Steven Brooks v. Commonwealth Edison Company

• Court: Court of Appeals for the Seventh Circuit
• Decided: August 22, 2022
• Docket: 21-2873
• Status: Published

Opinion

In the

United States Court of Appeals For the Seventh Circuit ____________________ Nos. 21-2861, 21-2872 & 21-2873 SOUTH BRANCH LLC, et al., Plaintiffs-Appellants, v.

COMMONWEALTH EDISON COMPANY and EXELON CORPORA- TION, Defendants-Appellees. ____________________

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 1:20-cv-4980, -4405 & -4555 — Jorge L. Alonso, Judge. ____________________

ARGUED MAY 17, 2022 — DECIDED AUGUST 22, 2022 ____________________

Before SYKES, Chief Judge, and KIRSCH and JACKSON- AKIWUMI, Circuit Judges. KIRSCH, Circuit Judge. Nine Illinois energy consumers sued their electricity provider, Commonwealth Edison Company, and its parent, Exelon Corporation, on behalf of themselves and those similarly situated for damages under the Racketeer Influenced and Corrupt Organizations Act (RICO) alleging injury from increased electricity rates. These rates increased, 2 Nos. 21-2861, 21-2872, & 21-2873

the plaintiffs allege, because ComEd bribed the former Illinois Speaker of the House to shepherd three bills through the state’s legislature. The district court dismissed the suit. Be- cause paying a state’s required filed utility rate is not a cog- nizable injury for a RICO damages claim, we affirm. I Since we are reviewing a dismissal on the pleadings, we treat the following well-pleaded facts in the complaint as true. See Bilek v. Fed. Ins. Co., 8 F.4th 581, 586 (7th Cir. 2021). When appropriate, we also cite matters of public record not subject to reasonable dispute for which we take judicial notice. See Orgone Cap. III, LLC v. Daubenspeck, 912 F.3d 1039, 1044 (7th Cir. 2019). Exelon Corporation is a utility services holding company engaged in the energy distribution and transmission business across multiple states through several subsidiaries, including Commonwealth Edison Company. 1 ComEd purchases, trans- mits, distributes, and sells electricity to retail customers in northern Illinois. As an Illinois public utility, ComEd must file its electricity rates with the Illinois Commerce Commission (ICC). See 220 Ill. Comp. Stat. §§ 5/9-102, 5/9-104. To secure passage of favorable legislation, ComEd en- gaged in a yearslong “pay to play” scheme with Michael Madigan, the former Speaker of the Illinois House of Repre- sentatives and Chair of the Illinois Democratic Party. Through that scheme, ComEd paid bribes to Madigan’s associates, and, in return, Madigan used his roles as Speaker and Party Chair to push advantageous bills through the state legislature. As

1 Except where otherwise noted, this opinion generally refers to the de- fendants collectively as ComEd. Nos. 21-2861, 21-2872, & 21-2873 3

relevant here, three bills became law during the ComEd- Madigan scheme: (1) the Energy Infrastructure and Moderni- zation Act of 2011 (EIMA); (2) 2013 amendments to that legis- lation; and (3) the Future Energy Jobs Act of 2016 (FEJA). First, in 2011, ComEd paid three Madigan connections in- directly as subcontractors for little or no work, contracted with a Madigan-affiliated law firm, and hired paid interns from Madigan’s ward, to influence Madigan to secure the pas- sage of EIMA. In return, Madigan used his power as Speaker to permit the House of Representatives to vote on the bill and to ensure House members would vote in support. The House approved the bill, with 67 of 116 representatives voting for its passage. The Senate then approved the bill as well, with 31 of 55 senators voting in its favor. When the bill reached the governor’s desk, however, Gov- ernor Pat Quinn vetoed it. So Madigan again used his powers and influence to permit a vote overriding the veto and to urge support of the override. That effort succeeded after Madigan pressured ten members of the House Democratic caucus and four members of the Senate Democratic caucus who had not originally supported the bill to vote to override the veto. Once enacted, EIMA weakened the role of the ICC. Although Illinois law still required public utilities to file rates with the ICC, EIMA implemented statutorily prescribed, performance-based rate increases that limited the ICC’s discretion in reviewing rates. EIMA also authorized at least $2.6 billion in ComEd spending on smart meters and smart grid infrastructure, costs that were required to be passed on to customers. 4 Nos. 21-2861, 21-2872, & 21-2873

