Breckenridge Brewery of Colorado, LLC et al v. Oneok Inc. et al (MDL 1566)

Filing 241

ORDER Granting Motion to Dismiss. Defendants CMS Energy Corporation, Duke Energy Carolinas, LLC and Reliant Energy, Inc. are terminated. Signed by Judge Philip M. Pro on 02/23/09. (Copies have been distributed pursuant to the NEF - SRK)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
1

UNITED STATES DISTRICT COURT D IS T R IC T OF NEVADA *** IN RE: WESTERN STATES ) W H O L E S A L E NATURAL GAS ) A N T IT R U S T LITIGATION ) ___________________________________ ) ) B R E C K E N R ID G E BREWERY OF ) C O L O R A D O , LLC, et al., ) ) P la in tif f s , ) ) v. ) ) ONEOK, INC., et al., ) ) Defendants. ) ) M D L 1566 2 :0 3 -C V -0 1 4 3 1 -P M P -P A L B A S E FILE

2 :0 6 -C V -0 1 3 5 1 -P M P -P A L

O R D E R RE: DEFENDANTS' MOTION T O DISMISS (Doc. #962)

P re se n tly before this Court is Specially Appearing Defendants CMS Energy C o rp o ra tio n , Duke Energy Carolinas, LLC, and Reliant Energy, Inc.'s Motion to Dismiss f o r Lack of Personal Jurisdiction (Doc. #962)1 with Joint Memorandum (Doc. #963). D e f e n d a n ts filed separate volumes of exhibits (Doc. #968, #974, #976) in support.2 P la in tif f s filed Oppositions (Doc. #1080, #1083, #1106) and supporting appendices (Doc. # 1 0 8 1 , #1084, #1125, #1126, #1142). Defendants filed Replies (Doc. #1176, #1185, # 1 1 8 9 ). /// ///

Document numbers refer to the base file, 2:03-CV-01431-PMP-PAL, unless otherwise noted.

26 Defendants Reliant Energy, Inc. and Reliant Energy Services, Inc. also entered into a stipulation of fact (Doc. #1054) with Plaintiffs.
2

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 2 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

I . BACKGROUND T h is case is one of many in consolidated Multidistrict Litigation arising out of the e n e rg y crisis of 2000-2001. Plaintiffs originally filed the above action in the District Court o f the City and County of Denver, Colorado. (Notice of Removal, Compl. [2:06-CV-1351P M P -P A L , Doc. #2].) Defendants removed the case to the United States District Court for th e District of Colorado. (Id.) The Judicial Panel on Multidistrict Litigation entered a T ra n s f e r Order pursuant to 28 U.S.C. § 1407 centralizing the foregoing action in this Court f o r coordinated or consolidated pretrial proceedings. (Letter dated November 2, 2006 [ 2 :0 6 -C V -1 3 5 1 -P M P -P A L , Doc. #29].) In this litigation, Plaintiffs seek to recover damages on behalf of natural gas rate p a ye rs . In the Complaint, Plaintiffs allege Defendants engaged in anti-competitive a c tiv itie s with the intent to manipulate and artificially increase or control the price of n a tu ra l gas for consumers. (Am. Compl. (Doc. #717) at 32-36.) Specifically, Plaintiffs a lle g e Defendants knowingly delivered false reports concerning trade information and e n g a g e d in wash trades, in violation of Colorado Revised Statutes § 6-4-101, et seq. (Id.) Plaintiff Breckenridge Brewery of Colorado, LLC ("Breckenridge Brewery") is a C o lo ra d o limited liability company with its principal place of business in Denver, Colorado. (Id. at 3.) Plaintiff BBD Acquisition Co. ("BBD") is a Colorado corporation with its p rin c ip a l place of business in Denver, Colorado. (Id.) Plaintiffs allege they purchased n a tu ra l gas directly from one or more Defendants, and from other natural gas sellers in the S ta te of Colorado, during the past six years. (Id.) According to the Complaint, Defendants a re natural gas companies that buy, sell, transport, and store natural gas, including their own a n d their affiliates' production, in the United States and in the State of Colorado. (Id. at 33 2 .) T h e Amended Complaint's allegations are directed generally at two types of D e f e n d a n ts: the natural gas companies that actually engaged in natural gas sales and the 2

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 3 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

re la te d reporting of allegedly manipulated gas prices to the trade indices, and those c o m p a n ie s ' parent corporations. The Amended Complaint does not allege the parent c o m p a n y Defendants themselves engaged in natural gas trading and price reporting. Rather, the Amended Complaint alleges these Defendants are the parent companies of s u b s id ia rie s which engage in such activity generally, and which also made natural gas sales in Colorado during the relevant time period. Plaintiffs seek to establish personal jurisdiction over the parent company D e f e n d a n ts based on their out-of-forum activities directed at Colorado along with their s u b s id ia rie s ' and affiliates' contacts within Colorado. According to the Amended C o m p la in t, the parent company Defendants dominated and controlled their respective s u b s id ia rie s and the parent company Defendants "entered into a combination and c o n s p ira c y . . . which tended to prevent full and free competition in the trading and sale of n a tu ra l gas, or which tended to advance or control the market prices of natural gas." (Id. at 4 , 7, 11, 13-14, 16, 18, 20, 24, 27-28.) Plaintiffs allege the parent company Defendants in te n d e d their actions to have a direct, substantial, and foreseeable effect on commerce in th e State of Colorado. (Id. at 4, 7, 11, 14, 16, 18, 20, 24, 27-28.) According to the A m e n d e d Complaint, the parent company Defendants "made strategic marketing policies a n d decisions concerning natural gas and the reporting of natural gas trade information to re p o rtin g firms for use in the calculation of natural gas price indices that affected the market p ric e s of natural gas, and those policies and decisions were implemented on an operational le v e l by affiliates . . . in the United States and in Colorado." (Id. at 4-5, 7-8, 12, 14, 17-18, 2 1 , 25, 27-29.) Parent company Defendants CMS Energy Corporation, Duke Energy Carolinas, L L C , and Reliant Energy, Inc. now move to dismiss, arguing this Court lacks personal ju ris d ic tio n over them. According to these Defendants, they conduct no business in C o lo ra d o and have no other contacts supporting general or specific jurisdiction. Defendants 3

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 4 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

a ls o argue they cannot be subject to jurisdiction in Colorado based on their subsidiaries' c o n ta c ts with the forum because their subsidiaries are not their agents or alter egos. Defendants thus argue exercising personal jurisdiction in this case would violate c o n s titu tio n a l due process requirements. Plaintiffs respond that Defendants' subsidiaries have submitted to jurisdiction in C o lo ra d o and Defendants are subject to personal jurisdiction through agency and alter ego p rin c ip le s based on their subsidiaries' contacts with the forum. Additionally, Plaintiffs re q u e s t the Court defer ruling until after the magistrate judge resolves certain jurisdictional d is c o v e ry disputes, or to delay ruling on the jurisdictional question until merits discovery is c o m p le te d because the jurisdictional questions are intertwined with the merits. I I . LEGAL STANDARDS " W h e n a defendant moves to dismiss for lack of personal jurisdiction, the p la in tif f bears the burden of demonstrating that the court has jurisdiction over the d e f e n d a n t." Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). To meet this b u rd e n , a plaintiff must demonstrate that personal jurisdiction over a defendant is (1) p e rm itte d under the applicable state's long-arm statute and (2) that the exercise of ju ris d ic tio n does not violate federal due process. Id. The Court must analyze whether p e rs o n a l jurisdiction exists over each defendant separately. Harris Rutsky & Co. Ins. S e rv s ., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1130 (9th Cir. 2003). Where the issue is before the Court on a motion to dismiss based on affidavits a n d discovery materials without an evidentiary hearing, the plaintiff must make "a prima f a c ie showing of facts supporting jurisdiction through its pleadings and affidavits to avoid d is m is s a l." Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1 1 1 9 (9th Cir. 2002). The Court accepts as true any uncontroverted allegations in the c o m p la in t and resolves any conflicts between the facts contained in the parties' evidence in th e plaintiff's favor. Id. However, for personal jurisdiction purposes, a court "may not 4

