United States Commodity Futures Trading Commission v. NRG Energy, Inc.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-2570
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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. *
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Submitted: May 15, 2006
Filed: August 4, 2006
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Before MURPHY, JOHN R. GIBSON, and BENTON, Circuit Judges.
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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
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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