Opinion ID: 2735161
Heading Depth: 2
Heading Rank: 2

Heading: BPA’s decision

Text: Although BPA has no general constitutional or statutory duty to seek a refund any time it makes an unlawful payment, an individual decision not to pursue such a refund could be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). which its agents have wrongfully, erroneously, or illegally paid,” 303 U.S. at 415 (emphasis added). ICNU V. BPA 27
With respect to the aluminum DSI contracts, Petitioners maintain that BPA’s ROD had several of these faults, because: the damages waiver is not enforceable; BPA does have available quasi-contractual or common law avenues of recovery against the aluminum DSIs, such as an unjust enrichment suit; and it is not a sound business decision to forgo those avenues entirely because of speculation that its counterparties might assert defenses. After reviewing these challenges, we conclude that we must defer to BPA’s reasonable interpretation of the 2007 Block Contracts as including a severable, enforceable damages waiver, and so do not disturb BPA’s decision as to refunds of the 2007 Block Contracts subsidy payments. We grant the petition for review, however, as to the Alcoa Amendment, as we conclude that the ROD’s reasons for not pursuing refunds for the subsidies proved by that Amendment are, as they stand, so insufficiently grounded in the record as to be “arbitrary, capricious, [or] an abuse of discretion.”
Each of the 2007 Block Contracts included a damages waiver providing that, “[i]n the event the Ninth Circuit Court of Appeals . . . issues a final order that declares or renders this Agreement void or otherwise unenforceable, no Party shall be entitled to any damages or restitution of any nature, in law or equity, from any other Party, and each Party hereby waives any right to seek such damages.” Each Contract also included a severability clause providing that “[i]f any term of this Agreement is found to be invalid by a court of competent jurisdiction,” “[a]ll other terms shall remain in force unless 28 ICNU V. BPA that term is determined not to be severable from all other provisions of this Agreement by such court.” BPA’s conclusion that the damages waivers are enforceable was consistent with the statute and otherwise within BPA’s authority. To begin, the Alcoa court enforced a very similar mutual damage waiver in another Alcoa-BPA contract. Its reasons for doing so apply equally here. Contrary to petitioners’ contention that no entity operating according to “sound business principles” would agree to a sweeping waiver, Alcoa interpreted such a mutual waiver as a valid exercise of BPA’s general claim-settling authority. 698 F.3d at 791–92. Noting that such a waiver equally protects BPA against claims brought by the customer, Alcoa concluded that “[i]t is not our place to second-guess the agency’s considered judgment regarding the balance of risks embodied in a damage waiver or similar release or settlement provision.” Id. Moreover, the waiver provision is severable from the contracts’ void subsidy provisions. BPA received consideration in exchange for waiving its rights to seek damages from the aluminum DSIs — namely, a corresponding waiver providing that the contracting parties could not recover damages from BPA. “Legal portions of contracts are severable from illegal portions where there is separate legal consideration attributable to the severed portion of the agreement.” Consul Ltd. v. Solide Enters., Inc., 802 F.2d 1143, 1148 (9th Cir. 1986). Finally, as such a waiver is a valid exercise of BPA’s power to compromise or settle claims and could likewise protect BPA’s interests, it cannot be contrary to public policy as allowing an unlawful subsidy. ICNU V. BPA 29 The dissent’s assertion that this determination is controlled by PGE, and not Alcoa, is incorrect. PGE did not concern provisions in BPA power purchase contracts mutually waiving damages in the event the agreement is invalidated. Alcoa did. PGE invalidated a series of settlement agreements BPA had entered into with IOUs that participated in its Residential Exchange Program (“REP” or “Exchange Program”). See PGE, 501 F.3d at 1025–37; Golden Nw. Aluminum, Inc. v. Bonneville Power Admin., 501 F.3d 1037, 1047–48 (9th Cir. 2007). The Exchange Program “essentially acts as a cash rebate to the IOUs where the IOUs’ power costs exceed those of BPA,” but requires that the Exchange Program’s costs be covered only by supplemental rate charges assessed on nonpreference customers, not by passing costs on to preference customers. See PGE, 501 F.3d at 1015–16. BPA and certain IOUs entered into “settlement” agreements