     11-2265-cv
     Simon v. Keyspan Corporation
 1

 2                          UNITED STATES COURT OF APPEALS

 3                                  FOR THE SECOND CIRCUIT

 4

 5                                     August Term 2011

 6      (Argued: February 28, 2012                Decided: September 20, 2012)

 7                                  Docket No. 11-2265-cv

 8   -----------------------------------------------------x
 9
10   CHARLES SIMON, on behalf of himself and all others
11   similarly situated,
12
13                Plaintiff-Appellant,
14
15                             -- v. --
16
17   KEYSPAN CORPORATION, MORGAN STANLEY CAPITAL GROUP INC.,
18
19                Defendants-Appellees.
20
21
22   -----------------------------------------------------x
23
24   B e f o r e :       WALKER, LYNCH, and DRONEY, Circuit Judges.
25         Plaintiff-appellant Charles Simon appeals from an order of

26   the United States District Court for the Southern District of New

27   York (Shira A. Scheindlin, Judge), dismissing his federal and

28   state antitrust claims against defendants-appellees KeySpan

29   Corporation and Morgan Stanley Capital Group Inc.            We agree with

30   the district court that plaintiff-appellant lacks standing to

31   pursue his federal claims because he was an indirect purchaser

                                              1
 1   and that his claims are otherwise barred by the filed rate

 2   doctrine.   AFFIRMED.

 3                                 DANIEL J. SPONSELLER, Law Office of
 4                                 Daniel J. Sponseller, Sewickley,
 5                                 PA, (Karin E. Fisch, Judith L.
 6                                 Spanier, Natalie S. Marcus, Abbey
 7                                 Spanier Rodd & Abrams, LLP, New
 8                                 York, NY, on the brief) for
 9                                 Plaintiff-Appellant.
10
11                                 John H. Lyons, Tara S. Emory,
12                                 Skadden, Arps, Slate, Meagher &
13                                 Flom LLP, Washington, DC for
14                                 Defendant-Appellee KeySpan
15                                 Corporation.
16
17                                 JON R. ROELLKE, Bingham McCutchen
18                                 LLP, Washington, DC (Anthony R. Van
19                                 Vuren, Bingham McCutchen LLP,
20                                 Washington, DC, Jeffrey Q. Smith,
21                                 Laila Abou-Rahme, Bingham McCutchen
22                                 LLP, New York, NY, on the brief)
23                                 for Defendant-Appellee Morgan
24                                 Stanley Capital Group Inc.
25
26                                 J. DOUGLAS RICHARDS, Cohen
27                                 Milstein, New York, NY (Benjamin D.
28                                 Brown, Cohen Milstein, New York,
29                                 NY; Richard M. Brunell, American
30                                 Antitrust Institute, Washington,
31                                 DC; Christopher L. Sagers,
32                                 Cleveland-Marshall College of Law,
33                                 Cleveland State University,
34                                 Cleveland, OH) for amicus curiae
35                                 American Antitrust Institute.
36
37   JOHN M. WALKER, JR., Circuit Judge:

38        This appeal requires us to consider whether plaintiff-

39   appellant Charles Simon (“Simon”), a retail consumer of

40   electricity in New York City, can maintain an antitrust action

41   against defendant-appellee KeySpan Corporation (“KeySpan”), a
                                     2
 1   producer of electricity in New York that allegedly colluded with

 2   one of its rivals to increase installed capacity prices, and

 3   defendant-appellee Morgan Stanley Capital Group Inc. (“Morgan

 4   Stanley”), a financial firm that allegedly facilitated KeySpan’s

 5   anticompetitive conduct.   The United States District Court for

 6   the Southern District of New York (Shira A. Scheindlin, Judge)

 7   dismissed plaintiff-appellant’s claims principally on the grounds

 8   that he lacked antitrust standing and that his claims were barred

 9   by the filed rate doctrine.1   We agree and conclude that

10   plaintiff-appellant, as an indirect purchaser, lacks standing to

11   bring his federal antitrust claims.    We further hold that the

12   filed rate doctrine bars plaintiff-appellant’s state and federal

13   claims even though the allegedly supracompetitive rate was the

14   product of a market-based auction.

15                               BACKGROUND

16        In reviewing a motion to dismiss, we accept all factual

17   claims in the complaint as true and draw all reasonable

18   inferences in the plaintiff’s favor.     Famous Horse Inc. v. 5th

19   Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010).     Where

20   necessary, we take judicial notice of the regulatory structure

21   governing the New York City electricity market.

     1
       The district court also concluded that Simon’s state law claims
     were preempted and insufficiently pled. Because we hold that the
     state law claims are barred by the filed rate doctrine, we need
     not consider whether the district court was correct on these
     points.
                                     3
 1   I. The New York City Electricity Market

 2        The market for electricity in New York City is overseen by

 3   the New York Independent System Operator (“NYISO”).2   On the

 4   wholesale side, the market is based on the producers’ “installed

 5   capacity,” i.e. the amount of electricity that the producer can

 6   supply at a given time.   Retail sellers of electricity must

 7   purchase enough installed capacity from producers to meet their

 8   expected peak demand plus a share of reserve capacity.   The

 9   system is designed to ensure that the amount of electricity

10   eventually sold to consumers is consistent with the total

11   production capacity of the producers.

