PACIFIC GAS AND ELECTRIC COMPANY, SOUTHERN CALIFORNIA EDISON COMPANY, SAN DIEGO GAS & ELECTRIC COMPANY, PEOPLE OF THE STATE OF CALIFORNIA EX REL. EDMUND G. BROWN JR., ATTORNEY GENERAL OF THE STATE OF CALIFORNIA, CALIFORNIA DEPARTMENT OF WATER RESOURCES, BY AND THROUGH ITS CALIFORNIA ENERGY RESOURCES SCHEDULING DIVISION, Plaintiffs-Appellants
UNITED STATES, Defendant-Appellee
from the United States Court of Federal Claims in Nos.
1:07-cv-00157-SGB, 1:07-cv-00167-SGB, 1:07-cv-00184-SGB,
Judge Susan G. Braden.
Glasgow Phillips, Sidley Austin LLP, Washington, DC, argued
for plaintiffs-appellants. Also repre- sented by Tobias
Samuel Loss-Eaton, Quin M. Sorenson; Marie L. Fiala, San
Francisco, CA; Stan Berman, Seattle, WA.
Irene Ryan, Steptoe & Johnson, LLP, Washington, DC for
plaintiff-appellant Southern California Edison Company. Also
represented by Heather Horne.
Fogelman, Friedman & Springwater, LLP, San Francisco, CA,
for plaintiff-appellant San Diego Gas & Electric Company.
Also represented by Ruth Stoner Muzzin.
Alexander, Office of the Attorney General, California
Department of Justice, San Francisco, CA, for
plaintiffs-appellants People of the State of California Ex
Rel. Edmund G. Brown, Jr., Attorney General of the State of
California, California Department of Water Resources.
R. Sweet, Commercial Litigation Branch, Civil Division,
United States Department of Justice, Washington, DC, argued
for defendant-appellee. Also represented by Benjamin C.
Mizer, Robert E. Kirschman, Jr., Martin F. Hockey, Jr.; Mark
William Pennak, Appellate Staff, Civil Division, United
States Department of Justice, Washington, DC.
Candace J. Morey, California Public Utilities Commission, San
Francisco, CA, for amicus curiae Public Utilities Commission
of the State of California. Also represented by Arocles
Bradford Ramsay, National Association of Regulatory Utility
Commissioners, Washington, DC, for amicus curiae National
Association of Regulatory Utility Commissioners.
Newman, Dyk, and Wallach, Circuit Judges.
Gas and Electric Company, Southern California Edison Company,
San Diego Gas & Electric Company, and the state of
California (collectively, "appellants"), brought
suit against the United States claiming that two federal
government agencies selling electricity (the Western Area
Power Administration and the Bonneville Power Administration)
(collectively, "the government") overcharged
appellants for electricity.
United States Court of Federal Claims (the "Claims
Court") dismissed their breach of contract action for
lack of standing. Appellants appeal. We conclude that
appellants lack privity of contract or any other relationship
with the government that would confer standing. Because
appellants lack standing, we affirm. This does not, however,
suggest that appellants were without a remedy for the alleged
overcharges against the parties with whom they are in
contractual privity-two California electricity exchanges-or
that the exchanges lacked a breach of contract remedy for
overcharges against the government agencies that sold them
the Tucker Act, the Claims Court has jurisdiction over
contract cases in which the government is a party.
See 28 U.S.C. § 1491(a)(1); Gonzales &
Gonzales Bonds & Ins. Agency v. Dept. of Homeland
Sec., 490 F.3d 940, 943 (Fed. Cir. 2007). Normally, a
contract between the plaintiff and the United States is
required to establish standing to sue the government on a
contract claim. S. Cal. Fed. Sav. & Loan Ass'n v.
