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United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
April 29, 2024
No. 22-20603 Lyle W. Cayce
____________ Clerk
In the Matter of Entrust Energy, Incorporated, et al.,
Debtor,
Anna Phillips, as trustee of the Entrust Liquidating Trust,
Appellee/Cross-Appellant,
versus
Electric Reliability Council of Texas, Incorporated,
Appellant/Cross-Appellee.
______________________________
Appeal from the United States Bankruptcy Court
for the Southern District of Texas
USDC No. 4:22-MC-3018
______________________________
Before Higginbotham, Smith, and Higginson, Circuit Judges.
Jerry E. Smith, Circuit Judge:
This appeal is the latest in a series of cases spawned by Winter Storm
Uri, which struck Texas in 2021 and wreaked havoc on the state’s electrical
grid and power systems. The storm caused numerous generators to fail and
go offline. That, combined with spiking demand for energy, put the grid at
risk of failure. The Electric Reliability Council of Texas, Inc. (“ERCOT”),
the entity tasked with managing the grid, took drastic measures to prevent
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that failure, including manipulating the price of energy in hopes of incenti-
vizing production. Those measures resulted in the receipt by Entrust
Energy, Inc., of an electric bill from ERCOT of nearly $300 million—which
rendered Entrust insolvent.
Entrust filed for bankruptcy, and ERCOT filed a claim seeking pay-
ment of the invoice. Anna Phillips (the Trustee of the Entrust Liquidating
Trust, hereinafter the “Trustee”) responded by initiating an adversarial pro-
ceeding challenging ERCOT’s proof of claim. The Trustee contended that
(1) ERCOT’s price manipulation violated Texas law; (2) ERCOT was
grossly negligent in failing to winterize the Texas grid and respond ade-
quately to Uri; and (3) ERCOT’s transitioning of Entrust’s customers to
another retail utility post-default was an uncompensated taking in violation
of the Fifth Amendment.
ERCOT moved to dismiss all claims and requested alternatively that
the bankruptcy court abstain under Burford v. Sun Oil Co., 319 U.S. 315
(1943). The bankruptcy court declined to abstain and denied ERCOT’s
motion to dismiss on all claims except for the takings claim.
The bankruptcy court’s refusal to abstain under Burford was error.
Accordingly, we reverse its denial of ERCOT’s motion to abstain, reverse its
denial of ERCOT’s motion to dismiss Count’s I–IV and VI of the Trustee’s
complaint, and vacate the bankruptcy court’s order dismissing Count V with
prejudice.
Since abstention is warranted, we remand with instruction to dismiss
Counts I–IV, as the parties agree those counts seek equitable or discretionary
relief. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 729–31 (1996). The
parties also agree, however, that Counts V and VI are claims for damages, so
the bankruptcy court must stay those counts pending resolution of related
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state proceedings.1
I.
Unlike every other state in the Lower Forty-Eight, Texas uses an
intrastate electric grid to service most of its counties. That grid is indepen-
dent of larger, interstate grids servicing the other mainland states. See New
York v. FERC, 535 U.S. 1, 7–9 (2002). Therefore, though the grids of the
other mainland states are interconnected and may import energy from each
other in times of need, “Texas stands alone.”2
To manage its unique grid, Texas passed the Public Utility Regulatory
Act (“PURA”) to “establish a comprehensive and adequate regulatory sys-
tem for electric utilities.” Tex. Util. Code § 31.001(a). Part of PURA’s
purpose is to develop “a competitive wholesale electric market that allows
for increased participation by electric utilities.” Id. § 31.001(c). PURA is
implemented by the Public Utility Commission of Texas (“PUC”). See id.
§ 39.151. The PUC is required to certify an “independent organization,” id.
§ 39.151(c), to manage the Texas grid’s “wholesale electric market,” id.
§ 31.001(c). The PUC certified ERCOT as that organization.
That means ERCOT is responsible for ensuring the “reliability and
adequacy of the regional electrical network” and “that electricity production
and delivery are accurately accounted for among the generators and whole-
sale buyers and sellers.” Id. § 39.151(a). And because Texas’s grid is a
market-based system, ERCOT “determines market-clearing prices unless
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1
Cf. Webb v. B.C. Rogers Poultry, Inc., 174 F.3d 697, 701 n.5 (5th Cir. 1999)
(“Although remanding a damages case [to state court] is inappropriate, . . . a court c[an]
stay an action pending resolution in state court of an issue relevant to the federal case if the
Burford doctrine call[s] for abstention.” (citation omitted)).
2
CPS Energy v. ERCOT, 671 S.W.3d 605, 611 (Tex. 2023) (citation omitted)
(summarizing the workings of Texas’s electrical grid).
3
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otherwise directed by the [PUC]” and acts as “the sole buyer to each seller
[of electricity], and the sole seller to each buyer.” ERCOT v. Just Energy
Tex., L.P. (In re Just Energy Grp., Inc.), 57 F.4th 241, 246 (5th Cir. 2023)
(citations omitted).
The power generators of the Texas grid produce electricity for
ERCOT to purchase. Utilities and other interested parties then buy electri-
city from ERCOT that they will use or sell to their own customers. In that
way, ERCOT uses market forces—instead of regulatory measures—to
manage Texas’s real-time electricity markets. ERCOT sets the price of elec-
tricity on multiple real-time markets unless the PUC directs otherwise.
16 Tex. Admin. Code § 25.501(a). It does so according to a comprehen-
sive set of policies: the ERCOT Nodal Protocols (“Protocols”).3 The Proto-
cols set the price of electricity on the markets using a complicated system.
First, ERCOT receives bids for electricity from utility companies and
offers of electricity from power generating companies on daily trading mar-
kets. See, e.g., Protocols §§ 4.1, 6.1(4). The price of electricity on the mar-
kets is set using several variables. See, e.g., id. § 6.6.1.1. One such variable is
the “Reliability Deployment Price Adder,” which—in broad terms—is one
way that ERCOT accounts for scarcity of supply in the grid. Id. § 6.5.7.3.1(2).
