Bankruptcy News

August 10, 2006

Eighth Circuit Court of Appeals Finds that the U.S. Commodity Futures Trading Commission Properly Pursued Charges Against NRG Energy, Inc. in Minnesota District Court

Circuit Court Concludes that the Minnesota District Court -- and Not the Bankruptcy Court in New York Where NRG Petitioned for Chapter 11 Bankruptcy Relief -- Has Jurisdiction Over the Commission’s Enforcement Action

Washington, D.C.? The U.S. Commodity Futures Trading Commission (CFTC) announced today that the United States Court of Appeals for the Eighth Circuit, in a decision dated August 4, 2006, reversed an order of the federal district court in Minnesota dismissing without prejudice the CFTC's enforcement action against NRG Energy, Inc. (NRG) on the grounds that the bankruptcy court in the Southern District of New York retained exclusive jurisdiction over the action.

On July 1, 2004, the CFTC filed a complaint requesting injunctive relief in the United States District Court for the District of Minnesota charging NRG with violations of the Commodity Exchange Act (CEA) through the delivery of knowingly false reports concerning the price of natural gas to Gas Daily, an affiliate of the McGraw-Hill Companies, Inc. (See CFTC Press Release 4947-04, July 1, 2004.)

NRG moved in the district court to dismiss the CFTC's enforcement action for, among other reasons, lack of jurisdiction. On May 14, 2003, prior to the CFTC's action in Minnesota, NRG petitioned for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court in the Southern District of New York. On August 20, 2003, the CFTC filed a proof of claim notifying the bankruptcy court of potential claims against NRG. NRG asserted that the CFTC's action in Minnesota was barred, arguing that the bankruptcy court has exclusive jurisdiction over the matter because the facts underlying the CFTC's complaint are the same facts supporting its proof of claim.

The district court in Minnesota agreed and dismissed the CFTC's action, without prejudice. The CFTC appealed, and on August 4, 2006, a three judge panel of the Eighth Circuit reversed the district court.

The Eighth Circuit rejected the notion that the CFTC's enforcement action fit within the bankruptcy proceeding, finding that the CFTC's request for injunctive relief, if granted, applied to future conduct rather than NRG's prior acts on which the CFTC's proof of claim was based. The Eighth Circuit further rejected the conclusion that the bankruptcy court has exclusive jurisdiction over the CFTC's action, stating:

"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."

Contact New Mexico lawyers today and get a free consultation!

	Did You Know?
	Special purpose entities in bankruptcy can be used A business, usually a special-purpose entity, established to perform limited functions and to have one or a few primary creditors. This type of entity is sometimes established to protect lenders on large, complex projects, when the lender is to be paid solely or almost exclusively out of the money generated when the project becomes operational.