Second, in 2013, ComEd secured amendments to EIMA that further curbed the ICC’s regulatory authority and pro- tected ComEd’s profit margins. The General Assembly again passed the legislation over Governor Quinn’s veto, and Madi- gan provided the votes to do it. And third, in 2016, ComEd had Madigan usher FEJA through the General Assembly. Madigan’s top advisers and ComEd’s lobbyists handpicked lawmakers to vote on the bill in the House legislative committee. After ComEd identified six Democratic committee members who were likely to vote against the bill, Madigan removed them from the committee and replaced them with lawmakers more favorable to the leg- islation. The bill passed 16-0 out of committee and went on to pass in the House (63 out of 101 votes) and the Senate (32 out of 50 votes). Governor Bruce Rauner signed the bill into law. FEJA provided $2.35 billion in funding for nuclear power plants operated by Exelon paid for through a new fee for util- ity customers based on a Zero Emissions Credits system. Un- der that system, the Illinois Power Agency procures these Credits from zero-emissions utilities (such as Exelon’s nuclear power plants). Public utilities like ComEd must purchase the Credits from the Power Agency at a statutory rate. And ComEd then passes that cost on at a flat per-kilowatt hour rate to all retail customers. Illinois electricity consumers pay $235 million annually for the Zero Emissions Credit system, and FEJA authorized the system to last at least ten years. FEJA also allowed ComEd to charge ratepayers for all energy efficiency programs and for some expenses relating to employee incen- tive compensation, pensions, and other post-employment benefits. Nos. 21-2861, 21-2872, & 21-2873 5

Because of these three pieces of legislation, Illinois electric- ity consumers have had to pay more for electricity. The plain- tiffs sued ComEd and Exelon on behalf of themselves and those similarly situated, bringing a federal RICO claim and several state-law claims. ComEd moved to dismiss the federal RICO claim under Federal Rule of Civil Procedure 12(b)(6), arguing that (1) the complaint failed to allege enough for proximate causation; (2) the court could not award damages under the filed rate doctrine; and (3) Fletcher v. Peck, 10 U.S. 87 (1810), required dismissal. Based on ComEd’s first and third arguments, the district court granted this motion. It dismissed the civil RICO claim with prejudice and declined to exercise jurisdiction over the remaining state-law claims. The plaintiffs have appealed the dismissal of their RICO claim. II We start and end with what the district court passed over: the filed rate doctrine. See Smith v. RecordQuest, LLC, 989 F.3d 513, 517 (7th Cir. 2021) (“[W]e may affirm on any basis in the record.”) (citation omitted). Although the district court men- tioned this doctrine as a potential “slam dunk” for ComEd, the court thought it inappropriate to address at the Rule 12(b)(6) stage since we’ve said that the filed rate doctrine is an affirmative defense properly addressed through a Rule 12(c) motion for judgment on the pleadings. See Gunn v. Cont’l Cas. Co., 968 F.3d 802, 806 (7th Cir. 2020). But since the district court had before it all that was needed to rule on the defense, we construe ComEd’s motion arguing for dismissal based on the filed rate doctrine as a motion for judgment on the plead- ings under Rule 12(c) and proceed to consider it below. See id. 6 Nos. 21-2861, 21-2872, & 21-2873