inconsistent with this pass-through limitation, maintaining that the limitation did not apply because the costs were “settlement costs,” pursuant to BPA’s general authority to make and settle contracts, rather than Exchange Program costs. We disapproved this approach, holding that BPA could not circumvent the statutory restrictions on power exchanges “by calling its actions . . . [a] ‘settlement’” when those actions were “inextricably intertwined” with BPA’s Exchange Program authority. Id. at 1032. In short, the exercise of settlement authority at issue in PGE concerned the whole of a comprehensive agreement, in which BPA sought directly to avoid the statutory restrictions placed on it. PGE did not concern a severable agreement provision allocating among the contracting parties the purely retroactive liability risks that could arise in the event the 30 ICNU V. BPA agreement is otherwise declared invalid — a second-level pact, so to speak, covering the past, not the future, and governing relief in the event the agreement is invalidated, rather than the agreement itself. In contrast, Alcoa considered precisely that sort of purely retroactive, partial, and mutual waiver: As here, the waiver at issue in Alcoa was a bilateral waiver of retroactive damages; it gave up both parties’ rights to seek compensation in the event that a portion of the contract in which it was contained was invalidated in the future. 698 F.3d at 791. In both Alcoa and here, the larger agreement of which the waiver was a part was risky for both parties that agreed to the provision, not just for BPA. Here, for example, the aluminum DSIs gave up their ability to sue BPA to recover any costs associated with purchasing power through other means if the contracts were invalidated, costs that could have been, and that the DSIs contend were, extensive. The fact that the damages waivers significantly benefitted BPA is important. Upholding the validity of the waivers here does not preclude a finding in a future case that a damages waiver is invalid, if the waiver at issue in that case does not benefit the agency and is instead designed principally to prevent an unlawful subsidy from being recouped. Despite the large differences between the waiver issue here and the settlement authority question in PGE, and despite the close similarity between the waiver approved in Alcoa and the one at issue here, the dissent dismisses Alcoa as the controlling precedent and relies on PGE instead. Principally, the dissent relies for this odd choice on the understanding that Alcoa upheld the other portions of the agreement in which the waiver appeared, and so was not ICNU V. BPA 31 approving a damages waiver linked to statutorily unlawful contract provisions. The dissent’s account mischaracterizes Alcoa. As one would expect, the damages waiver in Alcoa applied not to valid contractual provisions, but only when “a court renders any part of the agreement void or unenforceable”— in other words, unlawful. 698 F.3d at 791. And, after holding the damages waiver lawful, Alcoa went on to decline to decide whether the “Second Period” portion of the Alcoa contract there at issue was valid, as the question was not yet ripe. Id. at 793–94. This sequence necessarily left open the possibility that the Second Period agreement would later be voided — and yet, the damages waiver provision that would be contained in that agreement had already been declared valid. The panel deciding Alcoa was entirely cognizant of this possibility. Had the Second Period agreement been similar to, and valid for the same reason as, the agreement covering the initial period, there would be no reason to put off deciding the legality of the Second Period agreement. And the dissenting opinion in Alcoa specifically recognized that the waiver provision was valid and would apply if and when the Second Period agreement is challenged. Alcoa, 698 F.3d at 799, 806–807 & n.7 (Bea, J., dissenting). The dissent’s concern was with the majority’s decision to forego addressing the Second Period dispute before BPA suffered a monetary loss was that, because of the damages waiver, those losses could not be recovered. Id. Alcoa therefore decided essentially the same issue that arises here regarding the enforceability of a bilateral damages waiver in a BPA power agreement. PGE covers the predecessor issue — was the power agreement there in fact 32 ICNU V. BPA void? Under such circumstances, we must follow Alcoa and uphold the damages waiver. As BPA properly determined the Block Contracts waiver provisions were enforceable, its decision not to pursue refunds under those Contracts was likewise proper.