The Reliability Deployment Price Adder is calculated according to eight
factors, but “firm load shed,” a term of art for rolling blackouts, is not one of
them. See id. § 6.5.7.3.1(1). The goal of adders such as the Reliability Deploy-
ment Price Adder is to increase the price of electricity on the market to
incentivize power generators to make more offers, thereby addressing the
_____________________
3
A copy of the Protocols in force at the relevant time can be found at:
https://www.ercot.com/files/docs/2021/08/18/February_1__2021_Nodal_Protocols.p
df.
4
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discrepancy between supply and demand that led to the scarcity.
Second, the price of electricity on the open market will be only what
buyers pay if the price falls below the High System-Wide Offer Cap
(“HCAP”), which is a maximum price set by Texas Law. See id. § 4.4.11(1).
Regardless of what the market determines to be a fair price, electricity buyers
can never pay more than $9,000/MWh. See id. § 4.4.11(2).
Third, and finally, ERCOT’s markets and their prices are subject to
the PUC’s control. 16 Tex. Admin. Code § 25.501(a). That means the
Protocols provide the exclusive mechanism for determining the price of
electricity—binding both ERCOT and market participants—unless the PUC
orders otherwise. See id.
One way the PUC intervenes in the markets is through its implemen-
tation of Texas’s “provider of last resort” program (“POLR”). Despite the
free-market nature of Texas’s grid, state law mandates that every customer
of a retail utility “is entitled . . . to be served by a provider of last resort that
offers a [PUC]-approved standard service package.” Tex. Util. Code
§ 39.101(b)(4). That means “[i]n the event that a retail electric provider fails
to serve any or all of its customers, the [POLR] shall offer th[ose] custom-
er[s]” a PUC-approved “standard retail service package . . . with no inter-
ruption of service.” Id. § 39.106(g).
The PUC implements the POLR program by requiring ERCOT to
transfer a utility’s customers to a POLR should the utility default on its
obligations under the Protocols. 16 Tex. Admin. Code § 25.43(a). When
that happens, it is known as a “Mass Transition.” See Protocols § 15.1.3.1;
16 Tex. Admin. Code § 25.43(l).
This entire scheme is subject to review. Challenges to ERCOT’s pric-
ing decisions, invoices, or actions under the Protocols must be brought first
to ERCOT via the dispute-resolution mechanisms specified in the Protocols.
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Protocols §§ 9.14.1, 20.9. ERCOT’s resolution is then subject to review by
the PUC. Tex. Util. Code § 39.151(d-4)(6). The PUC’s orders are sub-
ject to judicial review as provided in the Texas Administrative Procedure
Act. Tex. Gov’t Code § 2001.176; Tex. Util. Code §§ 11.007(a);
15.001. That review occurs in the Travis County district court or in the
newly-created Fifteenth Court of Appeals District. See Tex. Gov’t Code
§ 2001.176. ERCOT, however, is provided absolute immunity from damage
actions arising out of the implementation of a Mass Transition. See 16 Tex.
Admin. Code § 25.43(o)(2).4
II.
Entrust is an energy company that provides electricity and natural gas
to residential and commercial customers. In 2015, Entrust executed a stan-
dard form agreement (“SFA”) with ERCOT to purchase electricity on the
ERCOT markets. As part of that agreement, Entrust agreed to be bound by
the Protocols. ERCOT executes the same agreement with every company
that participates in its markets. Things proceeded smoothly until 2021.
In mid-February of that year, Winter Storm Uri descended on Texas.
The storm produced abnormally cold weather, and temperatures dropped
well below freezing for multiple days. Though ERCOT was aware of the
storm’s approach and potential for extreme cold, the freeze caused a large
portion of the grid’s generation capacity to go offline—just as demand began
to spike from Texans needing to heat their homes, schools, and businesses.
That type of emergency had happened before—in 2011, a failure to winterize
Texas’s grid led to millions of Texans’ spending days without power. And
_____________________
4
This section should not be read as an exhaustive description of the complex inner
workings of Texas’s utility markets. Instead, it is a high-level summary based on our read-
ing of the relevant law and representations made by the parties in this case.
6
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once again, the gap between supply and demand threatened the integrity of
the grid.
Because the Texas grid could not borrow electricity from neighboring
states, ERCOT ordered rolling blackouts to maintain the grid’s optimal fre-
quency, effectively decreasing demand involuntarily. ERCOT’s markets
continued to receive offers of and bids for electricity during the storm, but
the parties dispute whether the markets were functioning normally. Entrust
contends that the price fluctuations were in accordance with the Protocols
and that the price adders were accounting adequately for scarcity conditions.
ERCOT, on the other hand, believed the markets were failing. Prices were
still below the HCAP, despite some of the most severe scarcities ever expe-
rienced. ERCOT believed that was because the markets were not accounting
for the demand from customers in blackout areas, which suppressed prices
artificially.
Because ERCOT is bound by the Protocols’ method of pricing, it was
powerless to address the perceived market failure without authorization from
the PUC. On February 15, the PUC issued an order—it is not clear what that
order authorized ERCOT to do: The PUC recognized that the current prices
were “inconsistent with the fundamental design of the ERCOT market” and
that, given the extreme discrepancy between supply and demand, “the mar-
ket price for the energy . . . should also be at its highest.” The PUC “dir-
ect[ed] ERCOT to ensure that [rolling blackouts are] accounted for in
ERCOT’s scarcity pricing signals.” The PUC gave no further direction on
how ERCOT was to accomplish its directive.
ERCOT interpreted the February 15 order as allowing it to bypass the
pricing system in the Protocols and alter unilaterally the Reliability Deploy-
ment Price Adder to include rolling blackouts in the adder’s estimation of
scarcity conditions. ERCOT admits its action had the effect of setting and
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holding prices at $9,000/MWh, the HCAP. ERCOT’s change to the Reli-
ability Deployment Price Adder, and the resulting spike in electricity prices,
resulted in Entrust’s receiving an electricity bill of about $300 million.