12        In order to determine the price at which producers can sell

13   their capacity, NYISO has established an auction system that

14   results in a market-based rate (“MBR”).   Producers submit bids

15   indicating the amount of capacity they can produce and the lowest

16   per unit price at which they are willing to sell.   The bids are

17   then “stacked” from lowest to highest price until the total

18   demand for capacity has been met.   The point at which demand is

19   met determines the market price for installed capacity and every

     2
       NYISO is an Independent System Operator (“ISO”) created to
     administer the retail electricity market in New York. See
     generally Promoting Wholesale Competition Through Open Access
     Non-Discriminatory Transmission Services by Public Utilities;
     Recovery of Stranded Costs by Public Utilities and Transmitting
     Utilities, 61 Fed. Reg. 21,540 (Apr. 24, 1996) (codified at 18
     C.F.R. pts. 35 & 385); see also Cal. Indep. Sys. Operator Corp.
     v. FERC, 372 F.3d 395, 397 (D.C. Cir. 2004) (describing FERC’s
     efforts to encourage public utilities to create ISOs).
                                     4
 1   producer stacked below that price point can sell its full

 2   capacity for the market price.   The producer whose bid set the

 3   price can sell as much of its capacity as is necessary to meet

 4   demand.   The rest remains unsold.   Any producer that bid higher

 5   than the market price cannot sell its capacity.

 6        The New York City capacity market is highly concentrated.

 7   Three firms – defendant-appellee KeySpan, NRG Energy, Inc.

 8   (“NRG”), and Astoria Generating Company (“Astoria”) – control a

 9   substantial portion of the total generating capacity.3   The total

10   demand for installed capacity cannot be met without at least some

11   of the capacity from each of these three firms.   Accordingly,

12   NYISO has imposed a price cap on these firms’ bids and barred

13   them from selling electricity outside of the auction process.

14   KeySpan’s bid cap is the highest of the three.

15

16   II. The Anticompetitive Agreement

17        As a result of the prevailing market conditions from June

18   2003 to December 2005, most of KeySpan’s capacity was necessary

19   to satisfy total demand.   KeySpan therefore routinely bid at its

20   price cap and set the market price at that level.   However,

     3
       These firms were created in 1998 when Consolidated Edison
     Company of New York, Inc. (“Con Ed”) divested most of its
     generating capacity. The three firms are known collectively as
     Divested Generation Owners (“DGOs”). See Order Conditionally
     Approving Proposal, 122 FERC ¶ 61,211, ¶ 3 (2008) (“2008 Market
     Power Modification Order”).

                                      5
 1   because other producers would be bringing new plants online,

 2   KeySpan anticipated that in 2006, supply would increase, leaving

 3   KeySpan to either bid below its cap or risk selling only a small

 4   amount of its capacity.   To avoid these unappealing options,

 5   KeySpan indirectly entered into an agreement with Astoria (“the

 6   agreement”).   Using Morgan Stanley as an intermediary, KeySpan de

 7   facto agreed to pay Astoria a fixed income in exchange for any

 8   potential profits (after a certain point) from Astoria’s

 9   generating capacity.4

10        The agreement consisted of two separate deals: the “KeySpan

11   Swap” and the “Astoria Hedge.”   The KeySpan Swap, executed on

12   January 18, 2006, provided that if the market price after auction

13   were set above $7.57 per KW-month (“the fixed price”), Morgan

14   Stanley would pay KeySpan the difference between the market price

15   and the fixed price multiplied by 1800 megawatts (“MW”).   If the

16   market price were lower than the fixed price, KeySpan would pay

17   the difference (times 1800 MW) to Morgan Stanley.   The “Astoria

18   Hedge,” executed on January 11, 2006, provided that if the market

19   price were higher than $7.07 per KW-month, Astoria would pay

20   Morgan Stanley the difference times 1800 MW.   If the price were

21   below $7.07, Morgan Stanley would pay the difference (times 1800

22   MW) to Astoria.   The net effect of the agreement was that Astoria

     4
       KeySpan had considered acquiring Astoria’s physical generating
     assets, but did not pursue this approach due to antitrust
     concerns.
                                     6
 1   was assured of always receiving exactly $7.07 per KW-month for

 2   its capacity while KeySpan received any profits (if the market

 3   price were above $7.57) and subsidized any losses (if the market

 4   price were below $7.07) from the sale of Astoria’s capacity.        The

 5   combination of the KeySpan Swap and the Astoria Hedge enabled

 6   Morgan Stanley to receive a fixed rate of fifty cents per KW-

 7   month in exchange for facilitating the deal.

