The Fifth District Court of Appeals in Dallas ruled Wednesday that the Electric Reliability Council of Texas does not have sovereign immunity from all lawsuits and that the Texas Public Utility Commission does not have exclusive jurisdiction over all claims against ERCOT.
The 12-to-1 decision has been widely anticipated because it could have ramifications in hundreds of lawsuits stemming from Winter Storm Uri in which ERCOT is a named defendant.
In the Wednesday ruling, the Dallas appellate judges cleared the path for Panda Power Funds to pursue hundreds of millions of dollars in damage claims in state court against ERCOT. Panda claims that ERCOT committed fraud, negligent misrepresentation and breach of fiduciary duty when it published intentionally inaccurate reports in 2011 and 2012 that projected a “serious and long-term scarcity of power supply.”
As a result of ERCOT’s allegedly false market data, Panda invested $2.2 billion to build three new power plants – operations that have not generated the revenue that ERCOT predicted.
ERCOT lawyers have made two arguments in defense: it is a government-created agency and has sovereign immunity from such lawsuits and any claims against it must be taken to the PUC first.
The Dallas appeals court opinion conflicts with a decision in December by the San Antonio appeals court, which ruled in a case between CPS Energy and ERCOT that a “pervasive regulatory scheme” provides the PUC with exclusive jurisdiction over complaints against ERCOT.
The 50-page Fifth Court opinion, authored by Justice Erin Nowell, also reverses a decision the same court made in 2018 that ERCOT has sovereign immunity.
“To date, the supreme court has not extended sovereign immunity to a purely private entity neither chartered nor created by the state, and this court will not create new precedent by extending sovereign immunity to ERCOT,” Justice Nowell wrote. “ERCOT is not entitled to sovereign immunity and the legislature did not grant exclusive jurisdiction over Panda’s claims to the PUC. To the extent we previously held otherwise, that holding is in error.”
“Although ERCOT argues it has the power to make binding law, which it calls the ‘quintessential sovereign power,’ the applicable statutes do not support this argument,” the court ruled.
Court records show Justice David Schenck dissented from the majority opinion, but there is no record of him filing a written dissent.
Lawyers on both sides say the case is now headed to the Texas Supreme Court.
The issue of ERCOT’s sovereign is critical in more than 200 individual wrongful death, personal injury and property damage lawsuits brought by victims of Winter Storm Uri that name ERCOT among the defendants. Those cases have been consolidated before a judge in Houston.
The Dallas appeals court decision points to the Texas Administrative Code, which states: “ERCOT shall not be liable in damages for any act or event that is beyond its control and which could not be reasonably anticipated and prevented through the use of reasonable measures.”
“ERCOT argues that, if it performed inadequately, then the legislature gave the PUC explicit power to discipline ERCOT for any inadequate performance, thus precluding private causes of action,” Justice Nowell wrote. “When taken to its logical end, this argument would mean ERCOT could never be liable to anyone other than the PUC for its bad acts, no matter how intentional or egregious those acts may be. We do not agree that is the law.”
Ben Mesches, an appellate partner at Haynes and Boone and lawyer for Panda, said he is pleased with the appeals court’s decision and “look forward to presenting our case on the merits in the trial court — where Panda’s claims have always belonged.”
ERCOT hired the Winstead law firm to handle Winter Storm Uri cases at the trial court level and has former Texas Supreme Court Chief Justice Wallace Jefferson, a partner in Alexander Dubose & Jefferson, leading its appellate efforts.
“The en banc court’s 50-page opinion correctly applies three recent Texas Supreme Court decisions confirming that sovereign immunity does not extend to private entities like ERCOT,” Mesches said, “and rests on a faithful reading of the plain text of the governing statutes.”
The Dallas appeals court notes that the Texas Supreme Court, since the intial Panda I decision it issued in 2018, has issued three opinions analyzing and applying either the doctrine of sovereign immunity or governmental immunity.
One of those decisions in 2020 was University of the Incarnate Word v. Redus which stated, “Though we have contemplated it, we have yet to extend sovereign immunity to a purely private entity—one neither created nor chartered by the government—even when that entity performs some governmental functions.”
That decision alone, the Dallas justices said Wednesday, was enough to change its mind.
“Therefore, while en banc consideration generally is disfavored, it is appropriate in this case to correct our prior, erroneous decision,” the Dallas appellate court said Wednesday.
Justice Nowell points out that the 87th Legislature in 2021 amended provisions of the utilities code relevant to ERCOT.
“None of those amendments purports to bestow sovereign immunity on ERCOT or waive the immunity this Court found in Panda I,” the court stated. “Although both parties make arguments construing the legislature’s silence in their favor, we decline to reach conclusions about what, if anything, the legislature hoped to convey to the courts by its actions and inactions.”