That bill rendered Entrust insolvent and gave rise to the underlying
bankruptcy action now on appeal, but it was not the only problem Entrust
encountered in winter 2021. One day into Uri, one of Entrust’s financial
backers terminated agreements with Entrust, rendering it unable to service
its electricity customers fully. Wishing to avoid a Mass Transition of its cus-
tomers to a POLR, Entrust sought to enter contracts with other utility com-
panies to “sell” its customers to them. But ERCOT did not wait for that
negotiating process to play out; instead, it Mass Transitioned Entrust’s cus-
tomers to a POLR in early March. Facing insolvency and now lacking the
customers needed to produce profits, Entrust filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code.
ERCOT filed claims against Entrust for about $296 million in unpaid
invoices. ERCOT is Entrust’s largest unsecured creditor. The Trustee
responded by initiating an adversary proceeding challenging ERCOT’s proof
of claim. The adversary proceeding raised six counts; all are relevant to this
appeal:
In Count I, the Trustee alleged that ERCOT improperly altered the
Reliability Deployment Price Adder; the Trustee sought to reduce ERCOT’s
claim by the amount the invoices exceeded what would have been charged
had the Adder remained unchanged.
In Count II, the Trustee alleged that, in addition to breaching the
protocols and the SFA by calculating the Reliability Deployment Price Adder
improperly, ERCOT had failed to mitigate that breach as required by Texas
law when it continued to use the altered Adder to estimate scarcity through
February 19. The Trustee thus sought a reduction of ERCOT’s claim to the
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extent it seeks unmitigated damages.
In Count III, the Trustee alleged that, because ERCOT had over-
charged Entrust for electricity as alleged in Counts I and II, the obligation is
avoidable under 11 U.S.C. § 548(a) because the amount Entrust was billed
exceeded a reasonably equivalent value for the electricity.
In Count IV, the Trustee alleged that, because ERCOT had over-
charged Entrust for electricity as alleged in Counts I and II, the obligation is
avoidable under Section 24.005 of the Texas Business and Commerce Code
because the amount Entrust was billed exceeded a reasonably equivalent
value for the electricity.
In Count V, the Trustee alleged under 42 U.S.C. § 1983 that the Mass
Transition of Entrust’s customers to a POLR constituted a taking under the
Fifth Amendment; the Trustee sought just compensation and attorneys’
fees.
In Count VI, the Trustee alleged that ERCOT was grossly negligent
in failing adequately to winterize Texas’s grid despite knowledge that a
strong winter storm could have a devastating impact on grid infrastructure.
The Trustee also alleged that ERCOT continued to act with conscious indif-
ference by making unauthorized changes to the Reliability Deployment Price
Adder during the storm. The Trustee thus sought actual and punitive dam-
ages for the harm resulting from ERCOT’s failure adequately to prepare for
and respond to Uri.
ERCOT sought dismissal of all counts and requested, alternatively,
that the bankruptcy court abstain from deciding Counts I–IV and VI.5 The
_____________________
5
The parties refer to these counts as “the pricing claims,” because each requires
a determination of whether ERCOT set the price of electricity during Uri properly.
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court, ruling from the bench, refused to abstain and denied the motion to dis-
miss on all counts except Count V, which it dismissed with prejudice. This
court granted both parties’ petitions for direct review following the bank-
ruptcy court’s certification of the issues. See 28 U.S.C. § 158(d)(2).
ERCOT avers that the bankruptcy court should have abstained or,
alternatively, should have dismissed all of the Trustee’s claims. The Trustee
avers that the bankruptcy court erred in dismissing Count V.
III.
As an initial matter, ERCOT maintains that the bankruptcy court
erred in refusing to dismiss the Trustee’s claims because ERCOT is entitled
to sovereign immunity as an arm of the state. Sovereign immunity bears on
this court’s subject matter jurisdiction. See Daniel v. Univ. of Tex. Sw. Med.
Ctr., 960 F.3d 253, 256 (5th Cir. 2020). We “may not rule on the merits of a
case without first determining [our] jurisdiction[.]” Daves v. Dallas Cnty.,
64 F.4th 616, 623 (5th Cir. 2023) (en banc) (citing Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 93–95 (1998)), cert. denied, 144 S. Ct. 548 (2024).
And, of course, “[a] court may not assume its jurisdiction for purposes of
deciding a case on the merits.” D’Onofrio v. Vacation Publ’ns., Inc., 888 F.3d
197, 206 n.3 (5th Cir. 2018) (citation omitted). That is true even if Burford-
type abstention is ultimately warranted, as the decision on whether to abstain
concerns whether a court can “properly decline[] to exercise its jurisdiction
in the present case,” not whether that court had jurisdiction in the first place.
New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans, 491 U.S.
350, 359 (1989) (“NOPSI”). Therefore, we must determine whether
ERCOT is entitled to sovereign immunity before we can turn to any other
issue—including Burford abstention.6
_____________________
6
Cf. ERCOT v. May (In re Tex. Com. Energy), 607 F.3d 153, 157 (5th Cir. 2010)
10
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“We review questions of subject matter jurisdiction, including sover-
eign immunity determinations, de novo.” Daniel, 960 F.3d at 256 (citation
omitted). “[T]he question whether a particular state agency” is “an arm of
the [s]tate . . . within the meaning of the Eleventh Amendment, is a question
of federal law.” Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429 n.5
(1997).
“Pursuant to the Eleventh Amendment, a state’s sovereign immunity
in federal court extends to private suits against state agencies, state depart-
ments, and other arms of the state.” Daniel, 960 F.3d at 256 (citation omit-
ted). But “not all units of a state government are immunized from federal
action.” Id. “To determine whether a unit qualifies as an arm of the state as
a matter of law, we employ the six-factor test developed in Clark v. Tarrant
County, Tex., 798 F.2d 736 (5th Cir. 1986).” Id. (cleaned up). Those factors
are
(1) Whether the state statutes and case law view the agency as
an arm of the state; (2) The source of the entity’s funding;
(3) The entity’s degree of local autonomy; (4) Whether the en-
tity is concerned primarily with local as opposed to statewide,
problems; (5) Whether the entity has the authority to sue and
be sued in its own name; and (6) Whether the entity has the
right to hold and use property.
