. This provision

does not completely preempt state law claims that 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, 1057-58 (D. Nev.

2001); Indeck Maine Energy, LLC v. ISO New England, Inc., 167 F. Supp.

2d 675, 687 (D. Del. 2001). Since the face of the Amended Complaint

just alleges claims under California law, those claims are not

preempted by § 835p of the FPA. 

B. Substantial Federal Question

Defendant also argues that the claims in the Amended

Complaint “are necessarily federal in character and require resolution

of a substantial, disputed federal question” because they “allege

misconduct in wholesale power transactions, which are exclusively the

province of federal law, and implicate specific tariffs governing the

transactions at issue.” (Def.’s Opp’n at 11, 13.) Defendant contends

that Plaintiff’s Amended Complaint was artfully pled “to avoid

explicit claims of violations of FERC tariffs.” (Id. at 16.)

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Plaintiff counters that “[a]ny requests for relief . . .

included in the original complaint . . . which may have . . .

require[d] the resolution of a federal question are omitted from the

Amended Complaint.” (Pl.’s Reply at 3.) Plaintiff argues that “a

court may determine whether fraud and dysfunction existed in the

energy markets . . . [without] resolution of any issues under federal

law or intru[sion] on FERC’s jurisdiction.” (Pl.’s Reply at 4-5.) 

Plaintiff contends its claims “can be resolved by reference to state

contract law only” and for that reason the Amended Complaint is not

artfully pled. (Id. at 5.) 

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. “[N]o 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

Plaintiff’s remand motion “because FERC-approved tariffs provide the

necessary context for the court’s analysis of whether . . .

[Defendant] violated California state law” and, therefore, the “claims

are partially predicated on a subject matter committed exclusively to

federal jurisdiction.” (Def.’s Opp’n at 14.) Defendant contends that

Plaintiff “cannot establish [its pled] claim[s] for duress, undue

influence[,] or violation of public policy without establishing that

[Defendant] participated in and/or had knowledge of the alleged

manipulation of the California electricity markets.” (Id. 16-17.) 

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Defendant argues that, as was decided in Dynegy, the establishment of

this manipulation requires an examination of federal tariffs, which is

within the exclusive jurisdiction of FERC. (Id.)

Plaintiff counters that “the determination of whether fraud

existed in the markets so as to render [Plaintiff’s] transactions with

[Defendant] void is based solely on California contract formation

law.” (Pl.’s Reply at 6.) Plaintiff also contends that “[w]hether

the alleged fraud also violated federal law is of no consequence since

[Plaintiff] did not allege any violations of federal law.” (Id.) 

In Dynegy the “relief [sought was] ‘predicated on a subject

matter committed exclusively to federal jurisdiction’ [since] [t]he

state lawsuit turn[ed], entirely, upon the defendant’s compliance with

a [FERC-filed tariff].” Dynegy, 375 F.3d at 841. “The very face of

[the] complaint [in Dynegy] betray[ed] that the gravamen of the

complaint [was] the companies’ alleged violations of federal tariff

obligations.” Id. at 841 n.6.

In this action, Plaintiff’s references to the FPA and FERC

in the Amended Complaint are unlike the references to the FERC-filed

tariff in Dynegy because the very face of Plaintiff’s Amended

Complaint does not seek to enforce any federal law, duty, or

liability. “[M]ere reference of a federal statute in a pleading will

not convert a state law claim into a federal cause of action if the

federal statute is not a necessary element of the state law claim[.]” 

Easton v. Crossland Mortgage Corp., 114 F.3d 979, 982 (9th Cir. 1997). 

Therefore, this case is distinguishable from Dynegy.

As the Ninth Circuit observed in Lippitt, where a complaint

alleges fraud and deceptive practices under state law, and does not

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allege any violation of a federal regulation, the artful pleading

exception to the well-pleaded complaint rule does not apply. Lippitt,

340 F.3d at 1043. Thus, under the rationale of Lippitt, since the

face of Plaintiff’s Amended Complaint does not allege that it seeks to

enforce any federal right or obligation, Defendant’s arguments under

the artful pleading doctrine are unpersuasive.