United States, 422 F.3d 1319, 1328 (Fed. Cir. 2005)
("A plaintiff must be in privity with the United States
to have standing to sue the sovereign on a contract
case involves the purchase and sale of electricity in the
California market. Appellants contend that they were
overcharged for electricity during the period from October 2,
2000, to June 20, 2001 ("the 2000-2001 period"),
and seek to recover the overcharges from the United States
based on sales by two federal government agen-cies-the
Western Area Power Administration ("WAPA") and the
Bonneville Power Administration ("BPA"). Two
exchanges were involved in these transactions-the California
Power Exchange ("Cal-PX") and the California
Independent System Operator ("Cal-ISO"). These
exchanges were responsible for acquiring and distributing
electricity between producers and consumers in California and
setting prices for the electricity. The basic question is
whether purchase and sale contracts existed between the
exchanges, on the one hand, and the appellants and defendant
government agencies, on the other, or whether the contracts
were between the appellants and the government agencies-the
consumers and producers of electric power. If the contracts
were between the exchanges and market participants
individually, appellants' remedy is against the
exchanges. If the contracts were between the consumers and
producers of electricity, appellants' remedy is against
the government producers.
contend that a contract existed between two groups-one group
consisting of all consumers of electricity (including
appellants) and the other group consisting of all producers
of electricity (including the government agencies) in
California. Under appellants' theory, appellants and all
other power consumers are in privity of contract with all
producers in the California markets, including the government
sellers. The government, on the other hand, contends that the
contracts were only between the middleman entities that
facilitated and operated the California electricity
markets-Cal-PX and Cal-ISO-and the consumers and producers
individually. Under the government's theory, appellants
are in privity of contract with Cal-PX and Cal-ISO, and the
government is also in privity of contract with Cal-PX and
Cal-ISO, but appellants are not in privity with the
face of it, the only contracts here were between the
exchanges-Cal-PX and Cal-ISO-and individual market
participants (the consumers and producers). Both of these
exchanges entered into individual contracts with each of the
consumers and producers of electricity. The basis for
appellants' alternative theory requires some
understanding of the background.
late 1990s, California restructured and deregulated its
energy market. In 1996, California established two non-profit
organizations to acquire and distribute electricity and to
otherwise organize and supervise all of the wholesale energy
transactions in the state. One nonprofit, Cal-PX, was
designed to facilitate and conduct all wholesale electric
power transactions for the state of California. Cal-PX's
responsibilities included, inter alia, collecting
supply and demand bids from sellers and buyers of wholesale
electricity respectively, processing those bids to develop
aggregate supply and demand curves from the total pool of
bids received, setting a market clearing price based on the
intersection point of the aggregate supply and demand curves,
preparing financial settlements by issuing statements to all
market participants, establishing a calendar for payment, and
settling payment individually with each market participant by
debiting or crediting its Cal-PX account. Cal-PX was also
responsible for determining the proper distribution of funds
in the event of an overpayment, collecting the overpaid funds
from the overpaid participants, and remitting those funds to
the market participants who overpaid.
other exchange, Cal-ISO, was established to assume
operational control over all of California's electric
transmission facilities and ensure supply and demand on a
real-time basis. Cal-ISO was responsible for, inter
alia, operating the transmission grid, ensuring the
necessary supply of energy, maintaining nondiscriminatory
access to the grid, purchasing and providing ancillary
services, and maintaining a real-time spot market for
electricity to balance out any last-minute disparities
between supply and demand in the Cal-PX market. In this
regard, Cal-ISO operated as a back-up to the primary Cal-PX
market for wholesale energy.
and Cal-ISO filed tariffs with the Federal Energy Regulatory
Commission ("FERC"), the independent federal agency
with regulatory authority over the interstate sale of all
wholesale electricity and transmission service. The tariffs
("Cal-PX Tariff" and "Cal-ISO Tariff, "
respectively) established the terms and conditions of service
and rates for the California markets. The Cal-PX Tariff and
the Cal-ISO Tariff both contained clauses known in the
industry as Memphis clauses, which preserved the
ability of consumers and producers in the California markets
to exercise their rights under the Federal Power Act
("FPA") to petition FERC for a change in the terms
or rates of the tariffs.