 8        As a result of the agreement, it remained lucrative for

 9   KeySpan to continue to bid as high as its cap permitted and set

10   the market price at that level.    If it then sold only a small

11   amount of its own capacity, it would still receive substantial

12   profits from Astoria’s capacity.       Since either all of KeySpan’s

13   or all of Astoria’s capacity would be required by the market,

14   KeySpan stood to make a substantial profit by setting the price

15   as high as possible, i.e., at its cap.      In the absence of the

16   agreement, KeySpan would likely have had to bid competitively,

17   which might have lowered the market price of capacity.      This was

18   borne out by experience: KeySpan continued to bid at its cap,

19   setting the market price and leaving a significant portion of its

20   capacity unsold.   Thus the market price of capacity did not drop

21   despite an industry-wide increase in generating capacity.

22




                                        7
 1   III. Investigations of the Agreement

 2           In May 2007, the United States Department of Justice (“DOJ”)

 3   began an investigation into the KeySpan agreement based on its

 4   anticompetitive effect.    In February 2010, it filed a civil

 5   complaint alleging that KeySpan had unlawfully restrained trade.

 6   KeySpan entered into a stipulation with the DOJ to settle the

 7   case.    Pursuant to a consent decree, KeySpan paid the United

 8   States $12 million and the case was resolved “without trial or

 9   adjudication of any issue of fact or law.”5

10           FERC also conducted an investigation of the agreement.    Its

11   enforcement office issued a detailed report concluding that

12   KeySpan had not violated FERC’s regulations prohibiting market

13   manipulation.    The report noted that

14           Market participants in the in-city ICAP [installed
15           capacity] market have always known that KeySpan,
16           pursuant to the applicable market mitigation rules, was
17           permitted to offer at its cap and set the market-
18           clearing price. In addition, as noted, KeySpan’s
19           offering behavior was consistent with market rules and
20           the Commission’s announced expectations that DGOs, such
21           as KeySpan, would (in the absence of sufficient
22           capacity additions) offer their capacity at their caps.
23
24   FERC Enforcement Staff Report, Feb. 28, 2008, at 17; Joint

25   Appendix (“J.A.”) 89.    FERC agreed with the enforcement staff’s


     5
       The United States also recently settled a civil suit with
     Morgan Stanley arising from these same facts. See United States
     v. Morgan Stanley, --- F. Supp. 2d ---, 2012 WL 3194969 (S.D.N.Y.
     Aug. 7, 2012). There, the consent decree required Morgan Stanley
     to disgorge to the United States Treasury $4.8 million of the net
     revenues that it had earned from the agreement. Id. at *2-*3.
                                     8
 1   report and noted that it had expected KeySpan’s cap to set the

 2   market price.

 3

 4   IV. The Complaint

 5        Plaintiff-appellant Simon purchased electricity as a retail

 6   customer from Con Ed between 2006 and 2009.    Con Ed in turn

 7   purchased electricity in the form of installed capacity through

 8   the previously described New York City auction process.      On July

 9   16, 2010, Simon filed this complaint in the district court

10   alleging that the defendant-appellees’ conduct had caused him to

11   be unlawfully overcharged for electricity.    He sought to

12   represent a class of customers who had purchased electricity from

13   Con Ed between 2006 and 2009.   The complaint claimed violations

14   of federal antitrust law as well as New York law.

15        On March 22, 2011, the district court dismissed all of

16   Simon’s federal and state claims with prejudice.      Simon v.

17   KeySpan Corp., 785 F. Supp. 2d 120 (S.D.N.Y. 2011).      The district

18   court concluded that Simon lacked standing to bring his federal

19   claims because he was an indirect purchaser.   Id. at 134-37.     It

20   further found that all of his claims were barred by the filed

21   rate doctrine, which precludes legal challenges to rates set or

22   approved by federal agencies, because the rate he sought to

23   challenge was authorized by FERC.    Id. at 138-39.    The district

24   court also held that Simon’s state law claims were preempted and
                                      9
 1   denied leave to amend on the basis of futility.      Id. at 139-41.

 2   On May 27, 2011, it denied Simon’s motion for reconsideration.

 3   Simon v. KeySpan Corp., No. 10 Civ. 5437 (SAS), 2011 WL 2135075

 4   (S.D.N.Y. May 27, 2011).     It reiterated its holding that Simon’s

 5   claims were barred by the filed rate doctrine even though it

 6   acknowledged that those rates were set at a market-based auction

 7   rather than filed directly with FERC.      See generally id.   Simon

 8   appeals.

 9

10                                 DISCUSSION

11        We review a district court’s decision to grant a motion to

12   dismiss under Rule 12(b)(6) de novo, accepting all factual claims

13   in the complaint as true and drawing all reasonable inferences in

14   the plaintiff’s favor.   Famous Horse Inc., 624 F.3d at 108.     “To

15   survive a motion to dismiss, a complaint must contain sufficient

16   factual matter, accepted as true, to ‘state a claim for relief

17   that is plausible on its face.’”       Ashcroft v. Iqbal, 556 U.S.