_____________________
(“Before discussing the merits of this case, this court must first address the issue of subject
matter jurisdiction.”). Whether ERCOT is entitled to sovereign immunity in federal court
appears to be a question of first impression in this circuit. It is true that several of our cases
have dealt with claims against ERCOT without discussing sovereign immunity. See, e.g.,
Just Energy, 57 F.4th at 247 n.5. But “[w]hen a potential jurisdictional defect is neither
noted nor discussed in a federal decision, the decision does not stand for the proposition
that no defect existed.” Ariz. Christian Sch. Tuition Org. v. Winn, 563 U.S. 125, 144 (2011)
(citation omitted). Therefore, none of ERCOT’s previous trips to the Fifth Circuit
resolved the question of whether it is entitled to sovereign immunity in federal court.
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Daniel, 960 F.3d at 256–57 (cleaned up). “[T]he second factor is the most
important.” Id. at 257 (citation omitted). Here, the factors are an even split:
three weigh in favor of deeming ERCOT an arm of Texas, and three weigh
against. Since the second factor weighs against classifying ERCOT as an arm
of the state, and that factor is the most important, ERCOT is not entitled to
Eleventh Amendment immunity.
(1) Whether the state statutes and caselaw view the agency as an arm of the state.
Texas caselaw says unequivocally that ERCOT “is an organ of gov-
ernment” that performs a “uniquely governmental function.” CPS Energy,
671 S.W.3d at 617 (internal quotation marks and citation omitted). This fac-
tor weighs in favor of classifying ERCOT as an arm of the state.
(2) The source of the entity’s funding.
This factor is “the most important” because “[a]n underlying goal of
this six-factor test is to protect state funding.” Daniel, 960 F.3d at 257 (cita-
tion omitted). “In assessing this second factor, we conduct inquiries into,
first and most importantly, the state’s liability in the event there is a judgment
against the defendant, and second, the state’s liability for the defendant’s
general debts and obligations.” Bonin v. Sabine River Auth., 65 F.4th 249,
256 (5th Cir.) (citation omitted), cert. denied, 144 S. Ct. 2871 (2023).
But the “ability to identify segregated funds” is not the sole consider-
ation. Daniel, 960 F.3d at 258 (citation omitted). We must consider whether
use of the entity’s funds “to pay a damage award against [it] would interfere
with the fiscal autonomy and political sovereignty of Texas.” Id. (citation
omitted). That interference can occur where there is significant financial en-
tanglement between the entity and the state treasury. For example, Clark
stated that this factor weighed in favor of immunity for a state university
where a judgment “payment could come from tuition fees” and “these fees
had been factored into the preparation of the annual budget for the university
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by the state.” 798 F.2d at 744. “[T]o compel payment would add an expen-
diture not figured into the [state’s] budget,” and that counseled in favor of
immunity. Id.7
This factor weighs against immunity. First, it does not appear that
Texas would be directly liable for a judgment against ERCOT or for ER-
COT’s general debts. ERCOT is a non-profit corporation, and in Texas that
means it can “incur liabilities” and “borrow money.” Tex. Bus. Orgs.
Code § 2.101(6). Though the PUC must approve any debt ERCOT takes
on, Tex. Util. Code § 39.151(d-2), no party has cited any provision in
the thicket of statues and regulations governing ERCOT that requires Texas
or its agencies to indemnify or otherwise be responsible for ERCOT’s obli-
gations.
ERCOT avers that Texas would be forced to pay any judgment
because ERCOT’s funds come from statutorily authorized fees. That rea-
soning does not track. ERCOT may raise revenue under a statutory scheme,
but the fact that Texas has authorized it to charge fees in no way binds the
State to ERCOT’s obligations. To the contrary, statutes and regulations
dealing with ERCOT’s budget and liability—where one would expect such
an obligation to be—are silent.8
Thus, Texas is not directly liable for a judgment against ERCOT or
for ERCOT’s general debts and obligations. So, the “most important[]”
part, Bonin, 65 F.4th at 256 (citation omitted), of the “most important”
_____________________
7
See also Daniel, 960 F.3d at 258 (recognizing that this factor weighed in favor of
immunity for an academic hospital where “the university also held funds in the state
treasury and the funds were otherwise restricted from use.” (citation omitted)).
8
See, e.g., 16 Tex. Admin. Code § 25.363 (discussing ERCOT’s budget); Tex.
Util. Code § 39.151(d-4)(6) (recognizing that the PUC may resolve disputes between
ERCOT and aggrieved persons, without mentioning whether the state would be liable for
damages flowing from such disputes).
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factor, Daniel, 960 F.3d at 257 (citation omitted), weighs against immunity.
ERCOT contends that “a damage award against [it] would interfere
with the fiscal autonomy and political sovereignty of Texas.” Daniel,
960 F.3d at 258 (citation omitted). Though Texas may not be the one writing
Entrust a check or covering any budgetary shortfall, CPS Energy noted that
“any damages payments would nevertheless come from the state and the
public.” 671 S.W.3d at 627. That is because ERCOT receives funds via a fee
system approved by the PUC, and a large judgment award could impact
Texas’s sovereignty by forcing the PUC to authorize a rate increase that it
would not otherwise be inclined to make. See id.
The Trustee responds by citing Bonin, which held that this factor
weighed against immunity for a set-up like ERCOT’s. In that case, the
Sabine River Authority (“SRA”) had near-total financial independence
subject to the budgetary approval of a state body. Bonin, 65 F.4th at 256–57.