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 5 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

a s s u m e the truth of allegations in a pleading which are contradicted by affidavit." Alexander v. Circus Circus Enters., Inc., 972 F.2d 261, 262 (9th Cir. 1992) (quotation o m itte d ). In diversity cases such as this, "a federal court applies the personal jurisdiction ru le s of the forum state provided the exercise of jurisdiction comports with due process." Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986). However, "federal law is controlling o n the issue of due process under the United States Constitution." Data Disc, Inc. v. Sys. T e c h . Assoc., Inc., 557 F.2d 1280, 1286 n.3 (9th Cir. 1977); see also Dole Food Co., Inc. v. W a tts , 303 F.3d 1104, 1110 (9th Cir. 2002). Therefore, the Court will apply law from the U n ite d States Court of Appeals for the Ninth Circuit in deciding whether jurisdiction is a p p ro p ria te under the Due Process Clause. See In re Korean Air Lines Disaster of Sept. 1, 1 9 8 3 , 829 F.2d 1171, 1174 (D.C. Cir. 1987) (concluding that "the transferee court [should] b e free to decide a federal claim in the manner it views as correct without deferring to the in te rp re ta tio n of the transferor circuit"); Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1 9 9 3 ) (holding that "a transferee federal court should apply its interpretations of federal la w , not the constructions of federal law of the transferor circuit"). To satisfy federal due process standards, a nonresident defendant must have " m in im u m contacts" with the forum state so that the assertion of jurisdiction does not o f f e n d traditional notions of fair play and substantial justice. Pebble Beach Co., 453 F.3d at 1 1 5 5 (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 315 (1945)). A federal district c o u rt may exercise either general or specific personal jurisdiction. See Helicopteros N a c io n a le s de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15 (1984). T o establish general personal jurisdiction, the plaintiff must demonstrate the d e f e n d a n t has sufficient contacts to "constitute the kind of continuous and systematic g e n e ra l business contacts that `approximate physical presence.'" Glencore Grain, 284 F.3d a t 1124 (quoting Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1086 (9th 5

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 6 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

C ir. 2000), modified, Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F .3 d 1199, 1207 (9th Cir. 2006)). Courts consider such factors as whether the defendant m a k e s sales, solicits or engages in business in the state, serves the state's markets, d e s ig n a te s an agent for service of process, holds a license, or is incorporated there. Bancroft, 223 F.3d at 1086. "[A] defendant whose contacts are substantial, continuous, and s ys te m a tic is subject to a court's general jurisdiction even if the suit concerns matters not a risin g out of his contacts with the forum." Glencore Grain, 284 F.3d at 1123 (citing H e lic o p te ro s , 466 U.S. at 415 n.9). A nonresident defendant's contacts with the forum state may permit the exercise o f specific jurisdiction if: (1) the defendant has performed some act or transaction within th e forum or purposefully availed himself of the privileges of conducting activities within th e forum, (2) the plaintiff's claim arises out of or results from the defendant's forumre la te d activities, and (3) the exercise of jurisdiction over the defendant is reasonable. Pebble Beach Co., 453 F.3d at 1155-56. "If any of the three requirements is not satisfied, ju ris d ic tio n in the forum would deprive the defendant of due process of law." Omeluk v. L a n g ste n Slip & Batbyggeri A/S, 52 F.3d 267, 270 (9th Cir. 1995). Under the first prong of the "minimum contacts test," the plaintiff must establish e ith e r that the defendant "(1) purposefully availed himself of the privilege of conducting his a c tiv itie s in the forum, or (2) purposefully directed his activities toward the forum." Pebble B e a c h Co., 453 F.3d at 1155. "Evidence of availment is typically action taking place in the f o ru m that invokes the benefits and protections of the laws in the forum." Id. Evidence of d ire c tio n usually consists of conduct taking place outside the forum that the defendant d ire c ts at the forum. Id. at 1155-56. The purposeful direction aspect of the first prong is satisfied when a foreign act is b o th aimed at and has effect in the forum. Id. In other words, the defendant "must have (1) c o m m itte d an intentional act, which was (2) expressly aimed at the forum state, and (3) 6

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 7 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

c a u s e d harm, the brunt of which is suffered and which the defendant knows is likely to be s u f f e re d in the forum state." Id. To satisfy the third element of this test, the plaintiff must e s ta b lis h the defendant's conduct was "expressly aimed" at the forum; a "mere foreseeable e f f e c t" in the forum state is insufficient. Id. The "express aiming" requirement is satisfied w h e n the defendant is alleged to have engaged in wrongful conduct "individually targeting a known forum resident." Bancroft, 223 F.3d at 1087. T h e second prong of the specific jurisdiction test requiring that the contacts c o n s titu tin g purposeful availment or purposeful direction give rise to the current action is m e a s u re d in terms of "but for" causation. Id. at 1088. "If the plaintiff establishes both p ro n g s one and two, the defendant must come forward with a `compelling case' that the e x e rc ise of jurisdiction would not be reasonable." Boschetto v. Hansing, 539 F.3d 1011, 1 0 1 6 (9th Cir. 2008) (quotation omitted). A. Alter Ego A "parent-subsidiary relationship alone is insufficient to attribute the contacts of th e subsidiary to the parent for jurisdictional purposes." Harris Rutsky & Co. Ins. Servs., In c ., 328 F.3d at 1134. However, a subsidiary's contacts may be imputed to its parent for p e rs o n a l jurisdiction purposes where the subsidiary is the parent's alter ego. Id. T o demonstrate a parent and its subsidiary are alter egos, the plaintiff must e s ta b lis h a prima facie case that the two companies share "such unity of interest and o w n e rsh ip " that the companies' separateness no longer exists and "failure to disregard [ th e ir separate identities] would result in fraud or injustice." Doe v. Unocal Corp., 248 F.3d 9 1 5 , 926 (9th Cir. 2001) (quotation omitted). To demonstrate a unity of interest warranting d is re g a rd of corporate separateness, the plaintiff must show the parent controls its s u b s id ia ry to such a degree as to render the subsidiary a "mere instrumentality" of its parent. Id. (quotation omitted). Typically, this would involve showing the parent controls the s u b s id ia ry's internal affairs or daily operations. Kramer Motors, Inc. v. British Leyland, 7

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 8 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