18   662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.

19   544, 570 (2007)).   “A claim has facial plausibility when the

20   plaintiff pleads factual content that allows the court to draw

21   the reasonable inference that the defendant is liable for the

22   misconduct alleged.”   Id.    We hold that Simon’s complaint fails

23   to state a plausible antitrust claim both because he lacks



                                       10
 1   federal antitrust standing and because all of his claims are

 2   barred by the filed rate doctrine.

 3

 4   I. Antitrust Standing

 5        Simon’s federal claims are barred because he was an indirect

 6   purchaser and therefore lacks standing to sue under section 4 of

 7   the Clayton Act, 15 U.S.C. §§ 12, et seq.6   Generally, only

 8   direct purchasers have standing to bring civil antitrust claims.

 9   See Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977); Hanover

10   Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968).     This

11   rule has two rationales.   First, defendants may otherwise face

12   multiple liability.   Ill. Brick, 431 U.S. at 730.   Second, there

13   are too many “uncertainties and difficulties in analyzing price

14   and out-put decisions in the real economic world rather than an

15   economist’s hypothetical model.”   Id. at 731-32 (internal

16   quotation marks omitted); see also id. at 741-44.    In other

17   words, it is nearly impossible for a court to determine which

18   portion of an overcharge is actually borne by the direct

19   purchaser and which portion is borne by a subsequent indirect

20   purchaser.   The Supreme Court has therefore established a general



     6
       We need not determine whether Simon qualified for antitrust
     standing under New York law, see generally Ho v. Visa U.S.A.
     Inc., 787 N.Y.S.2d 677 (Table) (N.Y. Sup. Ct. 2004), because we
     conclude that his state claims are barred by the filed rate
     doctrine.
                                     11
 1   rule that the direct purchaser is the only appropriate antitrust

 2   plaintiff.

 3         An indirect purchaser may have standing, however, if it had

 4   a pre-existing cost-plus contract with the direct purchaser,

 5   meaning that the indirect purchaser has agreed in advance to

 6   purchase a fixed quantity, paying the direct purchaser’s costs

 7   plus a predetermined additional fee.   Id. at 736.

 8         In such a situation, the purchaser is insulated from
 9         any decrease in its sales as a result of attempting to
10         pass on the overcharge, because its customer is
11         committed to buying a fixed quantity regardless of
12         price. The effect of the overcharge is essentially
13         determined in advance, without reference to the
14         interaction of supply and demand that complicates the
15         determination in the general case.
16
17   Id.   In this type of situation, there is no difficulty

18   apportioning the overcharge because the indirect purchaser paid

19   the direct purchaser’s entire cost.    There is no chance that the

20   indirect purchaser decreased its demand because it had previously

21   agreed to purchase a fixed quantity.   Finally, there is no risk

22   of duplicative liability; the defendant would have a valid pass-

23   on defense against the direct purchaser because the latter

24   suffered no injury.   See id. at 735-36.

25         The cost-plus contract exception to the indirect purchaser

26   bar is a narrow one that is only appropriate when the contract

27   has removed all doubts about who bore the antitrust injury.    For

28   the exception to apply, the contract quantity must be determined

                                     12
 1   prior to the overcharge to avoid uncertainty about “what effect a

 2   change in a company’s price will have on its total sales.”

 3   Hanover Shoe, 392 U.S. at 493.   A direct purchaser that passes on

 4   all of its costs may still suffer an antitrust injury if passing

 5   on increased costs decreased its sales and therefore its profits.

 6   Additionally, there must be no possibility that the direct

 7   purchaser would have “raised his prices absent the overcharge.”

 8   Id.

 9         Simon contends that he qualifies for the cost-plus contract

10   exception because Con Ed passed on 100% of its installed capacity

11   costs to its consumers.   The complaint alleges:

12         Each month from at least May 2006 through February
13         2008, Con Ed passed through 100% of Con Ed’s costs for
14         the purchase of installed capacity in the NYC Capacity
15         Market to its customers. Its customers, including
16         Plaintiff, were contractually required to pay and did
17         pay 100% of such costs as “supply charges” on their
18         monthly billing statements. The quantity of installed
19         capacity for which Plaintiff was required to pay Con Ed
20         was contractually fixed prior to the time the price for
21         such capacity was known and charged to Plaintiff.
22
23   J.A. 10.   Further, he argues that “[r]etail distribution

24   utilities like Con Ed typically are not permitted to make a

25   profit on the sale of electricity or capacity.”    Appellant’s Br.

26   33-34.