II. Federal Jurisdiction under FSIA

Defendant also argues this action should not be remanded

“because it satisfies the statutory criteria of a foreign state

codified in [FSIA], 28 U.S.C. 1603 et seq.” (Def.’s Opp’n at 19.) If

Defendant is correct, federal jurisdiction exists under FSIA. FSIA

“defines a foreign sovereign as including an agency or instrumentality

of a foreign state. 28 U.S.C. § 1603(a).” California v. NRG Energy,

Inc., 391 F.3d 1011, 1025 (9th Cir. 2004). Defendant argues that it

qualifies as an “agency or instrumentality of a foreign state”

because: (1) it is an “organ” of the Province of British Columbia

(“the Province”) and (2) it is wholly owned by BC Hydro, a statutory

agent of the Province. (Def.’s P & A Opp’n Mot. Remand, May 17, 2005

at 17, 20.) 

Defendant presented the same arguments to the Ninth Circuit

in California v. NRG Energy, Inc., and the Ninth Circuit held that

Defendant was not an “agency or instrumentality of a foreign state”

under FSIA. 391 F.3d at 1026. Specifically, in response to

Defendant’s first argument the Ninth Circuit stated that “[Powerex’s]

high degree of independence from the government of [the Province],

combined with its lack of financial support from the government and

its lack of special privileges or obligations under Canadian law

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dictate . . . that Power[e]x is not an organ of [the Province].” Id.

Additionally, in response to Defendant’s second argument the Ninth

Circuit stated that “[because] Power[e]x is not owned by the Province

but by BC Hydro . . . [it is] not a foreign instrumentality under

FSIA.” Id. Therefore, FSIA is not a basis for federal jurisdiction.

III. Remand

Since the face of Plaintiff’s Amended Complaint contains no

federal question, the remaining issue is whether Plaintiff’s remand

motion should be granted. “[S]ection 1367(c) provides the . . . basis

upon which the district court may decline jurisdiction and remand

pendent claims.” Executive Software N. Am., Inc. v. U.S. Dist. Ct.

for the Cent. Dist. of Cal., 24 F.3d 1545, 1551 (9th Cir. 1994). 

Under § 1367(c), the district court may decline to exercise

supplemental jurisdiction over a state claim if:

(1) the claim raises a novel or complex issue of

State law, (2) the claim substantially

predominates over the claim or claims over which

the district court has original jurisdiction, (3)

the district court has dismissed all claims over

which it has original jurisdiction, or (4) in

exceptional circumstances, there are other

compelling reasons for declining jurisdiction. 

All claims over which the district court had original

jurisdiction have been dismissed. Further, Plaintiff indicates that

“exceptional circumstances” exist justifying remand since Plaintiff

argues it is clothed with immunity from suit in federal court by the

Eleventh Amendment and “[t]reating the state like any other litigant

for purposes of . . . remand diminishes the respect it is due as a

sovereign.” (Pl.’s Mot. at 15.) Section 1367(c)(3) provides a basis

for remanding this action, and as Plaintiff indicates, its Eleventh

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Amendment argument also favors remand under § 1367(c)(4). 

Even though the district court’s “discretion to decline to

exercise supplemental jurisdiction over [Plaintiff’s] state law claims

is triggered by [sections 1367(c)(3) and 1367(c)(4)], it is informed

by the Gibbs values of economy, convenience, fairness, and comity.” 

Acri v. Varian Associates, Inc., 114 F.3d 999, 1001 (9th Cir. 1997)

(en banc) (quotation marks omitted). Judicial economy would not be

served by continuing to exercise supplemental jurisdiction since the

district court’s analysis of the face of the Amended Complaint should

not result in a “substantial duplication of [judicial] effort if the

state claims were tried in the state court.” Mooney v. Nw. Ill. Reg’l

Computer R.R. Corp., 128 F. Supp. 2d 1178, 1181 (N.D. Ill. 2001). Nor

would remand inconvenience a party since the state courthouse is

located only a few blocks from the federal courthouse. Lastly,

“[n]eedless decisions of state law should be avoided both as a matter

of comity and to promote justice between the parties, by procuring for

them a surer-footed reading of applicable law.” United Mine Workers

of Am. v. Gibbs, 383 U.S. 715, 726 (1966).

In conclusion, consideration of the Gibbs values reveals

that the district court may decline to exercise jurisdiction over

Plaintiff’s remaining state claims. Therefore, this action is

remanded to Sacramento County Superior Court.

IT IS SO ORDERED.

Dated: January 12, 2006

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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