L td ., 628 F.2d 1175, 1177 (9th Cir. 1980). A parent corporation may be involved directly in certain aspects of its wholly o w n e d subsidiary's affairs without subjecting itself to alter ego status. For example, a p a re n t may provide financing to its subsidiary so long as it maintains corporate formalities a n d properly documents loans and capital contributions to its subsidiaries, and it may act as its subsidiary's guarantor. Doe, 248 F.3d at 927-28. Additionally, a parent may refer to its s u b s id ia rie s as divisions of the parent in annual reports. Id. at 928. Further, a parent may re v ie w and approve major decisions, place its own directors on the subsidiary's board, and s h a re offices and staff with its wholly owned subsidiary without being considered its alter e g o . Id.; Harris Rutsky & Co. Ins. Servs., Inc., 328 F.3d at 1135. In sum, a parent may involve itself directly in its subsidiary's activities without b e c o m in g an alter ego "so long as that involvement is consistent with the parent's investor s ta tu s ." Harris Rutsky & Co. Ins. Servs., Inc., 328 F.3d at 1135 (quotation omitted). Activities consistent with investor status include "`monitoring of the subsidiary's p e rf o rm a n c e , supervision of the subsidiary's finance and capital budget decisions, and a rtic u la tio n of general policies and procedures[.]'" Doe, 248 F.3d at 926 (quoting United S ta te s v. Bestfoods, 524 U.S. 61, 72 (1998)). In addition to showing lack of corporate separateness, the plaintiff also must s h o w that failure to disregard the corporate form would promote fraud or injustice. The f ra u d or injustice must relate to the forming of the corporation or abuse of the corporate f o rm , not a fraud or injustice generally. Laborers Clean-Up Contract Admin. Trust Fund v. U ria rte Clean-Up Serv., Inc., 736 F.2d 516, 524-25 n.12 (9th Cir. 1984). For example, u n d e rc a p ita liz a tio n at the subsidiary's inception may be evidence of the parent's fraudulent in te n t. Id. However, a corporation that once was capitalized adequately but "subsequently f e ll upon bad financial times" does not support a finding of fraud or injustice. Id. at 525. Further, evidence that the corporation existed as an ongoing enterprise engaged in 8

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 9 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

le g itim a te business suggests no fraudulent intent or injustice to support piercing the c o rp o ra te veil. Seymour v. Hull & Moreland Eng'g, 605 F.2d 1105, 1113 (9th Cir. 1979). An inability to collect on a judgment "does not, by itself, constitute an inequitable result." 3 Id . B . Agency A subsidiary's contacts also may be imputed to its parent for personal jurisdiction p u rp o s e s where the subsidiary is the parent's general agent in the forum. Harris Rutsky & C o . Ins. Servs., Inc., 328 F.3d at 1134. A subsidiary is its parent's agent for purposes of a ttrib u tin g its forum-related contacts to the parent if the subsidiary "performs services that a re `sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially s im ila r services.'" Doe, 248 F.3d at 928 (quoting Chan v. Society Expeditions, Inc., 39 F .3 d 1398, 1405 (9th Cir. 1994)). The ultimate inquiry is whether the subsidiary's presence in the forum "substitutes" for its parent's presence. Id. at 928-29 (quotation omitted). Where the parent is merely a holding company, the subsidiary's forum-related c o n ta c ts are not done as the parent's agent because the holding company "could simply hold a n o th e r type of subsidiary" as an investment and thus the subsidiary conducts business not a s the parent's agent but as its investment. Id. at 929. "Where, on the other hand, the s u b s id ia rie s are created by the parent, for tax or corporate finance purposes, there is no b a s is for distinguishing between the business of the parent and the business of the Colorado employs a similar alter ego test. Under Colorado law, "[a]n alter ego relationship exists when the corporation is a mere instrumentality for the transaction of the shareholders' own affairs, and there is such unity of interest in ownership that the separate personalities of the corporation and the owners no longer exist." In re Phillips, 139 P.3d 639, 644 (Colo. 2006) (quotation omitted). Additionally, the party seeking to pierce the corporate veil must show that justice requires disregarding corporate separateness because "the corporate fiction was used to perpetrate a fraud or defeat a rightful claim." Id. (quotation omitted). Finally, a court applying Colorado law must "evaluate whether an equitable result will be achieved by disregarding the corporate form and holding the shareholder personally liable for the acts of the business entity." Id. 9
3

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 10 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

s u b s id ia rie s ." Id. (quotation omitted). The inquiry as to whether a subsidiary is its parent's g e n e ra l agent in the forum is "a pragmatic one." Gallagher v. Mazda Motor of Am., Inc., 7 8 1 F. Supp. 1079, 1085 n.10 (E.D. Pa. 1992). For example, where a Japanese parent company was engaged in the manufacture o f watches, its subsidiaries that acted as its sole sales agents in America were "almost by d e f in itio n . . . doing for their parent what their parent would otherwise have to do on its o w n ." Bulova Watch Co., Inc. v. K. Hattori & Co., Ltd., 508 F. Supp. 1322, 1342 (E .D .N .Y . 1981). The Bulova court thus attributed the subsidiaries' contacts to the parent c o m p a n y. Id.; see also Chan, 39 F.3d at 1405-06 (remanding to the district court for a d d itio n a l findings of fact regarding agency where the German parent corporation owned a n d operated cruise ships and its local subsidiary marketed cruises and chartered cruise s h ip s and sold the cruise ticket to the plaintiffs out of which the claims arose); Modesto City S c h s . v. Riso Kagaku Corp., 157 F. Supp. 2d 1128, 1135 (E.D. Cal. 2001) (holding s u b s id ia ry was parent's agent for personal jurisdiction purposes where subsidiary acted as s o le conduit for marketing and selling parent's products in the United States). In contrast, where the parent company owned a subsidiary mining company's s to c k but did not itself engage in the business of gold mining, imputing the subsidiary's f o ru m contacts to the parent was not appropriate. Sonora Diamond Corp. v. Superior Court, 9 9 Cal. Rptr. 2d 824, 840-41 (Ct. App. 2000). As the Sonora Diamond court explained, had th e parent company owned "the rights to the gold and used Sonora Mining as the operating a n d marketing entity," then perhaps general jurisdiction over the parent company would be a p p ro p ria te because under those circumstances the parent company "could not reap the b e n e f its of its rights unless it or someone else removed and sold the ore." Id. But where th e parent simply held the mining company as an investment, the subsidiary's forum-related c o n ta c ts could not be imputed to the parent company. Id. /// 10

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 11 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

L ik e w is e , in Doe, the Ninth Circuit concluded a foreign company's subsidiaries w e re not its general agents in California because the plaintiffs presented no evidence that in th e absence of the California subsidiaries' involvement in petrochemical and chemical o p e ra tio n s , the parent would have conducted and controlled those operations. Doe, 248 F .3 d at 929. The Court reached this conclusion even though the parent company issued c o n s o lid a te d reporting, referred to a subsidiary in an annual report as its "US unit," and s ta te d that use of the subsidiary "would enable it to expand its marketing network and p ro d u c e higher value-added specialty products in the United States." Id. III. CMS CORPORATION C M S Energy Corporation ("CMS") is a Michigan corporation with its principal p la c e of business in Jackson, Michigan. (Joint Supplemental Mem. of Defs. CMS Energy C o rp ., Duke Energy Carolinas, LLC, & Reliant Energy, Inc. in Supp. of Mots. to Dismiss f o r Lack of Pers. Juris. (Doc. #963), The CMS Defendants' App. of Facts in Supp. of the J o in t Mot. to Dismiss for Lack of Pers. Juris. ["Sep. CMS App."], Ex. A at 1.) CMS c o n d u c ts no business and has never been qualified to do business in Colorado. (Sep. CMS A p p ., Ex. B at 1.) CMS has no office, mailing address, telephone number, bank account, or p ro p e rty in Colorado. (Id.) It has no employees in Colorado, has never paid taxes there, a n d has never directly advertised to Colorado residents. (Id.) C M S does not itself engage in natural gas trading, production, sales, purchases, d is trib u tio n , or transportation. (Sep. CMS App., Ex. A at 1-2.) CMS also does not report or p u b lish natural gas trade information to any trade publication. (Id.) Rather, CMS is a h o ld in g company that owns subsidiaries operating in various sectors of the power and e n e rg y industries, two of which engage in natural gas trading and price reporting. (Id. at 12 , Ex. B at 1.) One such indirect subsidiary is CMS Marketing, Services and Trading C o m p a n y ("MST"), a Michigan corporation, that changed its name to CMS Energy R e so u rc e Management Company in 2004. (Sep. CMS App., Ex. A at 2-3.) MST is a 11