at 807; Walczak v. Chicago Bd. of Educ., 739 F.3d 1013, 1016 n.2 (7th Cir. 2014). Before turning to our analysis of the plaintiffs’ federal RICO claim, we explain the significance of a utility’s rate filing in Illinois (where ComEd operates). Effectively, a filed rate has the force and effect of a legislative statute. Illinois requires electricity utilities to file tariffs, which set “forth services be- ing offered; rates and charges with respect to services; and governing rules, regulations, and practices relating to those services,” with the ICC. Adams v. N. Illinois Gas Co., 809 N.E.2d 1248, 1263 (Ill. 2004); see 220 Ill. Comp. Stat. § 5/9-102. Utilities must charge no more or less than the rates filed in their tariffs. See 220 Ill. Comp. Stat. § 5/9-240 (“Except as in this Act other- wise provided, no public utility shall charge, demand, collect or receive a greater or less or different compensation … than the rates or other charges applicable … as specified in its schedules on file and in effect at that time, … nor shall any such public utility refund or remit … any portion of the rates or other charges so specified … .”). Under a rule known as the filed rate doctrine, Illinois state courts cannot adjust rates that have been filed with the appropriate regulator for any reason. See Sheffler v. Commonwealth Edison Co., 955 N.E.2d 1110, 1119 (Ill. 2011); Adams, 809 N.E.2d at 1263. As explained by the Illi- nois Supreme Court, when a tariff filed with the ICC speaks to a utility’s specific duty, then “the tariff controls,” Sheffler, 955 N.E.2d at 1121, and it has “the force and effect of a stat- ute,” Adams, 809 N.E.2d at 1263 (citation omitted). Federal courts, too, have long applied the filed rate doc- trine to bar judicial adjustments of rates filed with regulators. See Keogh v. Chicago & N.W. Ry. Co., 260 U.S. 156, 163 (1922) (listing cases); Montana-Dakota Utilities Co. v. Nw. Pub. Serv. Nos. 21-2861, 21-2872, & 21-2873 7

Co., 341 U.S. 246, 251 (1951) (“It can claim no rate as a legal right that is other than the filed rate, whether fixed or merely accepted by the Commission, and not even a court can author- ize commerce in the commodity on other terms.”). And alt- hough the Supreme Court developed the federal doctrine in suits involving rates filed with federal regulators, see Keogh, 260 U.S. at 160; Montana-Dakota Utilities Co., 341 U.S. at 248, circuit courts, including our own, have uniformly held it ap- plies when rates are filed with state regulators as well, see, e.g., Goldwasser v. Ameritech Corp., 222 F.3d 390, 402 (7th Cir. 2000) (applying doctrine to rates approved by state public utility commission); Rothstein v. Balboa Ins. Co., 794 F.3d 256, 261 (2d Cir. 2015) (“The doctrine … protects rates approved by federal or state regulators.”); Leo v. Nationstar Mortg. LLC, 964 F.3d 213, 214 (3d Cir. 2020); Texas Com. Energy v. TXU En- ergy, Inc., 413 F.3d 503, 509 (5th Cir. 2005); Crumley v. Time Warner Cable, Inc., 556 F.3d 879, 881 (8th Cir. 2009) (per cu- riam); Ellis v. Salt River Project Agric. Improvement & Power Dist., 24 F.4th 1262, 1275 (9th Cir. 2022); Coll v. First Am. Title Ins. Co., 642 F.3d 876, 886 (10th Cir. 2011); Patel v. Specialized Loan Servicing, LLC, 904 F.3d 1314, 1317 (11th Cir. 2018). The plaintiffs acknowledge that the rates they paid to ComEd were filed with the ICC. And although that would seem to trigger the filed rate doctrine’s bar on judicial adjust- ments to filed utility rates, the plaintiffs seek monetary dam- ages (and not declaratory or equitable relief) for “over- pay[ment] for electricity” from ComEd under RICO. See 18 U.S.C. § 1964(c). In effect, they request a federal judgment ret- roactively adjusting the electricity rates they paid. To allow such a claim to proceed, we would need to hold that the filed rate doctrine has been displaced by RICO. We must therefore decide whether Congress, in passing the broadly applicable 8 Nos. 21-2861, 21-2872, & 21-2873