The SRA “generate[d] its own revenues, c[ould] incur debts and borrow
money, and” crucially for our purposes, “[was] obligated to pay its debts out
of its own funds, without drawing on state resources.” Id. at 257. That was
enough financial independence from Louisiana’s treasury for this factor to
weigh against recognizing the SRA as an arm of the state.
The key distinction between cases such as Bonin and cases such as
Daniel and Clark is not whether the state would be impacted by a judgment
against the entity, but how. In Daniel and Clark, a judgment award could
require the state to appropriate more money to the entities than it had orig-
inally intended.9 That type of “compel[led] payment” and the resulting risk
_____________________
9
See Daniel, 960 F.3d at 257–58 (holding that this factor weighed in favor of
immunity where “Texas law authorizes state treasury funds to be allocated to [the state-
run hospital]” and there was a possibility the judgment would need to be offset with those
“state-allocated funds.”); Clark, 798 F.2d at 744 (stating that this factor weighed in favor
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of direct assault on state treasuries made this factor weigh in favor of
immunity. Clark, 798 F.2d at 744.
In Bonin, however, a judgment against the SRA would not have com-
pelled the state to give more money to the entity; instead it would require
only that Louisiana expand the SRA’s statutorily authorized budget and
revenue collection ability—the source of funds would remain independent
from the state fisc.10 Though a damages award pressuring a state to take
legislative or executive action that it would not otherwise be inclined to take
certainly intrudes on traditional state activity, it is not the type of “interfer-
e[nce] with . . . fiscal autonomy and political sovereignty” that leads this fac-
tor to favor immunity. Daniel, 960 F.3d at 258 (citation omitted).11
ERCOT is more like the SRA than like the hospital in Daniel or the
entity in Clark. ERCOT does not receive tax dollars from the Texas treasury.
See CPS Energy, 671 S.W.3d at 627. Instead, it is “primarily funded by a
system administration fee charged to wholesale buyers and sellers of electri-
city.” Id. (citation omitted). Therefore, just as in Bonin, the only thing a
_____________________
of immunity where a judgment against the entity would “add an expenditure not figured
into the budget.”).
10
See 65 F.4th at 256 (“The [SRA] shall operate from self-generated revenues and
shall not be a budget unit of the state.” (citation omitted)); id. at 257 (“[W]hile the legisla-
ture has the discretion to appropriate state funds to the [SRA], the [SRA] is financially
autonomous—it generates its own revenues, can incur debts and borrow money, and is
obligated to pay its debts out of its own funds, without drawing on state resources.” (emphasis
added)).
11
Cf. Jacintoport Corp. v. Greater Baton Rouge Port Comm’n, 762 F.2d 435, 441–42
(5th Cir. 1985) (“[T]ertiary liability [that] has only ancillary effect on the State treas-
ury . . . discourages us from conferring immunity.”); Vogt v. Bd. of Comm’rs of the Orleans
Levee Dist., 294 F.3d 684, 694 (5th Cir. 2002) (holding that this factor weighed against
immunity where “[t]he levee district ha[d] the authority to tax and issue bonds” but “noth-
ing in Louisiana law, or in recent practice, suggest[ed] that the State ha[d] any obligation
with respect to judgments against the levee district.”).
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judgment against ERCOT risks is liability-induced changes to ERCOT’s fees
and rates—there is no direct threat to Texas’s treasury. See 16 Tex.
Admin. Code § 25.363. This factor weighs against immunity.
(3) The entity’s degree of local autonomy.
“The third Clark factor considers the entity’s degree of authority in-
dependent from the state.” Bonin, 65 F.4th at 257 (internal quotation marks
and citation omitted). That “involves consideration of the entity’s inde-
pendent management authority and, to a lesser degree, the independence of
the individual commissioners.” Id. (cleaned up). Though “less important
than financial independence,” and “not always . . . dispositive,” this factor
is a “measure of the closeness of the connections between the entity and the
State.” Jacintoport, 762 F.2d at 442 (citations omitted).
This factor weighs in favor of immunity where Texas “mandates that
[the entity] follow[ ] statutory accounting and financial reporting require-
ments.” Daniel, 960 F.3d at 258 (citation omitted). In contrast, where the
entity “has great latitude to enter into contracts . . . and to formulate and
execute policy without additional approval,” this factor weighs against im-
munity. Jacintoport, 762 F.2d at 442.
ERCOT avers that this factor weighs in favor of immunity because it
is subject to the PUC’s oversight. We agree. The PUC has control over just
about every one of ERCOT’s relevant activities.12 It is true that ERCOT has
control over its day-to-day operation of the electricity market. See Tex.
Util. Code § 39.151(a). But that does not change the fact that ERCOT
_____________________
12
See, e.g., 16 Tex. Admin. Code § 25.501(a), (j) (market prices and protections
against market failure); id. § 25.363 (ERCOT’s budget and fees); Tex. Util. Code
§ 39.151(d) (ERCOT is “directly responsible and accountable to the commission. The
commission has complete authority to oversee and investigate” ERCOT’s operations).
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has no meaningful budgetary autonomy and that the PUC has ultimate con-
trol over the price of electricity in every contract ERCOT enters. In short,
ERCOT lacks substantial “independent management authority” over the
Texas electricity markets. Jacintoport, 762 F.2d at 442 (cleaned up). This
factor weighs in favor of immunity.
(4) Whether the entity is concerned primarily with local, as distinguished from
statewide, problems.
The Trustee concedes that ERCOT is concerned with statewide prob-
lems. That concession is wise, as ERCOT is responsible for managing the
statewide electric grid. This factor weighs in favor of immunity.
(5) Whether the entity has the authority to sue and be sued in its own name.
ERCOT concedes that it can sue and be sued in its own name. As a
Texas non-profit corporation, ERCOT may sue and be sued in its own name.
See Tex. Bus. Orgs. Code § 2.101(1). This factor weighs against classi-
fying ERCOT as an arm of the state.
(6) Whether the entity has the right to hold and use property.