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 12 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

s u b s id ia ry of CMS Enterprises Company, a wholly owned subsidiary of CMS. (App. to P ls .' Joint Opp'n to CMS's Renewed Mot. to Dismiss for Lack of Pers. Juris (Doc. #1081) [ " P ls .' CMS App."], Ex. B at 2.) The other is CMS Field Services, Inc. ("Field Services"), a Michigan corporation with its principal place of business in Oklahoma. (Sep. CMS App., E x . A at 3.) In July 2003, Cantera Natural Gas, LLC purchased Field Services. (Id. at 4.) While CMS owned it, Field Services was a wholly owned subsidiary of CMS Gas T ra n s m iss io n Company, which is a wholly owned subsidiary of CMS Enterprises Company, a wholly owned subsidiary of CMS. (Pls.' CMS App., Ex. B at 2-3.) CMS shared at least one officer or director position with MST and Field S e rv ic e s . For example, MST's President and Chief Operating Officer from 1999 to 2001 w a s a CMS officer. (Pls.' CMS App., Ex. D at CMS-KS-001858.) Field Services' P re s id e n t from 1998 to 2001 also was a CMS officer. (Id.) MST, Field Services, and CMS m a in ta in separate bank accounts and separate books and records, however, CMS reports F ie ld Services' and MST's operations on CMS's consolidated financial reports. (Sep. CMS A p p ., Ex. A at 2-4.) CMS's primary source of cash is dividends and other distributions f ro m its subsidiaries. (Pls.' CMS App., Ex. A at CMS-KS-003534.) CMS did not make f in a n c ia l guarantees on its subsidiaries' behalf, but CMS's wholly owned subsidiary, CMS E n te rp ris e s Company, did. (Sep. Vol. of Evid. in Supp. of the CMS Defs.' App. of Facts in S u p p . of the Joint Mot. to Dismiss for Lack of Pers. Juris. ["CMS Sep. Vol. Evid."] (Doc. # 9 7 6 ), Ex. 2 at 141; Pls.' CMS App., Ex. A at CMS-KS-003544, Ex. E at CMS-KS-002106, E x . G at CMS-KS-001130, CMS-KS-001146.) C M S entered into Service and Management Agreements with Field Services and M S T under which CMS agreed to provide various services, including general a d m in is tra tiv e services, accounting, statistical and financial, risk management, tax, internal a u d itin g , information management, legal communications, engineering, public affairs, and h u m a n resources services. (App. of Docs. Filed Under Seal (Doc. #1142) ["Ex. M"], Ex. 12

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 13 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

M , Service and Management Agreement.) Pursuant to these agreements, Field Services and M S T appointed CMS as their "managing agent . . . to manage and direct the business" of F ie ld Services and MST "subject to the general supervision and control of the Board of D ire c to rs and officers" of Field Services and MST, respectively. (Id. at 5.) CMS's powers under the agreements include establishing corporate polices and p ro c e d u re s with respect to all operations except those specifically excluded by the a g re e m e n t, including making tax and regulatory filings; opening and closing bank accounts; p u rc h a s in g and maintaining insurance; buying, selling, leasing, or encumbering assets; e m p lo yin g , laying off, or dismissing employees; and conducting litigation. (Id. at 5-6.) The a g re e m e n ts precluded CMS from engaging in certain activities, such as selling, leasing, or o th e rw is e disposing of all of Field Services' or MST's assets; incurring indebtedness other th a n indebtedness to trade creditors in the ordinary course of business; forming partnerships o r joint ventures; or taking any other "extraordinary corporate action," without prior a p p ro v a l of Field Services' or MST's boards of directors. (Id. at 8.) In exchange, Field S e rv ic e s and MST paid CMS an annual consulting fee and reimbursed CMS for direct e x p e n s e s . (Id. at 9.) In addition to the Service Agreements, CMS entered into Royalty and Licensing A g re e m e n ts with Field Services and MST pursuant to which Field Services and MST could u s e the CMS Energy trade name and service marks. (Ex. M, Royalty and Licensing A g re e m e n t.) In return, Field Services and MST agreed to pay a royalty fee. (Id. at 3, C-1.) In its 1999 annual report, CMS described itself as-a leading international integrated energy company acquiring, d e v e lo p in g and operating energy facilities and providing energy s e rv ic e s in major growth markets. CMS Energy provides a complete ra n g e of international energy expertise from energy production to c o n s u m p tio n . CMS Energy intends to pursue its global growth by m a k in g energy investments that provide expansion opportunities for m u ltip le CMS Energy businesses. (P ls .' CMS App., Ex. C at CMS-KS-001006.) Similarly, in its 2000 annual report, CMS 13

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 14 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

d e s c rib e d itself as "an integrated energy company with a strong asset base enhanced by an a c tiv e marketing services and trading capability." (Pls.' CMS App., Ex. D at CMS-KS0 0 1 7 9 5 .) CMS has stated that its "vision" was to be "an integrated energy company with a s tro n g asset base, supplemented with an active marketing, services and trading capability." (Pls.' CMS App., Ex. E at CMS-KS-002109.) Additionally, CMS has stated that it "intends to integrate the skills and assets of its business units to obtain optimal returns and to provide expansion opportunities." (Id.; s e e also Pls.' CMS App., Ex. C at CMS-KS-001006 (stating CMS "intends to use its m a rk e tin g , services and trading business to improve the return on CMS Energy's other b u s in e s s assets").) In a 2001 filing with the Securities and Exchange Commission ("SEC"), C M S stated that it "intends to use CMS MST to focus on wholesale customers such as m u n ic ip a ls , cooperative electric companies and industrial and commercial customers." (Pls.' CMS App., Ex. E at CMS-KS-002072.) CMS also stated that it, "through its s u b s id ia ry CMS MST, engages in trading activities." (Id. at CMS-KS-002162.) In its 2000 annual report, CMS identifies certain market risks to which it is e x p o s e d including "interest rates, currency exchange rates, and certain commodity and e q u ity security prices." (Pls.' CMS App., Ex. D at CMS-KS-001874.) In response to these risk s , CMS has implemented an "enterprise-wide" risk management policy. (Id.) The p o lic y is implemented by CMS's Risk Committee which "review[s] the corporate c o m m o d ity position and ensure[s] that net corporate exposures are within the economic risk to le ra n c e levels established by the Board of Directors." (Id.) The Risk Committee is c o m p ris e d of CMS business unit managers and is chaired by CMS's Chief Risk Officer. (Pls.' CMS App., Ex. E at CMS-KS-002107.) C M S controls commodity-related risk primarily through its Risk Management P o lic y. (Ex. M, CMS Energy Risk Management Policy.) CMS's Board of Directors has " u ltim a te authority" over the Risk Management Policy. (Id. at 6.) Determination of the 14