27         The Supreme Court has previously addressed the applicability

28   of the cost-plus contract exception to regulated utilities and

29   their retail customers.   In Kansas v. UtiliCorp United, Inc., 497

                                      13
 1   U.S. 199 (1990), natural gas wholesalers were sued by several

 2   public utilities as well as Kansas and Missouri, acting as parens

 3   patriae for their citizens.     The Court held that only the

 4   utilities, as direct purchasers, were proper plaintiffs.       It

 5   declined to create an exception to the indirect purchaser rule

 6   for situations where regulated public utilities pass on 100% of

 7   their costs to consumers.    Id. at 208-17.   The Court noted that a

 8   utility might still suffer an antitrust injury because it might

 9   be unable to effect a rate increase that would have otherwise

10   been possible.   Id. at 209.    Moreover, the Court viewed the

11   presence of government regulation as a complicating, rather than

12   simplifying, factor.   This was so because a reviewing court would

13   have to examine whether the regulator would have allowed a rate

14   increase in the absence of the overcharge in addition to

15   determining whether the utility would have sought an increase.

16   Id. at 209-10.

17        The Kansas Court also rejected the states’ argument, even

18   without a general exception, they qualified for the cost-plus

19   exception because the utilities had passed on 100% of their costs

20   to their retail customers.     The Court noted that

21        [t]he utility customers made no commitment to purchase
22        any particular quantity of gas, and the utility itself
23        had no guarantee of any particular profit. Even though
24        the respondent raised its prices to cover its costs, we
25        cannot ascertain its precise injury because . . . we do
26        not know what might have happened in the absence of an
27        overcharge.
28
29   Id. at 218.

                                       14
 1        Simon’s attempts to differentiate this case from Kansas are

 2   unavailing.   We credit the complaint’s claim that Con Ed passed

 3   on 100% of its installed capacity costs to consumers each month

 4   as “supply charges,” a portion of the overall bill.7   The Kansas

 5   Court’s central concern, however, remains applicable: We cannot

 6   say with any certainty what would have occurred in the absence of

 7   an overcharge.   If the price for capacity had been lower, Con Ed

 8   might have requested and received permission to increase its

 9   rates.   Additionally, increased supply charges might have driven

10   down Con Ed’s customers’ electricity usage, diminishing its

11   profits.   Even though Con Ed does not make a profit on its retail

12   sale of electrical capacity, it does make a profit on its

13   distribution of electricity.   Like any business, Con Ed has

14   overhead costs, and the rates it charges reflect a variety of

15   factors in addition to its supply costs.   Even if Con Ed

16   increased its rates by exactly the amount it was overcharged for

17   installed capacity, it does not follow that Con Ed’s sales and

18   profits were unaffected.   In short, Con Ed may have suffered an


     7
       We share the district court’s skepticism that the markets for
     installed capacity and retail electricity are similar enough to
     allow a seamless pass-through in this way, but we nevertheless
     assume for the present that Simon could prove this to be the case
     at trial. See Simon, 785 F. Supp. 2d at 137 (“[T]he proposition
     that Con Ed is able to pass through one hundred percent of any
     overcharge to its consumers in the form of retail price increases
     is suspect given the differing nature of the two markets.”).

                                     15
 1   antitrust injury as a result of the agreement, and therefore

 2   under Hanover Shoe and Illinois Brick, it is the only proper

 3   plaintiff.

 4        Simon points to the allegation in his complaint that “[t]he

 5   quantity of installed capacity for which Plaintiff was required

 6   to pay Con Ed was contractually fixed prior to the time the price

 7   for such capacity was known and charged to Plaintiff.”   J.A. 10.

 8   Although Simon is further attempting to analogize his situation

 9   to that of a cost-plus contract, this argument fails.          Simon

10   neglects to account for the fact that he was not contractually

11   obligated in advance to purchase a fixed quantity of electricity

12   each month, we reject this contention as implausible.    Con Ed,

13   like all electrical utilities of which we are aware, charges its

14   customers a metered fee based on their actual electricity usage.

15   See Simon, 785 F. Supp. 2d at 137 n.123 (taking judicial notice

16   of Judge Scheindlin’s Con Ed bill, which bases the monthly charge

17   on electricity used).   Therefore, Simon was free to decrease his

18   electricity usage, and thereby his payments, if supply costs

19   became too high.   Further, even if Simon had contracted to buy a

20   fixed quantity of electricity in advance, a contention that is

21   implausible, see Iqbal, 556 U.S. at 678, it would not alter our

22   conclusion because we would still be unable to determine whether




                                    16
 1   Con Ed could have sought and received a rate increase in the

 2   absence of the overcharge.

