Opinion ID: 3052365
Heading Depth: 2
Heading Rank: 1

Heading: General Facts and Procedural Background

Text: This is one of many cases arising out of the 2000-2001 California energy crisis.1 By February 2001, the state’s deregulated energy markets had experienced “a rapid, unforeseen shortage of electric power and energy available in the state and rapid and substantial increases in wholesale energy costs and retail energy rates.” Cal. Water Code § 80000(a). This caused rolling blackouts throughout California and “constitute[d] an immediate peril to the health, safety, life, and property” of Californians. Id. In response, the California Legislature turned to the state’s Department of Water Resources (“DWR”), giving it a mandate: “do those things necessary and authorized” under the Water Code “to make power available directly or indirectly to electric consumers in California.” Cal. Water Code § 80012. To fulfill this responsibility, DWR was empowered to contract with any person or entity for the purchase of power. Id. § 80100. According to DWR’s Amended Complaint, between January 17, 2001,2 and December 31, 2001, DWR and Powerex transacted thousands of “out of market” purchases and “numerous exchange transactions.”3 1 See, e.g., Port of Seattle v. FERC, 499 F.3d 1016 (9th Cir. 2007); Pub. Utils. Comm’n of Cal. v. FERC, 474 F.3d 587 (9th Cir. 2006); Pub. Util. Dist. No. 1 of Snohomish County v. FERC, 471 F.3d 1053 (9th Cir. 2006); Pac. Gas & Elec. Co. v. FERC, 464 F.3d 861 (9th Cir. 2006); Bonneville Power Admin. v. FERC, 422 F.3d 908 (9th Cir. 2005); California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004). 2 From mid-January 2001 until February 1, 2001, DWR was authorized to purchase power under statutorily-granted emergency authority. Cal. Water Code § 200 (2001) (repealed 2002). 3 According to DWR’s Amended Complaint, an “exchange transaction” is one in which “an out-of-market supplier agrees to deliver a requested amount of electricity to a counter-party in return for the counter-party’s promise to provide an equal or greater volume of power in the future.” Allegedly, Powerex frequently insisted on receiving 2.5 megawatts of power for every megawatt it provided. CALIFORNIA DEP’T OF WATER v. POWEREX 8975 In February 2005, DWR filed suit against Powerex in California state court, alleging Powerex had “manipulated the California energy markets through Enron-style gaming and trading strategies.” More specifically, Powerex was aware of and participated in the market manipulation and market gaming that resulted in the California Energy Crisis. The manipulation and gaming activity tended to tighten the supply of electricity in the California energy markets. The tightening of supply was part of a larger plan that allowed marketers, including Powerex, to give the appearance of a shortage of supply in the markets . . . . Alleging various violations of state contract law, the complaint sought a declaration that all these transactions were void, rescission of all transactions, restoration of all money and benefits that unjustly enriched Powerex, and compensatory damages. In response, Powerex removed the case to federal court, citing the Federal Power Act, 16 U.S.C. § 825p, and FSIA, 28 U.S.C. § 1441(d). DWR moved to remand the case back to state court, and Powerex moved to dismiss. The district court denied the motion to remand, finding that DWR’s complaint was artfully plead and that it presented a substantial federal question. Turning to the merits, the court then dismissed the case because the “Plaintiff’s claims require the determination of the fair price of the electricity that was delivered under the contracts,” which placed the action squarely within the Federal Energy Regulatory Commission’s exclusive jurisdiction. DWR responded with an amended complaint requesting only declaratory relief stating that the transactions between the parties were void. No longer seeking rescission, restitu8976 CALIFORNIA DEP’T OF WATER v. POWEREX tion, or damages, DWR moved to remand anew under 28 U.S.C. § 1447(c)4 and 28 U.S.C. § 1367(c). This time, the district court found that the Amended Complaint presented only state law contract issues. The district court also found Powerex’s FSIA argument squarely foreclosed by our decision in California v. NRG Energy Inc., 391 F.3d 1011 (9th Cir. 2004), in which we determined Powerex was not a “foreign state.” Because the Amended Complaint did not present a federal question, the district court had the discretion to decline supplemental jurisdiction. See 28 U.S.C. § 1367(c)(3). Recognizing that all the claims over which it had original jurisdiction had been dismissed, the court remanded the case to the California court because the Eleventh Amendment and the “values of economy, convenience, fairness, and comity” all weighed in favor of dismissing the state law claims as well. See Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 (9th Cir. 1997) (en banc) (citing United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726-27 (1966)). On appeal, Powerex argues that the district court erred by finding that the corporation is not a “foreign state,” and that DWR’s Amended Complaint in fact presents claims that “arise under” the Federal Power Act.