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 15 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

" le v e ls and types of risk" CMS will accept lies within the Executive Oversight Committee's a u th o rity. (Id.) The Executive Oversight Committee consists of CMS's Chief Executive O f f ic e r, President and Chief Operating Officer, and Senior Vice President and Chief F in a n c ia l Officer. (Id. at 3.) MST's President has the responsibility of "authoriz[ing] the in d iv id u a ls within [MST] responsible for executing derivative transactions on its behalf and o n behalf of CMS Energy and . . . establish[ing] appropriate trading limits for said in d iv id u a ls ." (Id.) These limits are subject to approval by the CMS Risk Committee. (Id.) The Risk Committee is comprised of CMS's Senior Vice President and Chief Financial O f f ic e r, the president of each business unit, CMS's Vice President of Risk Management, a n d other individuals representing departments with certain transactional authority. (Id. at 4 .) The Risk Management Policy assigns to each business unit an amount of dollars th e Risk Committee has authorized to be at risk known as "VaR." (Id. at 12.) VaR is "the to ta l dollars that the business unit could expect to lose, in one day's time, if energy c o m m o d ity prices move in a magnitude equal to historical observations against the business u n it." (Id.) Each business unit must monitor and report its operations to the Risk M a n a g e m e n t Group to ensure it does not exceed its allotted VaR. (Id.) The Risk M a n a g e m e n t Group consists of certain individuals within CMS Enterprises Company re s p o n s ib le for collecting and reporting all of CMS's business units' books into a single p o rtf o lio . (Id. at 4.) The business unit must take action to correct violations of this limit w ith in one or two days or the Risk Management Group will provide notice to the Executive O v e rsig h t Committee, which notifies the Authorized Trading Group of what action must be ta k e n to correct the violation. (Id. at 12.) The Authorized Trading Group is the "entity w ith in CMS Energy authorized to negotiate for and enter into derivative agreements" on C M S 's behalf. (Id. at 2.) The Risk Management Policy assigns this responsibility to MST. (Id.) 15

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 16 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

T h e Risk Management Policy contains similar constraints for earnings at risk for e a c h business unit as well as limits designed to minimize the total financial loss CMS or its b u s in e s s units may incur. (Id. at 13.) Should those limits be reached, "all activity related to th a t transaction, book of transactions or the business unit entering into said transaction shall im m e d ia te ly cease and no new transactions will be entered into unless specifically a u th o riz e d by the [Executive Oversight Committee]." (Id.) The business unit may not re s u m e business activity until authorized by the Executive Oversight Committee. (Id.) The Executive Oversight Committee establishes that portion of CMS's earnings w h ic h may be exposed to energy commodity risk. (Id. at 18.) The Risk Committee then a llo c a te s this limit across the various business units. (Id.) Should CMS's earnings at risk e x c e e d the set amount, the Risk Management Group "immediately" notifies the Authorized T ra d in g Group, the Risk Committee, and the Executive Oversight Committee. (Id. at 20.) Within twenty-four hours, the Risk Management Group and the Authorized Trading Group m u s t recommend actions to correct the situation. (Id.) Within forty-eight hours of re c e iv in g the recommendation, the Executive Oversight Committee directs the Risk M a n a g e m e n t Group and Authorized Trading Group of what actions to take. (Id.) While C M S set overall limits, each subsidiary "operate[s] their businesses how they see fit within th o s e parameters." (CMS Sep. Vol. Evid., Ex. 2 at 113.) T h e Risk Management Policy requires each business unit to create its own a g g re g a te risk reports on a daily basis. (Ex. M, Risk Management Policy at 6, 12.) These re p o rts are provided to the head of the business unit and CMS's Vice President for Risk M a n a g e m e n t. (Id.) Under the policy, CMS was to perform an audit at least annually to e n s u re compliance. (Id. at 14.) Violations of the policy are grounds for terminating an e m p lo ye e . (Id. at 17.) In 2001 and 2002, CMS "identified a number of deficiencies in M S T 's systems of internal accounting controls." (Pls.' CMS App., Ex. A at CMS-KS0 0 3 5 6 0 .) In response, CMS senior management and the CMS Audit Committee responded 16

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 17 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

b y replacing some personnel, deploying additional accounting personnel, and implementing c h a n g e s to MST's internal accounting controls. (Id.) In filings with the SEC, CMS disclosed that it had notified appropriate g o v e rn m e n ta l authorities "that some employees at CMS MST and CMS Field Services a p p e a re d to have provided inaccurate information regarding natural gas trades to various e n e rg y industry publications which compile and report index prices. CMS Energy is c o o p e ra tin g with investigations by the Commodity Futures Trading Commission, D e p a rtm e n t of Justice and [the Federal Energy Regulatory Commission] regarding this m a tte r." (Id.) In 2005 filings with the SEC, CMS indicated that MST engaged in "roundtrip trading transactions (simultaneous, prearranged commodity trading transactions in w h ic h energy commodities were sold and repurchased at the same price)," and the D e p a rtm e n t of Justice was investigating CMS. (Pls.' CMS App., Ex. I at CMS-KS0 1 0 7 9 7 .) CMS also disclosed that, pursuant to existing indemnification policies, it was a d v a n c in g legal defense costs to two former Field Services employees in a civil injunction a c tio n filed by the Commodity Futures Trading Commission ("CFTC"). (Id. at CMS-KS0 1 0 7 9 8 .) In November 2003, MST and Field Services entered into a settlement with the C F T C . (Pls.' CMS App., Ex. B.) The CFTC found that from November 2000 through S e p te m b e r 2002, MST and Field Services reported false natural gas trade information to p ric e and volume reporting firms. (Id. at 2-3.) Under the settlement, MST and Field S e rv ic e s agreed to cease and desist from further violations and to pay a $16 million penalty. (Id. at 5.) Additionally, MST, Field Services, CMS, and Cantera Natural Gas, Inc. agreed to c o o p e ra te with the investigation, by, among other things, preserving records, fully c o m p lyin g with inquiries or requests for records, producing witnesses, and assisting in lo c a tin g prior employees. (Id. at 6-7.) CMS, MST, and Field Services also agreed not to m a k e any public statement denying the CFTC's findings. (Id. at 7.) 17

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 18 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