 3          Simon’s other attempts to distinguish this case from Kansas

 4   are    similarly   unavailing.       He    notes     that,   in     Kansas,   the

 5   utilities were actually present in the lawsuit, making allocation

 6   issues unavoidable.        This may be true, but the Supreme Court

 7   rested its holding on the possibility of allocation difficulties,

 8   not their imminence or likelihood.           The fact that Con Ed would be

 9   a proper plaintiff to sue KeySpan for the same conduct implicates

10   Illinois      Brick’s   concerns     about     duplicative         recovery   and

11   apportionment.     Simon also points to the fact that the certified

12   question in Kansas stated that the utility “passed on most or all

13   of the price increase” to its customers.                497 U.S. at 205-06

14   (internal quotation marks omitted).           His complaint, in contrast,

15   expressly alleges that all of the cost was passed on.                   However,

16   the Kansas Court did not leave open the possibility that the

17   plaintiffs could maintain a suit by proving as a matter of fact

18   that    the    utilities    passed    on      100%    of     the     overcharge.

19   Additionally, for the reasons discussed earlier, the allegation

20   here that 100% of the costs were passed on is not sufficient to

21   establish standing because it does not negate the possibility

22   that Con Ed might have sought and received a rate increase in the

23   absence of the overcharge.

                                           17
 1        For all of these reasons, we hold that Simon cannot qualify

 2   for federal antitrust standing as an indirect purchaser.     He did

 3   not contract to buy a fixed monthly quantity of electricity from

 4   Con Ed in advance, and we cannot determine whether Con Ed would

 5   have been able to seek and obtain a rate increase in the absence

 6   of the overcharge.     The cost-plus contract exception to the bar

 7   on indirect purchaser standing is therefore not applicable in

 8   this case.

 9

10   II. Filed Rate Doctrine

11        Simon’s state and federal claims are also foreclosed by the

12   filed rate doctrine.    “Simply stated, the doctrine holds that any

13   ‘filed rate’ – that is, one approved by the governing regulatory

14   agency – is per se reasonable and unassailable in judicial

15   proceedings brought by ratepayers.”   Wegoland Ltd. v. NYNEX

16   Corp., 27 F.3d 17, 18 (2d Cir. 1994).    This Circuit has not

17   previously addressed whether the filed rate doctrine applies to

18   rates set at market-based auctions as opposed to those set or

19   approved directly by the regulatory agency.   There is no need for

20   us to decide whether the filed rate doctrine always applies to

21   market-based auction rates.   But we do hold that it applies in

22   the circumstances of this case, where the auction process was

23   circumscribed, and the MBR process was reviewed by the regulatory

                                      18
 1   body which determined the resulting rate to be reasonable.    In

 2   these circumstances, the filed rate doctrine forecloses Simon’s

 3   claims.

 4        The filed rate doctrine originated in the context of the

 5   Interstate Commerce Act (“ICA”), 49 U.S.C. §§ 1, et seq.     In

 6   Keogh v. Chicago & N.W. Ry. Co., 260 U.S. 156, 160-65 (1922), the

 7   Supreme Court addressed an antitrust claim against an association

 8   of railroad companies that had colluded to set rates rather than

 9   competing with one another.    These rates, although the product of

10   collusion, were filed with and approved by the Interstate

11   Commerce Commission (“ICC”).   In an opinion by Justice Brandeis,

12   the Court held that because the ICC had determined the rates to

13   be lawful, they could not be challenged in court.   The Court

14   posited three rationales for the filed rate doctrine: the lack of

15   need for antitrust remedies in regulated industries (that

16   inherently involve some level of government oversight); the per

17   se legality of rates approved by a regulator; and the difficulty

18   of proving that an alternative lower rate would have been

19   approved by the regulator.    Central to the Court’s reasoning was

20   the ICA’s requirement that rates be nondiscriminatory; if

21   customers were allowed to challenge the rate in court, varying

22   litigation outcomes might result in non-uniform rates.




                                      19
 1           Since Keogh, the filed rate doctrine has “been extended

 2   across the spectrum of regulated utilities.”    Ark. La. Gas Co. v.

 3   Hall, 453 U.S. 571, 577 (1981) (“Arkla”).     It applies even when a

 4   claim is based on fraud or impropriety in the method by which the

 5   rate is determined.    See Square D Co. v. Niagara Frontier Tariff

 6   Bureau, Inc., 476 U.S. 409, 415 (1986) (filed rate doctrine bars

 7   claim that shippers colluded to fix rate subsequently approved by

 8   ICC).    The Supreme Court discussed the filed rate doctrine in the

 9   context of wholesale electricity rates when it held that rates

10   filed with FERC are binding on state utilities.    Entergy La.,

11   Inc. v. La. Pub. Serv. Comm’n, 539 U.S. 39, 47-51 (2003).

12           When the filed rate doctrine applies, it is rigid and

13   unforgiving.    Indeed, some have argued that it is unjust.     See,

14   e.g., Fax Telecommunicaciones Inc. v. AT&T, 138 F.3d 479, 491 (2d

15   Cir. 1998); Ting v. AT&T, 319 F.3d 1126, 1131 (9th Cir. 2003).

16   It does not depend on “the culpability of the defendant’s conduct

17   or the possibility of inequitable results,” nor is it affected by

18   “the nature of the cause of action the plaintiff seeks to bring.”

