The United States Court of Appeals for the Second Circuit has upheld a lower court's decision to dismiss a lawsuit brought by utility customers against Bloomberg, L.P. and Bloomberg Index Services, Ltd. The case, Skolarus v. Bloomberg, L.P. (docket number 25-2763), involved claims that Bloomberg unlawfully inflated interest rates on bonds issued by utility companies. The ruling affects customers in Texas and California who paid these interest rates.
The plaintiffs, a group of utility customers, alleged that Bloomberg's reclassification of certain bonds from corporate bonds to asset-backed securities led to higher interest rates. They claimed this reclassification was unlawful and resulted in increased costs passed on to them. The court's decision is significant because it reinforces the application of the filed rate doctrine, which prevents challenges to rates approved by regulatory agencies.
Background
The plaintiffs in this case are utility customers from Texas and California who paid interest on bonds issued by their utility companies, including the Electric Reliability Council of Texas (ERCOT), Southern California Edison Company (SCE), and Pacific Gas and Electric Company (PG&E). Between 2022 and 2024, these utilities sought to issue four sets of bonds related to recovery from winter storms and wildfires. The bonds required approval from state public utility commissions (PUCs) in their respective states.
Bloomberg, a leading indexer of the U.S. bond market, initially classified these recovery bonds as corporate bonds. However, in June 2022, Bloomberg announced its intent to reclassify the bonds as asset-backed securities, a decision that was formalized in August 2022. The state PUCs received issuance advice letters detailing the terms of the bonds, including interest rates, and ultimately approved the issuance of the bonds.
In 2024, the plaintiffs filed a lawsuit against Bloomberg, arguing that the reclassification of the bonds led to inflated interest rates. Bloomberg moved to dismiss the lawsuit, claiming the filed rate doctrine barred the plaintiffs' claims since the interest rates had been approved by the state regulators. The district court agreed and dismissed the case, leading to the appeal.
The Ruling
The Second Circuit Court of Appeals ruled in favor of Bloomberg, affirming the district court's dismissal of the lawsuit. The court stated, "We hold that the filed rate doctrine bars Plaintiffs’ claims because the state regulators had notice of the allegedly inflated interest rates but still permitted the bonds to be issued." The ruling emphasized that the regulatory process in place provided sufficient oversight to warrant the application of the filed rate doctrine.
Judge Maria Araújo Kahn, along with Judges Calabresi and Park, made up the panel that delivered the ruling. The court noted that the filed rate doctrine prevents judicial challenges to rates that have been approved by regulatory agencies, regardless of the circumstances surrounding those rates.
Impact
This ruling reinforces the filed rate doctrine, which protects rates set by regulatory agencies from legal challenges. It highlights the importance of regulatory oversight in the bond issuance process, particularly for utility customers. The decision may deter similar lawsuits in the future, as it establishes a clear precedent that claims against approved rates are unlikely to succeed in court.
The outcome of this case is particularly relevant for utility customers across the country, as it underscores the challenges they face when attempting to contest rates set by regulatory bodies. The ruling may also influence how utility companies approach bond issuances and the classification of those bonds in the future.
What's Next
The plaintiffs may seek to appeal the decision to the Supreme Court, although it remains uncertain whether the high court will take up the case. There are currently no related cases pending that directly address the issues raised in this lawsuit.