consumers and producers of wholesale energy in the California
markets entered into individual agreements with Cal-PX and
Cal-ISO, known as participation agreements. Every Cal-PX
participation agreement incorporated the Cal-PX Tariff, and
every Cal-ISO participation agreement incorporated the
Cal-ISO Tariff. None of the consumers and producers of
wholesale energy purported to contract directly with one
another; rather, all participants in the California markets
executed separate participation agreements with Cal-PX and
Cal-ISO only. Indeed, individual contracts between consumers
and producers were not feasible since electricity is
fungible, and purchases and sales of electricity could not be
traced to particular consumers and producers in the
entered into participation agreements with Cal-PX and Cal-ISO
shortly after California deregulated the market to purchase
electricity. WAPA and BPA, the defendant federal
power-producing administrations, also executed participation
agreements with Cal-PX and Cal-ISO. No agreements were
executed between appellants and the federal agencies. In
1999, the government agencies began selling energy into the
California markets through Cal-PX and Cal-ISO, along with
many other sellers. Appellants were among the many consumers
of that energy.
transact energy in California, potential consumers and
producers submitted bids to Cal-PX to buy or sell wholesale
electric power. Based on all of the bids received, Cal-PX
compiled supply and demand curves to calculate a "market
price" that it then applied uniformly to all
transactions within a given market. Consumers paid Cal-PX,
which organized and disbursed the funds to sellers in
proportion to the amount of energy each supplied. Consumers
never paid producers directly. Cal-ISO operated in a similar
fashion. In this way, Cal-PX and Cal-ISO served as exchanges
or centralized clearinghouses, acquiring electric power from
producers and distributing it to consumers and otherwise
facilitating wholesale energy transactions for market
participants pursuant to the conditions and constraints
imposed by the governing tariffs.
result of the method of pricing in the California energy
market, appellants contend that they and each of the many
other consumers were overcharged for purchases during the
2000-2001 period, allegedly as a result of improper pricing
mechanisms. Cal-PX set prices on an hourly basis to satisfy
short-term demand for "spot markets." While Cal-PX
also set prices over a larger period for long-term or
"forward contract" markets, most purchases and
sales were in the spot markets. Pac. Gas & Elec. Co.
v. United States, 122 Fed.Cl. 315, 322-23 (2015).
Appellants and other consumers became subject to unstable
spot market purchases. "Sellers quickly learned that the
California spot markets could be manipulated by withholding
power . . . to create scarcity and then demanding extremely
high prices when scarcity was probable." Pub.
Utilities Comm'n of Cal. v. FERC, 462 F.3d 1027,
1039 (9th Cir. 2006). By May 2000, the price of wholesale
power in the California markets doubled. Blackouts rolled
across the state as it descended into an energy crisis.
August 2000, appellants and all other consumers were charged
prices three to four times greater than the market rates of
less than a year earlier. Appellants believed the rates
established by the exchanges were unjust and unreasonable.
Appellants sought relief by filing a complaint with FERC,
which, with respect to nongovernment entities, has the
authority to set an effective date, determine whether rates
charged after that date are unjust and unreasonable, and
order refunds for rates charged after that date if it
determines that they are unjust and unreasonable. Here, FERC
set an effective date of October 2, 2000, determined that
rates charged after that date were unjust and unreasonable,
and ordered that refunds be paid by all sellers in the
series of appeals to the Ninth Circuit ensued. As is relevant
here, the Ninth Circuit held that FERC lacked jurisdiction to
order the government to pay refunds, Bonneville Power
Admin. v. FERC, 422 F.3d 908, 926 (9th Cir. 2005), a
determination that is not now contested. This was so because
government agencies are not subject to FERC jurisdiction, as
§ 201(f) of the Federal Power Act makes clear: "No
provision of this subchapter shall apply to . . . the United
States . . . or any agency, authority, or instrumentality
[thereof]." 16 U.S.C. § 824(f); see also
Bonneville, 422 F.3d at 920. Although FERC lacked the
authority to order the government to pay refunds, the Ninth
Circuit upheld FERC's ability to find the rates charged
by all sellers, including the government agencies, to be
unjust and unreasonable. See City of Redding v.
FERC, 693 F.3d 828, 841 (9th Cir. 2012) (explaining that
to the extent that FERC revised or reset the market rate for
the 2000-2001 period, this was within FERC's authority,
as it "necessarily involved reevaluating the price
previously charged by all market participants because the
market clearing price was the same for all of them").