As a Texas non-profit corporation, ERCOT may hold and use prop-
erty. See id. § 2.101(3). But, as is often the case in the law, things are not that
simple. Some of our cases hold that this factor weighs against immunity if
the entity can take title to property “in its corporate name.” Bonin, 65 F.4th
at 259 (citation omitted); see also Jacintoport, 762 F.2d at 443. Under those
cases, this factor plainly weighs against immunity, given that ERCOT can
take title to property in its own name. But Daniel looked beyond title and
held that this factor favored immunity where the entity “d[id] not exclusively
manage the use of its property.” 960 F.3d at 260.
ERCOT seizes on Daniel’s language to aver that Texas has ultimate
control over its property. It is true that ERCOT cannot “own property, dis-
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pose of property, spend money, incur liabilities, and conduct [its] business”
without the PUC’s approval. CPS Energy, 671 S.W.3d at 626 (citation omit-
ted). In Texas courts, that is enough for “ERCOT’s assets [to be] owned by
the state.” Id. (citation omitted). But, under this Clark factor, the mere fact
that the PUC has approval power over ERCOT’s actions does not mean that
ERCOT lacks the ability to exclusively manage its property in the way con-
templated by Daniel.
In Daniel, the university hospital was able to acquire land using
Texas’s power of “eminent domain,” meaning that “the land it acquire[d]
bec[ame] property of the state” because the state was effectively responsible
for any acquisitions. 960 F.3d at 260. Here, in contrast, ERCOT’s ability to
acquire property derives from its entity status, not Texas’s sovereign powers.
A failure to obtain the PUC’s approval results only in the PUC’s taking
“appropriate action” against ERCOT, which can include decertification of
ERCOT as the ISO of the Texas electric grid or the assessment of an admin-
istrative penalty. Tex. Util. Code § 39.151(d). In short, the university
hospital needed state approval to acquire and use property, but ERCOT
needs state approval only to avoid post-hoc sanction.
Indeed, no party has cited any provision of Texas law that voids any
action ERCOT takes with its property when ERCOT fails to obtain the
PUC’s approval. That means the PUC’s approval is not a prerequisite of
ERCOT’s use and management of its property. The fact that ERCOT may
face consequences from the state for how it uses its property does not mean
that ERCOT lacks the ability to use its property independently. Therefore,
ERCOT is distinct from the university hospital in Daniel, and this factor
weighs against immunity.
That means we have an even split: Factors 1, 3, and 4 weigh in favor
of deeming ERCOT an arm of the state, and factors 2, 5, and 6 weigh against.
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Since our court has indicated repeatedly that factor 2 is the most important,
ERCOT is not an arm of Texas and not entitled to immunity in federal court.
IV.
Having assured ourselves of ERCOT’s amenability to suit in federal
court, we now turn to the dispositive issue in this case: Whether Burford
compels abstention from the Trustee’s claims. It does.13
“We review an abstention ruling for abuse of discretion, but we review
de novo whether the requirements of a particular abstention doctrine are
satisfied.” Stratta v. Roe, 961 F.3d 340, 356 (5th Cir. 2020) (cleaned up).
“Because the exercise of discretion must fit within the specific limits pre-
scribed by the particular abstention doctrine invoked, a court necessarily
abuses its discretion when it abstains outside of the doctrine’s strictures.”
Id. (cleaned up). That means we review whether a district (or bankruptcy)
court can abstain de novo, but if it can, then the ultimate decision to abstain
is reviewed for abuse of discretion. See Just Energy, 57 F.4th at 247, 254–55.
“We have no more right to decline the exercise of jurisdiction which
is given, than to usurp that which is not given. The one or the other would
be treason to the [C]onstitution.” Cohens v. Virginia, 19 U.S. (6 Wheat.) 264,
404 (1821). Bankruptcy courts may abstain “in the rare instances where the
_____________________
13
ERCOT has waived its contention that we should abstain from deciding the tak-
ings claim under Burford. See Butler Aviation Int’l, Inc. v. Whyte (In re Fairchild Aircraft
Corp.), 6 F.3d 1119, 1128 (5th Cir. 1993). Apart from a passing reference in one subsection
of its motion to dismiss, ERCOT did not present that contention to the bankruptcy court.
Instead, ERCOT averred properly only that the bankruptcy court should abstain from the
pricing claims under Burford. “Where Burford-type abstention is appropriate, however, it
can be ordered on appeal even if not raised in the trial court.” Martin Ins. Agency, Inc. v.
Prudential Reinsurance Co., 910 F.2d 249, 255 (5th Cir. 1990) (citation omitted). Therefore,
considering the abstention issue has been briefed for the takings claim as well as the pricing
claims, we exercise our discretion to consider whether abstention is appropriate for both
the takings claim and the pricing claims.
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Burford-abstention doctrine permits.” Just Energy, 57 F.4th at 249 (citation
omitted). Named for the seminal case in which it arose, the doctrine gives
federal courts “discretion to abstain from deciding unclear questions of state
law arising in complex state administrative schemes when federal court inter-
vention would undermine uniform treatment of local issues.” Harrison v.
Young, 48 F.4th 331, 339 (5th Cir. 2022) (citation omitted). Though “dis-
favored as an abdication of federal jurisdiction,” Aransas Project v. Shaw,
775 F.3d 641, 653 (5th Cir. 2014) (per curiam), the Supreme Court has
required abstention under Burford in two instances:
(1) when there are difficult questions of state law bearing on
policy problems of substantial public import whose importance
transcends the result in the case then at bar; or
(2) where the exercise of federal review of the question in a case
and in similar cases would be disruptive of state efforts to es-
tablish a coherent policy with respect to a matter of substantial
public concern.
NOPSI, 491 U.S. at 361 (internal quotation marks and citation omitted).
Our circuit has crafted a five-factor test to implement that directive.
We consider “(1) whether the plaintiff raises state or federal claims,
(2) whether the case involves unsettled state law or detailed local facts,
(3) the importance of the state’s interest in the litigation, (4) the state’s need
for a coherent policy in the area, and (5) whether there is a special state forum
for judicial review.” Harrison, 48 F.4th at 339–40 (citation omitted). We
take each factor in turn.