civil RICO statute, authorized federal courts to award dam- ages in contravention of the filed rate doctrine. We hold that it did not. RICO allows for civil damages only when a person has been “injured in his business or property.” 18 U.S.C. § 1964(c). Congress modeled RICO’s private civil-action provision on that of the federal antitrust statute: “[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor … .” 15 U.S.C. § 15(a); see Holmes v. Sec. Inv. Prot. Corp., 503 U.S. 258, 268 (1992) (“We may fairly credit the 91st Congress, which en- acted RICO, with knowing the interpretation federal courts had given the words earlier Congresses had used first in § 7 of the Sherman Act, and later in the Clayton Act’s § 4. … It used the same words, and we can only assume it intended them to have the same meaning that courts had already given them.”). In interpreting that provision, the Supreme Court held that the statute’s use of “injured” requires the “violation of a legal right.” Keogh, 260 U.S. at 163 (emphasis added); see also Injury, Black’s Law Dictionary (11th ed. 2019) (defining “injury” to mean “[t]he violation of another’s legal right, for which the law provides a remedy”) (emphasis added). Apply- ing that interpretation, the Supreme Court held that when a company paid a carrier’s rate that had been filed with a fed- eral regulator, it had not been “injured” as required by the antitrust law’s private civil action provision for damages. Keogh, 260 U.S. at 163–65. It reasoned that “[t]he legal rights” between a railroad, as a common carrier, and its customer were “measured by the published tariff,” and the rate in- cluded in that tariff was “for all purposes, the legal rate” that could not “be varied or enlarged by either contract or tort of the carrier.” Id. at 163. More than half a century later, the Nos. 21-2861, 21-2872, & 21-2873 9

Supreme Court reaffirmed Keogh. See Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 423 (1986) (“The emer- gence of subsequent procedural and judicial developments does not minimize Keogh’s role as an essential element of the settled legal context in which Congress has repeatedly acted in this area.”). More recently, the en banc Eleventh Circuit applied Keogh’s reasoning in a RICO case closely resembling ours. In Taffet v. S. Co., 967 F.2d 1483, 1485 (11th Cir. 1992) (en banc), a class of utility customers brought a RICO claim against elec- tric utilities that had fraudulently obtained rate increases from state public service commissions. After analyzing Keogh, the Taffet court held that the customers had failed to state a viable RICO claim for damages because they had suffered no “legally cognizable injury by virtue of paying the filed rate.” Id. at 1488–94. Besides the Eleventh Circuit, at least three other circuits have employed the filed rate doctrine in dismissing RICO damages suits. See, e.g., Rothstein, 794 F.3d at 259; Leo, 964 F.3d at 218; H.J. Inc. v. Nw. Bell Tel. Co., 954 F.2d 485, 486, 495 (8th Cir. 1992). We join these circuits and hold that the filed rate doctrine forecloses the plaintiffs’ RICO claim for damages. Setting re- tail utility rates is traditionally a matter of state concern, and Illinois has long provided for the ICC’s exclusive regulation of retail electricity rates. See Arkansas Elec. Co-op. Corp. v. Ar- kansas Pub. Serv. Comm’n, 461 U.S. 375, 377 (1983) (“[T]he reg- ulation of utilities is one of the most important of the func- tions traditionally associated with the police power of the States.”); Joseph D. Kearney & Thomas W. Merrill, The Great Transformation of Regulated Industries Law, 98 Colum. L. Rev. 1323, 1354–55 (1998) (“The generation and distribution of 10 Nos. 21-2861, 21-2872, & 21-2873

