Skolarus v. Bloomberg

Background

Edward Skolarus, Joshua Cain, Yaffa Lawson, James Small, Cassandra Arnold, Steven Tortolani, and Michael Katzman sued Bloomberg, L.P. and Bloomberg Index Services, Ltd. on behalf of themselves and others similarly situated. The plaintiffs are residential electricity customers in Texas and California who receive power through regional utilities, including the Electric Reliability Council of Texas, Southern California Edison Company, and Pacific Gas and Electric Company.

The case concerns four sets of utility recovery bonds issued in 2022, 2023, and 2024. Utilities use recovery bonds to finance certain large expenses, and electricity customers repay the bonds through charges on their utility bills. The bonds carried market-based interest rates. The plaintiffs alleged that Bloomberg moved recovery bonds from its corporate bond index to its asset-backed securities index. They alleged that the new classification was viewed as riskier, reduced the pool of eligible investors, increased the bonds’ interest rates, and caused higher charges to be passed on to electricity customers.

The amended complaint asserted intentional interference with contractual relations and six other causes of action. Bloomberg moved to dismiss the amended complaint under the filed rate doctrine and for failure to state a claim.

Filed Rate Doctrine

The filed rate doctrine generally prevents courts from declaring unreasonable a rate approved by the responsible regulatory agency or from awarding relief that would require the court to determine a different reasonable rate. The doctrine is based on concerns that courts should not undermine an agency’s rate-making authority and should not give some ratepayers a preferential rate.

The court first determined that the plaintiffs were effectively challenging the interest rates, even though they identified Bloomberg’s index reclassification as the conduct at issue. The alleged injury and requested damages depended on the higher interest rates allegedly caused by the reclassification. The court therefore treated the action as a challenge to the rates on the four sets of recovery bonds.

The court then considered whether the Texas and California utility commissions exercised sufficient control over the market-based rates. Relying on the Second Circuit’s decision in Simon v. KeySpan Corporation, the court examined whether regulators established the rate-setting process, had power to review the resulting rates, and had power to investigate influences on the rates and used that power.

The plaintiffs did not dispute that the utility commissions established the rate-setting process. They argued that the commissions had approved the bond issuances before the actual market-based interest rates were known and had not approved the rates themselves. The court rejected that argument. It found that the commissions knew the actual rates before the bonds were issued and could have withheld issuance. Because they did not do so, the court concluded that the commissions assessed the actual rates as reasonable under the processes they had established.

The court also held that it made no difference that the commissions approved ranges of rates rather than one precise rate. The challenged rates were not alleged to exceed the approved ranges. The court further noted that Bloomberg’s reclassification announcements were public rather than secret and that the plaintiffs did not allege that the resulting rates exceeded the rates submitted to the commissions. The court concluded that the rate-setting process contained sufficient safeguards against the alleged market manipulation and that the filed rate doctrine barred all of the plaintiffs’ causes of action.

Leave to Amend and Disposition

The plaintiffs did not request permission to file another amended complaint. They also did not identify allegations in their opposition that would produce a different result. The court therefore denied leave to amend.

The court granted Defendants’ motion to dismiss the amended complaint. It denied the motion to stay discovery as moot, directed the clerk to enter judgment, and closed the case.