19   Marcus v. AT&T Corp., 138 F.3d 46, 58 (2d Cir. 1998).     It applies

20   whenever a claim would implicate its underlying twin principles

21   of “preventing carriers from engaging in price discrimination as

22   between ratepayers” and “preserving the exclusive role of federal

23   agencies in approving rates.”    Id.   And when the doctrine

                                       20
 1   applies, it bars both state and federal claims.   Arkla, 453 U.S.

 2   at 584-85 (1981).

 3        FERC has exclusive authority over wholesale electricity

 4   rates.   See 16 U.S.C. § 824e (establishing FERC’s power to fix

 5   rates); Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953,

 6   966 (1986) (“FERC clearly has exclusive jurisdiction over the

 7   rates to be charged . . . [to] wholesale customers.”).   The

 8   parties do not dispute that Simon’s claims are based on the

 9   premise that he paid a supracompetitive price for electricity.

10   The only issue we must decide is whether the filed rate doctrine

11   can apply beyond rates set directly by an agency to MBRs set by a

12   regulatory auction scheme.8

13        Although we have not previously addressed whether the filed

14   rate doctrine applies to MBRs, other circuits that have addressed

15   the issue have concluded that the doctrine applies with equal

16   force to MBRs.   See Town of Norwood, Mass. v. New Eng. Power Co.,

17   202 F.3d 408, 419 (1st Cir. 2000) (applying filed rate doctrine

18   to prices that FERC “left to the free market” because FERC is

19   “still responsible for ensuring ‘just and reasonable’ rates”);

20   Utilimax.com, Inc. v. PPL Energy Plus, LLC, 378 F.3d 303 (3d Cir.

     8
       Simon also argues in his brief that the filed rate doctrine is
     limited to certain statutes and does not apply to rates set under
     the Federal Power Act, 16 U.S.C. §§ 796, et seq. This argument
     is unavailing, as Supreme Court precedent makes clear that the
     doctrine applies in all instances where rates are set by federal
     agencies. See Arkla, 453 U.S. at 577-78.
                                     21
 1   2004) (applying filed rate doctrine when market based rates were

 2   “in conformity with the requirements of the FERC and [local

 3   authority]-approved market model”); Tex. Commercial Energy v. TXU

 4   Energy, Inc. 413 F.3d 503, 509-10 (5th Cir. 2005) (applying filed

 5   rate doctrine to MBR tariff in context of state agency that

 6   regulated electric utilities); Pub. Util. Dist. No. 1 of Grays

 7   Harbor Cnty. Wash. v. IDACORP Inc., 379 F.3d 641, 650-52 (9th

 8   Cir. 2004) (rejecting argument that filed rate doctrine does not

 9   apply to FERC MBR tariff on the basis that FERC takes steps to

10   ensure that the MBR complies with the statutory mandate that

11   rates be just and reasonable); see also Simon, 2011 WL 2135075,

12   at *2 n.21 (collecting other similar cases from these circuits as

13   well as district courts).   We are not aware of any court holding

14   that the doctrine does not apply to MBRs.9

15        In affirming the application of the filed rate doctrine in

16   this case, we need not announce a per se rule and, in a case that

17   does not require it, are reluctant to do so.   It is not clear to

18   us that the filed rate doctrine, and the rationales underlying


     9
       Simon’s reliance on Morgan Stanley Capital Grp. Inc. v. Pub.
     Util. Dist. No. 1 of Snohomish Cnty., 554 U.S. 527, 546 (2008),
     is misplaced. Morgan Stanley dealt with the Mobile-Sierra
     doctrine, which applies to “market based tariffs,” i.e.,
     bilateral contracts between wholesalers and purchasers that are
     not directly submitted for rate approval. Id. at 537-38. It
     does not implicate the filed rate doctrine. See Simon, 2011 WL
     2135075, at *2-3 (describing and distinguishing Morgan Stanley
     opinion).
                                     22
 1   it, should preclude all court scrutiny of alleged anti-

 2   competitive behavior affecting the setting of MBRs.    The Supreme

 3   Court’s three rationales from Keogh do not apply with equal force

 4   to rates set by MBRs when the only involvement by a regulator is

 5   creating the process ultimately corrupted by parties in the

 6   market.   This is so because antitrust remedies become more

 7   necessary as markets become increasingly deregulated by the MBR

 8   system.   Indeed, some of our sister circuits who have held that

 9   the filed rate doctrine applies have taken into account factors

10   such as the level of FERC review.    See, e.g., Town of Norwood,

11   202 F.3d at 418 (noting that the tariffs at issue were “actively

12   at issue in the FERC proceedings”); Pub. Util. Dist. No. 1 of

13   Snohomish Cnty. v. Dynegy Power Mktg., Inc., 384 F.3d 756, 760-61

14   (9th Cir. 2004) (discussing three specific steps taken by the

15   FERC to exercise oversight over the MBR process).

16        Simon urges us to limit the filed rate doctrine to cases

17   where the regulatory agency itself chose or approved the rate.