(1) Whether the plaintiff raises state or federal claims.
The first factor is whether the Trustee brings claims under state or
federal law. See id. at 340. This “factor weighs against abstention” where
“claims are pleaded under . . . federal law.” Just Energy, 57 F.4th at 250
(citation omitted). Of the Trustee’s claims, only Count VI (gross negligence)
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is pleaded under state law. Though “[t]hat far from settles the abstention
question . . . it does get the ball rolling in the direction of abstention” for
Count VI. Grace Ranch, L.L.C. v. BP Am. Prod. Co., 989 F.3d 301, 314 (5th
Cir. 2021) (citation omitted). The rest of the claims arise under federal law,
so this factor does not favor abstention for them.
(2) Whether the case involves unsettled state law or detailed local facts.
The second factor looks at “whether the case involves unsettled state
law or detailed local facts.” Harrison, 48 F.4th at 339 (citation omitted).
Abstention is favored where “the plaintiff’s claim may be in any way entan-
gled in a skein of state law that must be untangled before the federal case can
proceed.” Sierra Club v. City of San Antonio, 112 F.3d 789, 795 (5th Cir. 1997)
(internal quotation marks and citation omitted). But “the risk that the federal
court will confront an unsettled state-law issue . . . does not on its own justify
a federal court’s refusal to hear the case.” Grace Ranch, 989 F.3d at 315 (cita-
tion omitted). Instead, “[o]f primary concern in Burford [is] the involvement
of the federal courts in deciding issues of essentially state law and policy.”
Aransas Project, 775 F.3d at 650. “So, this second factor turns in part on
whether the court will be forced to weigh competing local interests and
mostly review an agency’s decision in an area in which that agency is arguably
an expert.” Just Energy, 57 F.4th at 250 (cleaned up).
With respect to the pricing claims, Just Energy dictates that this factor
weighs in favor of abstention. That case involved remarkably similar facts.
Just Energy was a retail utility during Uri who was hit with a $335 million
electricity bill that drove them to bankruptcy—just like Entrust. Id. at 246.
Just Energy paid ERCOT under protest and then sought reimbursement in
bankruptcy court by alleging that ERCOT’s alteration of the Reliability
Deployment Price Adder to account for load shed was invalid—the same
allegation that underlies Entrust’s pricing claims. Id. at 246–47. ERCOT
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asked the bankruptcy court to abstain under Burford, and the bankruptcy
judge declined. On review, the panel held that this factor weighed in favor of
abstention because a determination of whether the PUC’s order authorized
ERCOT’s pricing alteration “risked reaching a different answer than the
state institutions with greater interest in and familiarity with such matters.”
Id. at 250 (cleaned up).
That holding is outcome-determinative for the pricing claims. Just
like the claims in Just Energy, Counts I–IV and VI require us to determine
whether (1) the PUC’s order authorized ERCOT to include load shed in the
Reliability Deployment Price Adder; and (2) if so, whether the order also
authorized such alteration to continue through February 19, 2021. There is
no way to resolve the pricing claims without determining the lawfulness and
scope of the PUC’s order and the resulting lawfulness of ERCOT’s price
manipulation. Just Energy held that those tasks require the type of “highly
localized, specialized, judgment[s]” that warrant abstention. 57 F.4th at
250–51 (citation omitted). The rule of orderliness requires us to weigh this
factor in favor of abstention for the pricing claims.
The takings claim, however, is a closer question, and Just Energy does
not control. The takings claim challenges the constitutionality of the Mass
Transition but does not dispute its validity under state law. Thus, the takings
claim does not “entangle[]” us “in a skein of state law,” Sierra Club,
112 F.3d at 795 (citation omitted), or require us to resolve “unsettled [issues
of] state law,” Harrison, 48 F.4th at 339 (citation omitted). But hearing the
takings claim would force us “to weigh competing local interests” and review
ERCOT’s and the PUC’s “decision[s] in an area in which [they are] arguably
an expert.” Just Energy, 57 F.4th at 250 (cleaned up).
Texas deems the transfer of customers from one retail utility to
another essential to ensuring its guarantee that every consumer is “entitled
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. . . to be served by a provider of last resort that offers a [PUC]-approved
standard service package.” Tex. Util. Code § 39.101(b)(4). Mass Tran-
sitions function to balance Texas’s desire for a free-market utility system
with its wish that no consumer be left in the dark (literally) if that market fails.
The PUC has “weigh[ed] [those] competing local interests,” Just Energy,
57 F.4th at 250 (citation omitted), and decided that a Mass Transition needs
to occur whenever a retail utility “failed to provide service to the customer
or failed to meet its obligations to [ERCOT],” 16 Tex. Admin. Code
§ 25.43(a).
If we were to resolve whether the transitions are constitutional with-
out just compensation, we would be inserting ourselves into a key part of
Texas’s utility-regulation scheme. A ruling from our court requiring just
compensation for every Mass Transition could render the practice financially
unfeasible, forcing Texas to choose between its competing polices. The Con-
stitution may well compel that choice, but the principles of comity that
underly Burford counsel in favor of allowing Texas courts to make that call.14
This factor weighs in favor of abstention for the takings claim.
(3) The importance of the state’s interest in the litigation.
This factor requires a “sort of balancing between state and federal
interests.” Aransas Project, 775 F.3d at 651. Abstention is favored “when a
state administrative scheme guards an over-all plan of regulation of vital
interest to the general public from federal interference.” Grace Ranch,
989 F.3d at 316 (cleaned up). “We have found abstention improper, how-
ever, when countervailing federal policies undermine the primacy of the
_____________________
14
Cf. NOPSI, 491 U.S. at 361 (indicating that abstention would be required “where
the exercise of federal review . . . would be disruptive of state efforts to establish a coherent
policy with respect to a matter of substantial public concern.” (cleaned up)).