electricity have traditionally been regulated by state public utility commissions … .”); 220 Ill. Comp. Stat. § 5/9-240 (first adopted in 1921). We typically presume that a federal statute does not preempt or disrupt a state’s legal or regulatory re- gime in areas traditionally associated with state police power without stating so clearly. See Bond v. United States, 572 U.S. 844, 858 (2014) (“It has long been settled … that we presume federal statutes do not … preempt state law … .”); id. (“[I]t is incumbent upon the federal courts to be certain of Congress’ intent before finding that federal law overrides the usual con- stitutional balance of federal and state powers”) (quoting Gregory v. Ashcroft, 501 U.S. 452, 460 (1991)) (cleaned up). Like- wise, we generally understand Congress to speak clearly when it seeks to unsettle long-rooted legal policies. See, e.g., United States v. Wilson, 503 U.S. 329, 336 (1992) (“It is not lightly to be assumed that Congress intended to depart from a long established policy.”) (citation omitted); Square D Co., 476 U.S. at 418–19 (looking for evidence that a 1980 statute had changed or “supplant[ed] the Keogh rule” and the filed rate doctrine). If RICO was meant to allow claims like the plaintiff’s—a claim which threatens to substitute a long- rooted state policy in favor of judicially imposed electricity rates courtesy of the federal courts—one would expect the statute to say something to that effect. Yet RICO is silent on this front. Moreover, disregarding the filed rate doctrine would risk entangling courts in quintessentially legislative judgments. See Sheffler, 955 N.E.2d at 1119 (“Setting utility rates is a legis- lative function.”); Adams, 809 N.E.2d at 1266 (“The fixing of rates is not a judicial function.”) (citations omitted); Minnesota Rate Cases, 230 U.S. 352, 433 (1913) (“The rate-making power is a legislative power and necessarily implies a range of Nos. 21-2861, 21-2872, & 21-2873 11

legislative discretion.”). We are not in the business of second- guessing legislative judgment calls. See Fletcher v. Peck, 10 U.S. at 136 (“It is the peculiar province of the legislature to pre- scribe general rules for the government of society.”); City of Columbia v. Omni Outdoor Advert., Inc., 499 U.S. 365, 377 (1991) (noting that courts “have consistently sought to avoid” the “deconstruction of the governmental process and probing of the official ‘intent’”). If this suit were allowed to proceed, the plaintiffs could not rest on their allegations as they can here at the motion-to-dismiss stage; they would need to conduct discovery for facts supporting their contention that ComEd’s bribery of Madigan directly caused the three pieces of legisla- tion to pass. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 459–60 (2006) (civil RICO damages claim requires “a direct causal connection” between the predicate offense and the al- leged harm). That would necessarily involve probing the mo- tives of individual state legislators who voted to enact the leg- islation to understand Madigan’s influence on them. Yet judi- cial tribunals rarely dive so deeply into the legislative process or into legislators’ motives. See Fletcher, 10 U.S. at 130 (“If the majority of the legislature be corrupted, it may well be doubted, whether it be within the province of the judiciary to control their conduct, and, if less than a majority act from im- pure motives, the principle by which judicial interference would be regulated, is not clearly discerned.”); Tenney v. Brandhove, 341 U.S. 367, 377 (1951) (noting that Fletcher held it “not consonant with our scheme of government for a court to inquire into the motives of legislators”); cf. City of Columbia, 499 U.S. at 377 n.6 (citing a “very limited and well-defined class” of constitutional cases where the court proceeds other- wise). 12 Nos. 21-2861, 21-2872, & 21-2873

Still, the plaintiffs offer two arguments against applying the filed rate doctrine in this case. First, they contend that this case involves only RICO damages and thus does not directly request rate adjustments. And second, the plaintiffs contend that the filed rate doctrine no longer applies because the Illi- nois legislation functionally eliminated the ICC’s role. Neither point persuades us. Determining a damages award here based on the alleged overpayment for electricity would involve asking what the reasonable rate should have been had the three pieces of legislation not been passed. And the filed rate doctrine bars such judicial determinations of rea- sonable utility rates. See Goldwasser, 222 F.3d at 402 (holding that the plaintiff could not pursue a damages claim because it “necessarily implicate[d] the rates [the utility] [wa]s charg- ing,” which was barred by the filed rate doctrine); H.J. Inc., 954 F.2d at 494 (rejecting the plaintiffs’ argument that a RICO damages action did not involve ratemaking activities because “RICO damages can only be measured by comparing the dif- ference between the rates the Commission originally ap- proved and the rates the Commission should have approved absent the conduct of which the class complains”); see also Montana-Dakota Utilities Co., 341 U.S. at 246 (highlighting the problems with judicial determinations of “what the reasona- ble rates during the past should have been”); Keogh, 260 U.S. at 164 (suggesting that any attempt to reassess the reasonable- ness of rates would require the judiciary to “reconstitut[e] the whole rate structure” of the industry). As the Second Circuit expressed in a similar case, “the fact that the remedy sought can be characterized as damages … does not negate the fact that the court would be determining the reasonableness of rates.” Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 21 (2d Cir. 1994). Nos. 21-2861, 21-2872, & 21-2873 13