As the Alcoa Amendment does not contain a damage waiver, BPA is not contractually barred from seeking recovery of the subsidies invalidated in PNGC II. BPA nonetheless declined to seek recoupment of subsidies it provided pursuant to the Amendment, viewing the chances of succeeding in doing so as slight, and outweighed by the potential recovery costs. BPA’s rationales for this conclusion boiled down to two: (1) Alcoa may have defenses to any equitable or quasicontract claim, including perhaps an estoppel defense; and (2) Alcoa may be able to defeat a claim for unjust enrichment, and succeed on a counterclaim against BPA, by showing that, far from being enriched, it obtained less in monetary value than it was entitled to under the governing statutes. We hold both rationales “so implausible that [they] could not be ascribed to a difference in view or the product of agency expertise.” Lands Council, 537 F.3d at 987. As a result, we cannot approve the current ROD’s conclusion as to recovery of the Alcoa Amendment subsidies. As to the ROD’s first rationale, the evaluation of the merits of any possible defenses Alcoa might assert was far too generous. In particular, BPA’s prediction that “Alcoa would have a reasonably good chance of . . . mounting a ICNU V. BPA 33 viable estoppel defense against any claim by BPA,” is particularly dubious. It is unlikely that the DSIs could successfully estop the government from recovering a refund if, in fact, a court determined that they had received unlawful overpayments. As Richmond emphasized, although the Supreme Court has never categorically foreclosed estoppel against the government with regard to monetary payments, it has “reversed every finding of estoppel that [it has] reviewed.” 496 U.S. at 422. Ignoring this history, BPA looked only at this court’s estoppel cases, concluding “the Ninth Circuit is more receptive to claims of estoppel against the Government than some other circuits.” Whether that vague comparison is correct or not is beside the point. It is of no help in assessing the actual risk of a successful estoppel claim in this case. What is relevant is our actual standard: the party claiming estoppel must show both (1) “affirmative misconduct” on the part of the government and (2) that “the government’s wrongful act will cause a serious injustice, and the public’s interest will not suffer undue damage.” United States v. Hatcher, 922 F.2d 1402, 1409, 1411 n.12 (9th Cir. 1991) (internal quotation marks omitted). Under this standard, we have very occasionally applied estoppel against the government in immigration cases. See, e.g., Salgado-Diaz v. Gonzales, 395 F.3d 1158, 1165–66 (9th Cir. 2005). But we know of no Ninth Circuit case estopping the government from recovering an erroneous monetary payment, nor have the parties identified one. Cf. Heckler v. Cnty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51 (1984). The ROD also reasoned that BPA may not be able successfully to pursue an unjust enrichment claim against 34 ICNU V. BPA Alcoa for several reasons. One concern expressed in the ROD was that a claim for unjust enrichment cannot lie where the relationship between the parties is governed by a valid express contract concerning the particular issue. See Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 408–09 (9th Cir. 1992). But by the time the ROD here challenged issued, this court had already invalidated the relevant portion of the Alcoa Amendment. See PNGC II, 596 F.3d at 1085–86. That being so, no valid contractual provision stood in the way of an unjust enrichment claim. The ROD’s second rationale — that Alcoa may be able to show that it was not enriched, but rather illegally disadvantaged, by the subsidies in the Alcoa Amendment — has more support in the record. The record does establish, at least, that the amount of any damages BPA could actually recover from the aluminum DSIs is uncertain and disputed. Moreover, if BPA sues, Alcoa could well counterclaim, arguing that it actually lost money through the partially invalidated contracts. Had BPA not insisted on a monetized contract, Alcoa maintains, BPA could have (and, according to BPA, likely would have) sold Alcoa physical power instead at the IP rate. The ROD noted Alcoa’s contention that, as matters turned out, Alcoa had to pay a significantly higher rate during the Alcoa Amendment period than the IP rate because of rising market rates.8 The ROD also acknowledged that Alcoa had 8 More specifically, Alcoa’s explanation in its briefs to this court of its position begins by pointing out that, if BPA sells to DSIs, it must offer them the IP rate, rather than a market rate. See PNGC I, 580 F.3d 812–13; PNGC II, 596 F.3d at 1073. Alcoa then represents that, as demanded by BPA and required under the 2007 Block Contracts and Alcoa Amendment, ICNU V. BPA 35 argued previously that it “is potentially entitled to recoup those additional payments.” Alcoa’s brief to this court elaborates on its overpayment argument, maintaining that, far from receiving overpayments under the 2007 Block Contracts and the Alcoa Amendment, the company ended up paying “$218 million more for power than it would have” had BPA sold it power directly, including $26.1 million during the Amendment period. One major flaw in Alcoa’s argument, and BPA’s acceptance of it as sufficiently meritorious to constitute a substantial risk in any litigation to recover, is that BPA could — under our PNGC decisions — have refused to sell Alcoa power at all, leaving Alcoa to buy power at full market rates. But Alcoa’s position is still not entirely implausible. Given BPA’s practices regarding Alcoa, it might be hard for BPA to establish as a factual matter that it would have refused to sell Alcoa power at the IP rate. And Alcoa’s persistence as to its contention suggests that it would take an equally