18   We acknowledge that Simon’s approach has some appeal.   Because

19   FERC did not directly set the rate at issue here, it did not

20   specifically determine that the rate was reasonable.    Moreover,

21   KeySpan’s alleged conduct undermined the competitive market

22   scheme FERC and NYISO had created.   One could therefore conclude

23   that the rate arrived at was not the one envisioned by FERC.

                                     23
 1        However, we find that the MBR process established by the

 2   FERC in this case was sufficiently safeguarded such that the

 3   filed rate doctrine should apply.    A central underpinning of the

 4   filed rate doctrine is the desire to “preserv[e] the exclusive

 5   role of federal agencies in approving rates . . . by keeping

 6   courts out of the rate-making process.”   Marcus, 138 F.3d at 58.

 7   FERC has chosen to exercise its rate-setting authority in this

 8   market by establishing an MBR auction process.   Despite leaving

 9   the final price to auction, FERC exercised tight control over the

10   rate by imposing price caps on the major producers.   Tellingly,

11   when FERC capped these producers’ bids, it was aware that the

12   producers were “pivotal” (i.e., at least some of their capacity

13   would be required to meet demand), and therefore the market would

14   clear at their cap.   2008 Market Modification Order at ¶ 4.

15   KeySpan’s bid cap, specifically approved by FERC, in fact set the

16   market price from 1998 until 2006.   See id.   As the Ninth Circuit

17   has observed,

18        the market-based rate regime established by FERC
19        continues FERC’s oversight of the rates charged. FERC
20        only permits power sales at market-based rates after
21        scrutinizing whether the seller and its affiliates do
22        not have, or have adequately mitigated, market power in
23        generation and transmission and cannot erect other
24        barriers to entry.
25
26   Grays Harbor, 379 F.3d at 651 (internal quotation marks omitted).




                                     24
 1        Importantly, FERC tightly controls the auction process and

 2   has mechanisms in place to remedy the kind of misconduct that

 3   allegedly occurred here.   FERC has promulgated a rule barring

 4   fraud or deceit in connection with the sale of energy.    18 C.F.R.

 5   § 1c.2(a).   It has the authority to investigate market

 6   manipulation in the energy market, and exercised that authority

 7   in this case when it investigated the KeySpan agreement for

 8   unlawful manipulation.   FERC’s enforcement division’s

 9   investigation determined that KeySpan’s conduct did not

10   constitute fraudulent market manipulation.   FERC Enforcement

11   Staff Report, Docket Nos. IN08-2-000 & EL07-39-000, at 24 (Feb.

12   28, 2008).   FERC adopted this report and concluded that KeySpan’s

13   continued bids at its cap were “not only permissible under the

14   NYISO’s [tariff] but consistent with the Commission’s

15   expectations when the Commission approved [the 1998 divestiture

16   plan].”   2008 Market Power Modification Order at ¶ 145; see Order

17   Establishing Paper Hearing and Referring Certain Matters for

18   Investigation, 120 FERC ¶ 61,024, at ¶ 17 (July 6, 2007).

19        The rationale behind the filed rate doctrine applies with

20   equal force to an MBR auction system such as NYISO’s in which the

21   regulating agency tightly controls the auction process and has

22   exercised its ability to undertake individual review of the MBR

23   to ensure that anti-competitive practices did not undermine the

                                     25
 1   process it created.   FERC employed a bid cap to curb the market

 2   power of large firms and created a mechanism to investigate and

 3   rectify fraudulent market manipulation.   For a federal court to

 4   intrude into FERC’s carefully constructed system would directly

 5   undermine the rationale of the filed rate doctrine.   It would

 6   permit courts “to grant . . . greater relief than [plaintiffs]

 7   could obtain from the Commission itself.”   Arkla, 453 U.S. at

 8   579.   FERC’s auction process was plainly designed to result in a

 9   reasonable rate, and we are not willing to say that KeySpan’s bid

10   cap, specifically approved by FERC, was not reasonable.   We

11   conclude that the filed rate doctrine applies on these facts –

12   where the regulator created a process for setting rates, reviewed

13   the resulting rates, and, after investigation, determined that

14   the anti-competitive behavior did not undermine its process and

15   that the resulting rates were reasonable.   There is no need for

16   us to reach the question of whether the filed rate doctrine would

17   apply to all MBRs irrespective of the oversight of the regulator,

18   and we leave that question for another day.

19                               CONCLUSION

20          Because we conclude that Simon lacks standing to bring his

21   federal antitrust claims and his state and federal claims are

22   barred by the filed rate doctrine, we need not consider his

23   challenges to the district court’s other holdings.    Accordingly,

                                     26
1   for the reasons described above, the judgment of the district

2   court is AFFIRMED.

3
4




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