B y October 2002, Field Services ceased submitting natural gas price reports to tra d e publications. (Sep. CMS App., Ex. C at 5.) In January 2003, MST sold a major p o rtio n of its wholesale natural gas trading book to a third party. (Pls.' CMS App., Ex. A at C M S -K S -0 0 3 4 7 8 .) By 2003, CMS had "eliminated virtually all of the business of [MST]." (Pls.' CMS App., Ex. J at CMS-KS-008608.) After that time, MST's remaining business " f o c u s e s on buying the fuel needed by [CMS's] domestic independent power plants and s e llin g the uncontracted energy they produce." (Id.) P la in tif f s do not contend this Court may assert personal jurisdiction over CMS b a s e d on CMS's own contacts with Colorado. (Pls.' Joint Opp'n to CMS Energy C o rp o ra tio n 's Mot. to Dismiss for Lack of Pers. Juris. (Doc. #1080) at 4-5.) Consequently, C M S is subject to personal jurisdiction in Colorado only if the forum acts of its subsidiaries, F ie ld Services and/or MST, are attributable to it through alter ego or agency principles.4 A . Alter Ego P la in tif f s have failed to establish a prima facie case of personal jurisdiction based o n MST or Field Services being CMS's alter ego. CMS indirectly wholly owns both s u b s id ia rie s . The companies did not share offices and had only one overlapping officer or d ire c to r. CMS did not make financial guarantees on MST's or Field Services' behalf. The c o m p a n ie s maintained separate books and records. Although MST and Field Services were p e rm itte d to use the CMS trade name and service marks, they had to pay a royalty fee to do so. U n d e r the Services and Management Agreements, CMS provided corporate s e rv ic e s to MST and Field Services and acted as the subsidiaries' managing agent. However, MST and Field Services contractually were required to pay for those services, a n d CMS's activities were subject to the control of the subsidiaries' boards of directors. The Court will assume that if Field Services' and/or MST's forum-related acts are attributable to CMS, the Colorado long-arm statute is satisfied. 18
4

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 19 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

T h e Services and Management Agreements set forth certain actions CMS could not u n d e rta k e as managing agent without the prior written approval of the subsidiaries' boards o f directors. Such restrictions are inconsistent with alter ego status. C M S 's promulgation of general policies for its subsidiaries is consistent with its in d ire c t investor status. CMS, as an investor up the corporate chain, is entitled to monitor F ie ld Services' and MST's performance and limit the risk to its investment that it is willing to accept. Consequently, any daily reporting of information from Field Services and MST to CMS is in accord with CMS's investor oversight role. No evidence suggests CMS gave d a ily control commands to Field Services or MST. Rather, the record demonstrates that, c o n s is te n t with its investor status, CMS set general policies and guidelines regarding certain o v e ra ll limits, such as limits on VaR and earnings at risk. Plaintiffs present no evidence th a t CMS played a role in the day-to-day conduct of Field Services' and MST's operational b u s in e s s . For example, with respect to natural gas trading, while CMS set overall limits on c e rta in metrics, CMS had no role in making the day-to-day decisions of who Field Services o r MST was to trade with, when, for what amount of natural gas, and at what price. Although the Risk Management Policy permitted CMS to cease any subsidiary business a c tiv ity when certain limits were exceeded, Plaintiffs present no evidence CMS ever did so, m u c h less that it did so on a daily basis with respect to Field Services and MST. Plaintiffs a ls o present no evidence CMS had any role in Field Services' or MST's price reporting to in d ic e s. Even if Plaintiffs had established a lack of corporate separateness, Plaintiffs have n o t established a fraud or injustice would result if the Court failed to pierce the corporate v e il. Plaintiffs contend it would be unjust to permit CMS to reap the benefits of Field S e rv ic e s ' and MST's alleged unlawful behavior by enjoying profits from its indirect s u b s id ia rie s ' trading activities while escaping liability for their alleged misconduct. However, the alleged illegal price manipulation cannot itself constitute the fraud or injustice 19

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 20 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

n e c e s s a ry to pierce the corporate veil. Rather, CMS must have had some fraudulent intent a t Field Services' or MST's inception or some later abuse of the corporate form such that f a ilin g to treat the entities as one would be inequitable. Plaintiffs present no evidence Field S e rv ic e s or MST was undercapitalized at its inception. Further, the fact that the two c o m p a n ie s operated as legitimate businesses for years suggests a lack of fraudulent intent or p e rp e tra tio n of a fraud through use of the corporate structure on the parent's part. Plaintiffs' fear that they may not be able to collect on a judgment in this action a g a in s t Field Services or MST does not constitute fraud or injustice to support piercing the c o rp o ra te veil. The Court therefore finds Plaintiffs have not met their burden of e s ta b lis h in g Field Services or MST is CMS's alter ego, and the Court will not attribute th e s e subsidiaries' contacts with Colorado to CMS for purposes of determining personal ju ris d ic tio n based on alter ego principles. B . Agency Plaintiffs have failed to establish a prima facie case that Field Services or MST w a s CMS's general agent in Colorado. CMS's business is not purely a holding company in th e sense that it does not passively hold stock in companies from an unrelated range of b u s in e s s e s . CMS describes itself as an integrated energy company and has referred to the s yn e rg is tic benefits of its trading business line with the business lines of other subsidiaries it ow ns. Although CMS identifies natural gas trading and marketing as one of its business s e g m e n ts, Plaintiffs have not established that Field Services' or MST's sales of natural gas in Colorado were sufficiently important to CMS that if Field Services or MST did not make th e sales in Colorado, CMS would have done so itself. CMS did not conduct any o p e ra tio n a l business itself. Natural gas trading activity was a separate business segment o p e ra te d through an indirect subsidiary. Further, CMS subsequently sold Field Services, a n d MST ceased natural gas trading and reporting, suggesting that these subsidiaries' 20

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 21 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

tra d in g activities were not sufficiently important to CMS that it would perform the activities its e lf if its indirect subsidiaries did not do so on its behalf. Moreover, Plaintiffs have presented no evidence that Field Services' and MST's n a tu ra l gas sales in Colorado in particular were sufficiently important to CMS's business th a t CMS would have performed the sales in Colorado itself absent its subsidiaries' re p re se n ta tio n in the forum. See Modesto City Schs., 157 F. Supp. 2d at 1135 (noting tw e n ty percent of parent's products were sold through subsidiary which acted as parent's " s o le conduit for marketing and selling its products in the United States"); Bulova Watch C o ., Inc., 508 F. Supp. at 1344 (noting that sixty percent of parent's products were sold as e x p o rts and the United States was the parent company's largest export market through its N e w York subsidiaries' sales in the United States). Consequently, Plaintiffs have not s h o w n that Field Services' or MST's Colorado natural gas sales played a significant role in C M S 's "`organizational life'" such that it acted as a substitute for CMS in the forum. Bulova Watch Co., Inc., 508 F. Supp. at 1344. The Court therefore will not attribute Field S e rv ic e s ' and MST's Colorado contacts to CMS under agency principles.5

The result would be the same under general Colorado agency law. In Colorado, "express authority exists if the principal directly states that an agent has authority to perform a particular act on the principal's behalf." Villalpando v. Denver Health & Hosp. Auth., 181 P.3d 357, 362-63 (Colo. Ct. App. 2007). Implied authority includes the authority to perform acts incidental to expressly granted authority, or acts that are "necessary, usual, and proper to accomplish or perform, the primary authority expressly delegated to the agent." Id. at 363. Colorado also recognizes apparent agency upon a showing the principal's words or conduct reasonably cause a person to believe the principal consents to the agent acting on his behalf, and the person in good faith relies on a belief that an agency relationship exists between the apparent principal and agent. Id. Here, Plaintiffs have presented evidence that CMS delegated to MST the authority to conduct derivative trading on CMS's behalf under the Risk Management Policy. However, Plaintiffs have presented no evidence MST engaged in derivative transactions in Colorado pursuant to this authority. Additionally, Plaintiffs have presented a comment in an SEC filing that CMS engages in trading activity "through" MST. The statement is not an express authorization for MST to sell natural gas on CMS's behalf as CMS's agent with authority to bind CMS. Rather, it describes CMS's business line operationally conducted through its subsidiary. Plaintiffs present no other evidence that CMS expressly delegated trading authority on CMS's behalf to MST. As to apparent agency, Plaintiffs have 21