aggressive litigation position in any collection action BPA might initiate. In that light, as BPA argued, choosing to pursue recovery it entered into forward power purchase contracts “at a time when power prices were relatively high.” The rates it obtained were well above what it could afford and, even after applying the credits that it received from BPA under the 2007 Block Contracts and Amendment, were significantly higher than the IP rate. The third link in Alcoa’s net loss argument is that, assuming that BPA would have offered to sell to Alcoa at the IP rate in the absence of the Amendment (as it has said it would have), Alcoa paid more, rather than less, than had it not entered into the Amendment. Further, when the contracts were invalidated, Alcoa had to resell the power back into the market to “unwind” its purchases, and because the market had declined, it sold this power at a rate significantly lower than what it had paid. 36 ICNU V. BPA from Alcoa “would expose BPA to some risk of a judgment to Alcoa under its theory of underpayment.” But the ROD did not objectively evaluate the degree of this risk so much as capitulate to Alcoa’s threats. As noted, the above explanation of the possible counterclaim comes largely from Alcoa’s briefs and comments, not the ROD. The ROD vaguely implies that the costs and risks of litigation would outweigh its possible benefits, citing statutory and regulatory provisions requiring agencies to weigh costs of collection actions against benefits. At the same time, the ROD acknowledged, in a conclusory fashion, that “Alcoa’s purported claim that it has been underpaid by almost $200 million is dubious,” yet nowhere ventured any alternative estimate of a likely litigation outcome, or of the litigation costs likely to be incurred in obtaining that outcome. In fact, as petitioners point out, BPA never attempted “to calculate the actual amounts paid” to the aluminum DSIs, and so was in no position to determine whether there were or were not net overpayments to Alcoa. Those gaps are reason enough for skepticism about the ROD’s conclusion that, whatever those amounts are, they are not worth trying to recover. In addition, the final ROD evaluated only possible avenues for litigation, not other ways BPA might seek to recover the subsidies, such as offsets from future sales contracts with Alcoa. We may not uphold an agency decision that “entirely failed to consider an important aspect of the problem.” Lands Council, 537 F.3d at 987. BPA’s assumption that Alcoa might succeed in showing that it was not enriched, and could even recover on an affirmative counterclaim, suffers from such a lapse. We therefore remand to BPA to provide a ICNU V. BPA 37 defensible estimate of the amount of the subsidy it provided to Alcoa under the Alcoa Amendment prior to its invalidation; to provide some analysis of whether Alcoa’s claim of net underpayment has any fair chance of success; to analyze alternative plans for recovery of any overpayment to Alcoa; and either to adopt one of those plans or to explain why, with respect to each of them, the costs and downside risks justify abandonment of the opportunity to recover any overpayment.
In contrast to its treatment of the Alcoa Amendment, BPA’s decision not to seek repayment from Port Townsend was in no respect unreasonable. Whether and how much BPA could recover from Port Townsend is entirely uncertain, both legally and practically. And, given the small amount of power sold under the Port Townsend Contract, the amount of any recovery would necessarily be quite small, making it unlikely that the costs of litigation would be justified. First, unlike the aluminum DSI contracts, the Port Townsend Contract involved a sale of power, not a subsidy, though at an unlawfully low rate. So it is unclear exactly what amount, if any, Port Townsend would owe BPA. Perhaps BPA could argue that Port Townsend owes it the difference between what it paid and what the same amount of power would have cost at the higher IP rate. But Port Townsend could plausibly counter that, had the rate been higher, it would have purchased less power, or even no power at all, given its struggles to stay open in the face of large financial losses and its reliance on the power prices provided by BPA to do so. 38 ICNU V. BPA A second, supervening problem with recovering under the Port Townsend Contract, BPA concluded, is that, unlike the aluminum DSI contracts, this arrangement was structured as two separate bilateral contracts: one between BPA and Clallam, and one between Clallam and Port Townsend. The ROD observed that BPA had no direct contract with Port Townsend, and that, although it could try to back-bill Clallam, “it is far from clear . . . that Port Townsend would voluntarily remit [the back-billed] amount to Clallam” in return. Third, the ROD noted that Port Townsend could argue that any claims against it were discharged in Port Townsend’s bankruptcy. BPA expressed skepticism about this assessment, noting that Port Townsend’s bankruptcy plan was approved in January 2007, while PNGC I was not issued until December 2008. Thus, BPA could argue that its claims against Port Townsend were not yet within “fair contemplation” at the time of the bankruptcy proceedings, and therefore were not discharged. But even if not a legal bar to recovery, Port Townsend’s bankruptcy supports the overall reasonableness of BPA’s decision, as it casts doubt on Port Townsend’s practical ability to satisfy any judgment that BPA might secure. BPA’s justifications for not pursuing recovery under the Port Townsend Contract are perhaps not as well substantiated as they could be. Nevertheless, BPA’s decision not to pursue recovery from Port Townsend does have a sufficient reasonable basis, to which this court must defer. See PNGC II, 596 F.3d at 1085. ICNU V. BPA 39