FERC lacked jurisdiction to order refunds by the government,
appellants brought this breach of contract action in the
Claims Court, alleging that the government producers had
breached agreements between the consumers and producers by
overcharging appellants and all other consumers and by
failing to pay a refund for unjust and unreasonable prices
charged during the 2000- 2001 period.
trial, Judge Smith found in favor of appellants. See Pac.
Gas & Elec. Co. v. United States, 105 Fed.Cl. 420,
440 (2012). Judge Smith held that "the facts at trial
showed that the Agencies contracted with and owe contract
obligations to [appellants]." Id. at 432. In
his view, Cal-PX and Cal-ISO "were pass-through entities
or clearinghouses" only, and he therefore concluded that
"the payment obligations were between the buyer
[consumer] and seller [producer]." Id. at
432-33. Judge Smith further held that the government had
breached its contract with appellants by failing to pay
refunds. See id. at 439- 40.
the damages-phase proceedings began, Judge Smith retired from
the bench. His successor, Judge Braden, vacated Judge
Smith's opinions and dismissed the case for, inter
alia, lack of standing. Pacific Gas, 122
Fed.Cl. at 329-335, 343. Judge Braden held that while
appellants were in privity of contract with the exchanges,
they lacked privity with the government. See id. at
331. Judge Braden further held that appellants failed to
demonstrate the existence of an agency relationship between
the government and the exchanges, see id. at 334-35,
and failed to demonstrate that appellants were third-party
beneficiaries of the government's contracts with the
exchanges, see id. at 332-34. This appeal
followed. We have jurisdiction pursuant to 28 U.S.C. §
first contend that Judge Braden violated the law of the case
doctrine by vacating Judge Smith's rulings.
to appellants, the law of the case doctrine "counsels
particular caution when one judge is asked-or, as here,
decides sua sponte-to reconsider her
predecessor's decisions." Br. of Appellants at
32-33. Appellants assert that this case should be remanded
because Judge Braden's decision to reconsider Judge
Smith's decisions constituted an abuse of discretion.
dispositive issue addressed on reconsideration
here-standing-is a pure issue of law, which we review de
novo. See S. Cal. Fed. Sav. & Loan
Ass'n, 422 F.3d 1319, 1328 (Fed. Cir.
2005). And the question of standing here depends
on contract interpretation, which also is a question of law
that we review de novo. See, e.g., S.
Nuclear Operating Co. v. United States, 637 F.3d 1297,
1301 (Fed. Cir. 2011). Indeed, appellants agree that
"Judge Braden's specific errors in interpreting the
contracts and the Ninth Circuit's decisions were purely
legal, and are therefore subject to plenary review." Br.
of Appellants at 62 n.11. Judge Smith's contract
interpretation was also legal in character. Judge Smith made
no rele- vant findings of fact with respect to interpretation
of the contract provisions at issue. See, e.g.,
Thatcher v. Kohl's Dept. Stores, Inc., 397 F.3d
1370, 1373 (Fed. Cir. 2005). Accordingly, even if appellants
could demonstrate that Judge Braden erred in reconsidering
Judge Smith's interlocutory decisions, they have suffered
no prejudice, since our review of both decisions of the
Claims Court is de novo. We thus proceed to consider
the issue of stand- ing. S. Cal. Fed. Sav. & Loan
Ass'n, 422 F.3d at 1328.
noted above, typically "[t]o have standing to sue the
sovereign on a contract claim, a plaintiff must be in privity
of contract with the United States, " Anderson v.
United States, 344 F.3d 1343, 1351 (Fed. Cir. 2003), and
"[s]tanding is a threshold jurisdictional issue that
implicates Article III of the Constitution." S. Cal.
Fed. Sav. & Loan Ass'n, 422 F.3d at 1328.
"Not only is privity a fundamental requirement of
contract law, but it takes on even greater significance in
cases such as this, because the 'government consents to
be sued only by those with whom it has privity of
contract.'" Id. (quoting Erickson Air
Crane Co. of Wash. v. United States, 731 F.2d 810, 813
(Fed. Cir. 1984)). "The effect of finding privity of
contract between a party and the United States is to find a
waiver of sovereign immunity." Cienega Gardens v.
