The U.S. Court of Appeals for the Eighth Circuit ruled earlier this month that a federal court in Minnesota — and not the Bankruptcy Court in New York where power generator NRG Energy sought Chapter 11 bankruptcy protection in 2003 — has jurisdiction over the Commodity Futures Trading Commission’s enforcement action against the Princeton, NJ, company, the agency said.

The appellate court held that the CFTC properly pursued charges against NRG Energy in the U.S. District Court in Minnesota. In its Aug. 4 ruling, the court reversed an earlier order of the federal court in Minnesota dismissing without prejudice the CFTC’s enforcement against NRG Energy on the grounds that the bankruptcy court in the Southern District of New York retained exclusive jurisdiction over the action. It remanded the case to the district court for further proceedings.

In mid-2004, the CFTC filed a complaint in the Minnesota court, charging NRG Energy with “knowingly” providing fake information on gas trades in 2001 and 2002. The agency asked the federal court to permanently enjoin NRG Energy from engaging in further violations of the Commodity Exchange Act (CEA) The alleged false reports were made to Platts’ Gas Daily, which is owned by McGraw-Hill Companies Inc.

At the time the complaint was filed, NRG was a Minneapolis-based merchant power subsidiary of Xcel Energy and had already sought Chapter 11 bankruptcy protection. The company, however, was no longer affiliated with Xcel when it emerged from bankruptcy at the end of 2003.

While still in bankruptcy, the CFTC filed a proof of claim notifying the bankruptcy court of potential claims against NRG. NRG countered that the bankruptcy court had exclusive jurisdiction over the matter, a position that was upheld by the Minnesota court. NRG Energy further argued that its actions did not violate the CEA.

But the Eighth Circuit rejected the argument that the bankruptcy court had sole jurisdiction over the CFTC’s action. It held that “given that Congress granted district courts jurisdiction over enforcement proceedings brought under the Act [CEA]…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.”

With the jurisdictional issue settled, the Minnesota federal court is likely to act on NRG Energy’s claim that its actions were not a violation of the CEA, and the CFTC’s request for an injunction. If granted an injunction, the CFTC said it would make it easier for the agency to take action against NRG Energy if it engages in the false reporting of natural gas trades in the future.

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