For the plaintiffs’ second argument based on limits to the ICC’s role, they have pointed to no case tying the filed rate doctrine’s application to the breadth of a regulator’s author- ity, and we have found none. See, e.g., Goldwasser, 222 F.3d at 402 (filed rate doctrine applied even when public utility com- missions only “nominally overs[aw] … rate-setting” and “rarely exercise[d] their muscle and thus g[ave] no meaning- ful review to the rate structure”); Town of Norwood v. New Eng. Power Co., 202 F.3d 408, 419 (1st Cir. 2000) (“It is the filing of the tariffs, and not any affirmative approval or scrutiny by the agency, that triggers the filed rate doctrine.”); McCray v. Fid. Nat. Title Ins. Co., 682 F.3d 229, 238 (3d Cir. 2012) (“[T]he Su- preme Court has never indicated that the filed rate doctrine requires a certain type of agency approval or level of regula- tory review. Instead, the doctrine applies as long as the agency has in fact authorized the challenged rate.”); Texas Com. Energy, 413 F.3d at 509–10 (holding that the filed rate doctrine applies even when market forces set prices); Carlin v. DairyAmerica, Inc., 705 F.3d 856, 871 (9th Cir. 2013) (“mean- ingful review” by agency is “not a prerequisite to the applica- tion of the filed rate doctrine”). In any event, the ICC still re- tains an important role in utility rate regulation. Under EIMA and the 2013 amendments to it, the ICC still has to review a public utility’s rate filing and “enter an order approving, or approving as modified, the performance-based formula rate … as just and reasonable” using “evidentiary standards … concerning the prudence and reasonableness of the costs in- curred by the utility.” 220 Ill. Comp. Stat. § 5/16-108.5(c). And under FEJA, the ICC has to review and approve the charges imposed by the Zero Emissions Credits system before they are passed on to electricity customers. See id. § 3855/1-75. Moreover, recently enacted Illinois law requires the ICC to 14 Nos. 21-2861, 21-2872, & 21-2873

investigate whether ComEd used any ratepayer funds to pay for fines related to the alleged bribery scheme. See id. § 5/4- 604.5(b). If the ICC concludes that ComEd did so, ComEd must pay a refund to ratepayers for that amount spent, id., the exact form of relief we are unable to award here. At bottom, when the plaintiffs paid their electricity bills based on rates which had been properly filed with the ICC, they paid the state’s required legal rate. Based on our above analysis, we hold that the plaintiffs suffered no legally cog- nizable injury by paying this legal rate and thus were not “in- jured in [their] business or property,” as required to pursue a claim for damages under § 1964(c) of RICO. AFFIRMED Nos. 21-2861, 21-2872, & 21-2873 15

JACKSON-AKIWUMI, Circuit Judge, concurring. I concur solely on the ground that plaintiffs’ claims are foreclosed by Fletcher v. Peck, 10 U.S. 87 (1810), as the majority explains, see ante 10–11, and as resolved by the district court. If this suit proceeded, plaintiffs “would need to conduct discovery for facts supporting their contention that ComEd’s bribery of Madigan directly caused the three pieces of legislation to pass.” Ante 11. The subsequent resolution of their claims after discovery “would necessarily involve [a court] probing the motives of individual state legislators who voted to enact the legislation to understand Madigan’s influence on them,” which Fletcher prohibits. Ante 11; see also Tenney v. Brandhove, 341 U.S. 367, 377 (1951). Accordingly, I would have resolved the matter on this basis alone and not reached the filed-rate affirmative defense.