5

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 22 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

T h e Court will not attribute Field Services' or MST's contacts with the forum to C M S , and CMS has no contacts of its own sufficient to support personal jurisdiction. The C o u rt therefore will grant CMS's motion to dismiss for lack of personal jurisdiction. I V . DUKE ENERGY CAROLINAS, LLC D u k e Energy Carolinas, LLC ("DEC") is a North Carolina limited liability c o m p a n y formerly known as Duke Energy Corporation, a North Carolina corporation. (Joint Supplemental Mem. of Defs. CMS Energy Corp., Duke Energy Carolinas, LLC, & R e lia n t Energy, Inc. in Supp. of Mots. to Dismiss for Lack of Pers. Juris. (Doc. #963), S e p a ra te App. of Facts Regarding Duke Energy Carolinas, LLC ["Sep. DEC App."], Ex. A a t 1.) Duke Energy Corporation converted to a limited liability company and renamed itself D E C in April 2006. (Renewed Mot. to Dismiss for Lack of Pers. Juris. (Doc. #872) ["DEC M o t." ], Ex. A at 2.) DEC primarily engages in the business of generating, transmitting, d is trib u tin g , and selling electric energy in North and South Carolina. (Id. at 3.) D E C does not maintain offices, conduct business, own property, or maintain a b a n k account in Colorado. (Sep. DEC App., Ex. A at 2, Ex. C at 2, Ex. D at 2.) DEC has n o t applied for or received a certificate of authority to transact business in Colorado and has n o registered agent for service of process in Colorado. (Sep. DEC App., Ex. B at 2.) DEC wholly owns Duke Capital Corporation, which in turn wholly owns Pan E n e rg y Corp. (App. to Pls.' Joint Opp'n to Duke Energy Carolinas, LLC's Mot. to Dismiss f o r Lack of Pers. Juris. (Doc. #1084) ["Pls.' DEC App."], Ex. F.) Pan Energy Corp. wholly o w n s Duke Energy Services, Inc., which wholly owns Duke Energy Natural Gas C o rp o ra tio n . (Id.) Duke Energy Natural Gas Corporation wholly owns DETMI M a n a g e m e n t, Inc. (Id.) DETMI Management, Inc. owns a sixty percent interest in Duke

presented evidence that CMS permitted Field Services and MST to use the "CMS" name and logo in marketing natural gas in Colorado. However, Plaintiffs have presented no evidence that anyone relied on an apparent agency relationship between CMS and Field Services or MST. 22

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 23 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

E n e rg y Trade and Marketing, LLC ("DETM"), a Defendant in this action and the subsidiary w h o s e contacts with Colorado Plaintiffs seek to attribute to DEC. (DEC Mot., Ex. C at 2.) Mobil Natural Gas, Inc. ("MNGI"), an indirect subsidiary of Exxon Mobil Corporation, o w n s the other forty percent of DETM. (Id. at 2-3.) DETM was created in 1996 as a Delaware limited liability company pursuant to a lim ite d liability company agreement and limited partnership agreement. (Pls.' DEC App., E x . E at 34-35; App. of Docs. Filed Under Seal (Doc. #1125) ["Sealed DEC App."], Ex. L a t DEMDL000383; DEC Separate Vol. of Evid. in Supp. of the Separate App. of Facts R e g a rd in g Duke Energy Carolinas, LCC (Doc. #968) ["DEC Separate Vol. Evid."], Ex. 7.) The company now known as DETM originally was called PanEnergy Trading and M a rk e tin g Services, LLC, and was created by an agreement between PTMSI Management, In c . and MNGI. (DEC Separate Vol. Evid., Ex. 7 at 1, 6, 7, 10.) PTMSI Management, In c .'s parent company at the time was PanEnergy Corp. (Id. at 7, 10.) PanEnergy Corp. w a s acquired by Duke Energy Corporation in 1997 and PanEnergy Trading and Marketing S e rv ic e s , LLC was renamed to DETM. (DEC Separate Vol. Evid., Ex. 9 at 2.) DETM is e n g a g e d in the purchase and sale of natural gas and electricity at wholesale. (DEC Mot., E x . C at 3.) DETM concedes personal jurisdiction in this action. (Pls.' DEC App., Ex. A at 2 .) D E T M is run by a Management Committee consisting of three representatives f ro m the Duke Energy side and two representatives from the Exxon Mobil side. (Sealed D E C App., Ex. L at DEMDL000400.) The Management Committee acts through the d e le g a tio n of certain responsibilities and authority to the managing member, which in 2001 a n d 2002 was DETMI Management, Inc. (Id.) Although DETMI Management, Inc. was th e managing member, and through its majority status on the committee could outvote the M N G I members on certain matters, the limited liability company agreement mandated that s o m e actions required unanimous approval by the Management Committee. (DEC Separate 23

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 24 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

V o l. Evid., Ex. 7 at 17, 24, 26-27.) In at least one instance, the MNGI members refused to a g re e to a business plan supported by the DETMI Management, Inc. members. (Pls.' DEC A p p ., Ex. E at 67-69.) No DEC director serves as an officer or director for DETM. (DEC Mot., Ex. A a t 4.) In DEC's 2000 annual report, DEC identified a "management team" which includes J im W. Mogg ("Mogg"), Chief Executive Officer of Duke Energy Field Services; Kirk B. M ic h a e l ("Michael"), Vice President and Chief Financial Officer for Finance and Planning; J a m e s Donnell ("Donnell"), President and Chief Executive Officer for Duke Energy North A m e ric a ; and Ronald Green ("Green"), President and Chief Executive Officer for D u k e /F lu o r Daniel. (Pls.' DEC App., Ex. B at DEMDL001901.) Mogg, Michael, Donnell, a n d Green were members of the DETM Management Committee at one point or another. (Sealed DEC App., Ex. L at DEMDL001702, DEMDL001706, DEMDL001711.) DEC and DETM maintain separate corporate records. (DEC Mot., Ex. A at 4.) DEC provided corporate services to DETM, including administering employee health in s u ra n c e , human resources, computer technology, legal services, and credit risk m a n a g e m e n t. (Pls.' DEC App., Ex. A at 4-5.) Throughout the relevant time period, DETM re g u la rly used, and was permitted to use, the "Duke Energy" and "Mobil" logos. (Id. at 5.) DETM did not have any agency agreements or power of attorney for DEC, and did not re g is te r to do business on DEC's behalf in Colorado during the relevant time period. (Id.) D E T M was financed through a $150 million funding facility, of which DETMI M a n a g e m e n t, Inc. provided sixty percent and MNGI funded the other forty percent. (DEC S e p a ra te Vol. Evid., Ex. 3 at 35.) In DETM's financial statements, it twice indicated that D E C was responsible for providing operational interest-free contributions, on a p ro p o rtio n a te basis with Exxon Mobil, to fund DETM's operations. (DEC Sealed App., Ex. L at DEMDL00383, DEMDL00400.) According to Richard McGee ("McGee"), former g e n e ra l counsel for energy services for DEC and current president of DEC's international 24

