Opinion ID: 186342
Heading Depth: 2
Heading Rank: 3

Heading: Application of the Sunshine Act

Text: 33 On the merits, it is clear that the orders creating the market monitor exemption violate the explicit and sweeping proscription against ex parte communications contained in § 557(d). First, it is obvious that ex parte communications covered by the exemption are subject to § 557(d). The exemption is not limited to status inquiries and therefore does not escape the requirements of § 557(d) on that ground. See 5 U.S.C. § 551(14) (2000). Moreover, FERC does not argue that the exempted communications are outside the ambit of § 557(d) because they consist only of background information about the entire industry that does not directly relate to an agency adjudication. Quite the contrary, in the Initial Order, the Commission made clear that in carrying out their reporting duties, market monitors undertake communications relevant to the merits of Commission proceedings. It said: 34 In these [reporting] efforts, however, market monitors may encounter situations or matters that are also at issue in ongoing contested on-the-record proceedings at the Commission. While they may rightly need to bring such situations or matters promptly to the Commission's attention, or to discuss them with Commission staff, market monitors are currently prohibited from doing that off-the-record under Rule 2201. The reason is, as noted, Rule 2201 prohibits any communications on the merits of any issue in contested proceedings between decisional Commission staff members and any person outside the Commission. 35 Initial Order at 61,090. The Commission went on to explain that, because, in its view, the application of Rule 2201 in these circumstances was counterproductive to the Commission's goals, it was justified in modifying its regulations to treat such communications as exempt communications not subject to disclosure or notice. Id.; see also Br. for Respondent at 28 (conceding that some background discussions as to market conditions may relate to the merits of particular matters). 36 To the extent FERC suggests that the market monitor exemption is saved by its very limited disclosure requirement, this argument fails. The market monitor exemption requires disclosure only if the Commission determines that it relied on the ex parte market monitor communication in reaching a decision. The Sunshine Act, in contrast, requires disclosure, as a corrective measure, whenever an ex parte communication takes place. 5 U.S.C. § 557(d)(1)(C) (2000). 37 FERC also concedes that Commission-approved market monitors are outside the agency. Initial Order at 61,091. And now, before the court, FERC appears to have abandoned its argument that a Commission-approved market monitor's interest in the outcome of a particular proceeding does not make him an `interested person' as that term is used in APA § 706(d). Rehearing Order at 61,524. In its brief to the court, FERC refers only obliquely to this rationale, characterizing the market monitors' duties to stand apart from market participants and serve as the functional equivalent of Commission staff as nothing more than one of several limitations that the Commission imposed on market monitor communications to minimize the prejudice that they could cause in contested proceedings. Br. for Respondent at 29-31. FERC's abandonment of its interested person argument makes sense, because under the wide, inclusive definition of the term approved in PATCO, 685 F.2d at 562, it is clear that market monitors qualify as interested persons under the Sunshine Act. No one can reasonably argue that market monitors, who are charged with ensuring that markets within [their assigned RTOs] do not result in wholesale transactions or operations that are unduly discriminatory or preferential or provide opportunity for the exercise of market power, Br. for Respondent at 5-6, do not have an interest in contested proceedings concerning their RTOs that is greater than the general interest the public as a whole may have. PATCO, 685 F.2d at 562 (quotations and citation omitted). 38 FERC further concedes that the Commission may not be entitled to special deference [from this court] in its construction of the [Sunshine Act]. Br. for Respondent at 23. Nevertheless, the agency inexplicably argues that its market monitor exemption should be assessed under the arbitrary and capricious standard of Motor Vehicle Manufacturer's Ass'n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443 (1983), and asserts that deference is due the exemption because it involves nothing more than FERC's interpretation of its own regulations. Br. for Respondent at 22-23. In other words, FERC argues that it is free to strike its own balance between its perceived need for timely information and the procedural fairness rules mandated by Congress in the Sunshine Act. See id. at 24-37. Accordingly, FERC justifies the market monitor amendment, which it essentially concedes is contrary to the requirements of § 557(d), by asserting that [s]trict adherence to the ex parte rules, without an exemption for market monitoring, would be `counterproductive' when market monitors need to bring market information to the Commission's attention, and would `imped[e] its goal to receive as much timely information as possible from market monitors on the operation of energy markets.' Id. at 26 (quoting Initial Order at 61,090). This entire line of analysis is patently wrong. 39 FERC can cite not a single case in support of its position. Its reliance on Home Box Office, 567 F.2d at 57, in support of its putative right to strike a balance, Br. for Respondent at 24, and for the proposition that informal contact between agencies and the public ... are completely appropriate so long as they do not frustrate judicial review or raise serious questions of fairness, id. at 26-27, is completely misplaced. Home Box Office was based on the due process clause, not the Sunshine Act. As the court in Home Box Office noted, the Sunshine Act by its terms does not apply here. Its ex parte contact provisions are couched as an amendment to 5 U.S.C. § 557, and as such the rules do not apply to rulemaking under § 4 of the Administrative Procedure Act, 5 U.S.C. § 553. 567 F.2d at 56 n. 125. FERC's reliance on Texas Office of Public Utility Counsel v. FCC, 265 F.3d 313, 327 (5th Cir.2001), and Ass'n of National Advertisers, Inc. v. FTC, 627 F.2d 1151, 1169 (D.C.Cir.1979), see Br. for Respondent at 27 n. 12, is similarly misplaced as the cited dicta from those cases also pertains to ex parte contacts in informal or hybrid rulemaking proceedings that are not subject to the requirements of § 557(d). 40 The Commission's citation to Louisiana Ass'n of Independent Producers and Royalty Owners v. FERC, 958 F.2d 1101, 1112, 1113 (D.C.Cir.1992), is also ill founded. As FERC correctly notes, that case supports the proposition that [a]gency officials may meet with members of the industry ... to maintain the agency's knowledge of the industry it regulates. Br. for Respondent at 27 (quotations and citation omitted); see also id. at 31, 32. However, FERC fails to recognize that the court there explicitly found that the ex parte communications at issue did not violate § 557(d) because they were not relevant to the merits of the proceedings. See La. Ass'n of Indep. Producers and Royalty Owners, 958 F.2d at 1111-12 (citing PATCO, 685 F.2d at 563 (D.C.Cir.1982)). Moreover, as the court noted, acting upon the chance that the industry representatives were attempting subtly and indirectly to influence the outcome of this proceeding, the Commission wisely placed summaries of these meetings in [the] record. Id. at 1112. This apprised the petitioners of any argument that may have been presented privately, thereby maintaining the integrity of the process and curing any possible prejudice that the contacts may have caused. Id. 41 As EPSA argues, when an agency acts in violation of an express congressional mandate, its motives are irrelevant. Br. for Petitioner at 14. If, as is the case here, a statute of general applicability directs that certain procedures must be followed, an agency cannot modify or balance away what Congress has required of it. The Commission is powerless to override Congress' directive banning ex parte communications relevant to pending on-the-record proceedings between decisional staff and interested persons outside the agency. Consequently, FERC's orders modifying its ex parte regulations must be reversed and vacated.