United States, 194 F.3d 1231, 1239 (Fed. Cir. 1998). We
do not lightly presume that the government's actions give
rise to contractual obligations when the government is not a
named party to the contract in dispute. See United States
v. Algoma Lumber Co., 305 U.S. 415, 421 (1939).
exceptions to the privity requirement have been recognized
when a "party standing outside of privity by contractual
obligation stands in the shoes of a party within privity,
" such as when a party can demonstrate that it was an
intended third-party beneficiary under the contract, see,
e.g., First Hartford Corp. Pension Plan & Tr. v.
United States, 194 F.3d 1279, 1289 (Fed. Cir. 1999), or
when a party can demonstrate that a prime contractor acted as
purchasing agent on behalf of the government in contracting
with a subcontractor. See Nat'l Leased Hous.
Ass'n v. United States, 105 F.3d 1423, 1435-36 (Fed.
Cir. 1997); United States v. Johnson Controls, Inc.,
713 F.2d 1541, 1551 (Fed. Cir. 1983).
first address the issue of contractual privity, addressing
later in this opinion appellants' alternative theories of
agency and third-party beneficiary. The government argues
that the only contracts for the purchase and sale of
electricity here were between each market participant and the
exchanges. We agree. There is no question that each of the
many buyers and sellers entered into contracts with the
exchanges. Each individual participant in the California
markets executed a contract with one or both exchanges
incorporating the relevant tariff. Each contract described
the parties as being the individual participant and the
exchange only. For example, BPA's contract with Cal-PX
explicitly provided that "THIS AGREEMENT . . . is
entered into, by and between: (1) BONNEVILLE POWER
ADMINISTRATION . . . and (2) THE CALIFORNIA POWER EXCHANGE
CORPORATION." J.A. 424. No parties other than the
individual participant and the relevant exchange were listed
on any contract.
the Uniform Commercial Code ("UCC") does not apply
directly to government contracts, see, e.g., GAF
Corp. v. United States, 932 F.2d 947, 951 (Fed. Cir.
1991), the UCC "provides useful guidance in applying
general contract principles, " Hughes Commc'ns
Galaxy, Inc. v. United States, 271 F.3d 1060, 1066 (Fed.
Cir. 2001); see also Diversified Energy, Inc. v. Tenn.
Valley Auth., 339 F.3d 437, 446 n.9 (6th Cir. 2003);
Tech. Assistance Int'l, Inc. v. United States,
150 F.3d 1369, 1372 (Fed. Cir. 1998). The parties appear to
agree that the provision of electricity involves the sale of
a good which would invoke the UCC. See, e.g., Br. of
Appellants at 41 ("Here . . . the Agencies sold the
power itself-which is personal property under [41 U.S.C.]
§ 7102(a)(4) . . . ."). Indeed, we would lack
jurisdiction under the Contract Disputes Act if the contracts
were interpreted as involving the provision of services
rather than goods. See 41 U.S.C. § 7102(a).
Under the Supreme Court's decision in United States
v. Eurodif, S.A., the fact that electricity is fungible
suggests that the exchanges bought from and sold electricity
to market participants, rather than merely facilitating a
transfer between producers and consumers. See 555
U.S. 305, 319-20 (2009) (explaining that a transaction
involving a fungible product is more likely to be viewed as
the sale of a good as opposed to the sale of a
face of the agreements, the exchanges were performing a
typical middleman function with respect to transactions in
goods as described in commentary on the UCC. See
Lary Lawrence, 2 Lawrence's Anderson on the Uniform
Commercial Code, §§ 2-103:18, 103:44 (3d ed.
2012). Under typical middleman contracts, "courts will
treat as a buyer [and seller] a middleman who contracts for
the sale of goods to be delivered to a third person."
Lawrence, at § 2-103:18; see also id.
at §§ 2-103:19, 103:44-45. Though the title to the
electricity passes directly from producers to consumers, the
UCC makes quite clear that this is not inconsistent with a
middleman contract for purchase and sale. "A middleman
making a contract . . . is a 'seller' for the purpose