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 25 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

b u s in e s s , these statements were a mistake, as PanEnergy Corp., not DEC, is responsible for m a k in g contributions under the funding facility agreement. (Pls.' DEC App., Ex. E at 6, 1 3 8 -4 0 .) DEC's consolidated financial reports reflected sixty percent of DETM's profits a n d losses during the relevant time period. (Pls.' DEC App., Ex A at 6.) D E C describes itself, collectively with its subsidiaries, as "an integrated energy a n d energy services provider with the ability to offer physical delivery and management of b o th electricity and natural gas throughout the U.S. and abroad." (Pls.' DEC App., Ex. B at D E M D L 0 0 1 8 4 6 .) DEC provides these services through various "business segments," one o f which includes DETM's natural gas trading. (Id.) DEC describes its business strategy as " d e v e lo p [ in g ] integrated energy businesses in targeted regions where Duke Energy's e x te n s iv e capabilities in developing energy assets, operating electricity, natural gas and N G L plants, optimizing commercial operations and managing risk can provide c o m p re h e n s iv e energy solutions for customers and create superior value for shareholders." (Id.) DEC has created "[c]omprehensive risk management polices" to monitor and m a n a g e market, commodity price, credit, and other risks to which DEC and its subsidiaries a re exposed. (Id. at DEMDL001854-55.) As part of its risk management policies, DEC m o n ito rs certain metrics, such as value-at risk ("VAR") and daily earnings at risk ("DER") o n a daily basis. (Id. at DEMDL001855.) DEC has several committees which perform risk m a n a g e m e n t, including the Corporate Risk Management Committee, the Energy Risk M a n a g e m e n t Committee, and the Financial Risk Management Committee. (Pls.' DEC A p p ., Ex. E at 80.) DEC appointed the members of each of these committees. (Id.) Through these polices and committees, DEC sets overall risk guidelines for its subsidiaries. For example, DEC adopted a Code of Business Ethics which applied to every D E C subsidiary. (Pls.' DEC App., Ex. J, Ex. E at 100-01.) This policy mandated c o m p lia n c e with applicable antitrust laws. (Pls.' DEC App., Ex. J at 12.) This policy was 25

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 26 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

im p le m e n te d and supervised by DEC's Corporate Compliance Committee. (Id. at 15.) The C o rp o ra te Compliance Committee was responsible for updating the code, establishing e d u c a tio n programs for employees about ethics and compliance issues, providing guidance u n d e r the code, monitoring and auditing compliance, reporting periodically to management a n d the Audit Committee of DEC's Board of Directors, and reporting violations to the a p p ro p ria te governmental authorities. (Id.) DETM either incorporated this policy by re f e re n c e or adopted a similar policy. (Pls.' DEC App., Ex. E at 115-16.) D E C also has a Corporate Credit Risk policy. (Sealed DEC App., Ex. L at D E M D L 0 0 1 3 8 2 , DEMDL001388.) Under this policy, DEC's Chief Risk Officer chairs the R is k Management Committee. (Id.) The Risk Management Committee meets at least m o n th ly and is responsible for reviewing business trends and credit exposure, monitoring c o m p lia n c e with the policy, identifying where new policies are needed, and ensuring " c o n s is te n t and mutually reinforcing credit and market risk management strategies through v a rio u s corporate risk policies and associated guidelines for implementing policy." (Id.) The policy also sets forth the duties of the Chief Credit Officer, which includes the ability to "stop business activity that would increase credit exposure, as is necessary, to protect D u k e Energy's balance sheet." (Id.) The Chief Credit Officer reports to the Chief Risk O f f ic e r. (Id.) DEC has a Corporate Risk Management Committee consisting of DEC's chief f in a n c ia l officer and DEC Policy Committee members. (Id. at DEMDL001488.) This C o m m itte e establishes "comprehensive risk management policies to monitor and control id e n tif ie d risks." (Id.) DEC's Corporate Risk Management Committee delegates some re s p o n s ib ilitie s to the Energy Risk Management Committee and the Financial Risk M a n a g e m e n t Committee, but retains oversight responsibilities. (Id.) The Energy Risk M a n a g e m e n t Committee has responsibility for overseeing energy risk management p ra c tic e s and recommending energy commodity exposure limits, subject to approval by the 26

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 27 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

C o rp o ra te Risk Management Committee. (Id.) The Financial Risk Management C o m m itte e is responsible for managing risks related to interest rates, foreign currency, and c re d it. (Id.) Within DETM, "[u]ltimate risk control responsibility resides with the DETM M a n a g e m e n t Committee." (Id. at DEMDL001489.) The DETM Management Committee o v e rs e e s the risk management and control function and approves policies and controls for D E T M . For example, DETM adopted its own Risk Management and Trading Policies and C o n tro ls . (Id. at DEMDL001484.) DETM's Management Committee "delegates the dayto -d a y overview of the risk management and control function" to the DEC Energy Risk M a n a g e m e n t Committee. (Id. at DEMDL001489.) "However, overall responsibility for D E T M 's performance targets, business plans and approved risk levels remains with the M a n a g e m e n t Committee." (Id.) Although DETM's Risk Management and Trading P o lic ie s and Controls states that the Management Committee delegates "day-to-day o v e rv ie w " to the DEC Energy Risk Management Committee, it describes the Energy Risk M a n a g e m e n t Committee's functions as meeting "at least monthly" to establish risk m a n a g e m e n t policies, controls, and practices, and overseeing and approving excesses of o v e ra ll limits. (Id. at DEMDL001489-90.) When it comes to operational control, the policy v e s ts that authority in DETM Senior Management. (Id. at DEMDL001490.) DETM Senior M a n a g e m e n t is responsible for "[d]evelopment of trading strategies; [a]ctive management o f trading within overall limits; [a]llocation of limits to traders and/or books; [e]nforcing th e risk control environment; [a]dvocating new limits and products; and [a]dvocating e x c e p tio n s or revisions to policy when appropriate." (Id.) Beneath DETM Senior M a n a g e m e n t, the origination and trading groups actually conduct the transactions with c u s to m e rs . (Id.) D E C 's Energy Risk Management Committee is not responsible for managing e n e rg y price risk for DETM. (Separate DEC Vol. Evid., Ex. 10 at DEMDL001569.) 27

Case 2:03-cv-01431-PMP-PAL

Document 1515

Filed 02/23/2009

Page 28 of 47

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

In s te a d , DETM manages its own energy price risk pursuant to its own risk management p o lic y. (Id.) However, that policy is subject to approval by the Corporate Risk M a n a g e m e n t Committee. (Id.) In similar fashion, DETM decides whether to extend credit, s u b je c t to the Financial Risk Committee's Credit Quality Guidelines. (Id. at D E M D L 0 0 1 4 9 5 .) According to McGee, DEC's risk management policies "would have a p p lie d to DETM only to the extent that . . . the management committee of DETM had a d o p te d a policy that was similar to this or [DETMI,] in discharging its responsibilities as a m a n a g in g member of DETM . . . adopt[ed] policies that it saw fit in connection with d is c h a rg in g those duties." (Pls.' DEC App., Ex. E at 100.) These policies "were either la rg e ly consistent with or in some cases maybe identical to some of" DEC's policies. (Id.) A t a July 2000 DETM management committee meeting, the MNGI representative e x p re s s e d some concern that certain personnel now working for DETM would be shared b e tw e e n DETM and Duke Energy North America, LLC. (Sealed DEC App., Ex. L at D E M D L 0 0 1 7 0 7 .) Specifically, the MNGI representative was concerned that because D E T M senior managers "would have dual responsibilities, working for both