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state’s interest, or when the state interests involved are not threatened by the
limited relief sought.” Id. (citations omitted).
“Utility regulation is one of the most important of the functions tra-
ditionally associated with the police power of the states.” Wilson v. Valley
Elec. Membership Corp., 8 F.3d 311, 315 (5th Cir. 1993) (cleaned up). That is
why Just Energy said unequivocally that “Texas’s electricity market is” the
type of “administrative scheme” Burford targets. 57 F.4th at 251 (citation
omitted). “Texas’s interest in utility regulation and litigation and its protec-
tion of the electricity-related public interest” render “Texas’s interest in
[litigation involving ERCOT’s pricing] paramount.” Id. at 251–52 (citations
omitted). “With the state interest so strong, this factor counsels in favor of
abstention” for the pricing claims, which—just like the claims in Just
Energy—require insertion into Texas’s guarded state administrative scheme.
Id. at 252.
The Trustee counters that the federal interest in this case is much
stronger than it was in Just Energy. In the Trustee’s view, ERCOT is
Entrust’s largest unsecured creditor, and—unlike in Just Energy—has not
been paid. That means abstention here would tie up the entire bankruptcy
proceeding because no other creditor can be paid before ERCOT. However
true that is as a matter of substantive bankruptcy law, it is not enough to
outweigh Texas’s interest in managing its incredibly complex utility scheme.
See Wilson, 8 F.3d at 315 (“Nor does the Bankruptcy Code represent a super-
vening federal interest . . . .”).
This factor also weighs in favor of abstaining from the takings claim,
though the question is closer. The federal interest in providing a federal
forum for vindication of federal rights is strong.15 But, as discussed above,
_____________________
15
Cf. Aransas Project, 775 F.3d at 650–51 (holding that hearing a suit under the En-
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hearing the Trustee’s takings claim would insert our court into a core com-
ponent of Texas’s regulatory scheme. Texas has taken extraordinary steps
to isolate its grid from the nation’s electricity system—making a conscious
decision to exchange reliability for greater independence from federal regu-
lation. See New York v. FERC, 535 U.S. at 7–8. It is hard to think of a regu-
latory system that is more “guard[ed] . . . from federal interference.” Just
Energy, 57 F.4th at 251 (internal quotation marks and citation omitted).
A federal adjudication of the takings claim, and the potential conse-
quences of that adjudication, would “unduly intrude into the processes of
[Texas’s] government” by imperiling Mass Transitions and the POLR pro-
gram. NOPSI, 491 U.S. at 363. Where a state has protected its regulatory
system in the way Texas has, and federal adjudication of related claims risks
great disruption to that protected scheme, the state has a “paramount” inter-
est in handling litigation involving the regulatory scheme. Allstate, 517 U.S.
at 728 (citation omitted). This factor weighs in favor of abstention for the
takings claim.
(4) The state’s need for a coherent policy in the area.
This factor requires ERCOT to “show that federal resolution of this
suit would disrupt [Texas’s] efforts to establish a coherent policy for” elec-
tric utilities. Grace Ranch, 989 F.3d at 316. This factor is designed to “avoid
recurring and confusing federal intervention in an ongoing state scheme,”
Wilson, 8 F.3d at 315 (citation omitted), and prevent “worrisome meddling,”
in state affairs, Grace Ranch, 989 F.3d at 317. Abstention is favored where
“[f]ederal intervention could easily upset . . . delicate balancing,” Aransas
Project, 775 F.3d at 651, by “affect[ing] other parties within a single integrated
_____________________
dangered Species Act outweighed the state’s interest in managing water use).
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system,” Just Energy, 57 F.4th at 252 (cleaned up).
With respect to the pricing claims, Just Energy already held that this
factor weighed in favor of abstention because “ERCOT’s decisions during
Uri do not amount to an impermissible one-time affair where the entire
industry will be necessarily affected by Just Energy’s possible recoupment of
funds.” Id. at 253 n.10. Here too, deciding the pricing claims will alter the
financial relationship between Entrust and ERCOT by validating or invali-
dating actions taken by ERCOT during Uri. That is dramatic federal inter-
vention in a delicate state scheme that would almost certainly impact other
players within Texas’s integrated system.16 This factor favors abstaining
from the pricing claims.
This factor also favors abstaining from the takings claim. Unlike factor
three, we are not concerned with any competing federal interests—we look
only to whether federal resolution of the suit would disrupt Texas’s efforts
to establish a coherent and uniform policy for electric utilities. See Grace
Ranch, 989 F.3d at 316. As discussed previously, deeming a Mass Transition
a taking risks dramatic impact on Texas’s scheme and could require Texas to
choose between abolishing its market-based system or continuing to run the
system without a “safety-net” for consumers who are not serviced. That is
_____________________
16
The Trustee avers that ruling on the pricing claims will not impact other market
participants because Entrust is not seeking to claw-back money from ERCOT, and any par-
ticipant who was harmed by Entrust’s insolvency has been assured payment by a PUC
order. That is a strong contention, but Just Energy’s sweeping language forecloses it.
Bound by the rule of orderliness, we accept as true that any federal court action addressing
“ERCOT’s decisions during Uri” would disrupt the electricity market. Just Energy,
57 F.4th at 253 n.10. And even if Just Energy did not bind, a determination by a bankruptcy
court that ERCOT acted ultra vires in altering the Reliability Deployment Price Adder risks
placing Entrust on a footing different from that of the many other retail electricity providers
aggrieved by ERCOT’s actions—the exact “disruption” and “crumbling” of Texas’s uni-
form system against which Burford warns. See id. at 252–53 (cleaned up).
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a striking disruption in Texas’s electric markets, so this factor favors
abstention.
(5) Whether there is a special state forum for judicial review.
“To justify abstention, there must be a forum that offers ‘[t]imely and
adequate state-court review.’” Aransas Project, 775 F.3d at 651–52 (quot-
ing NOPSI, 491 U.S. at 361). That “[r]eview typically includes the ability to
appeal agency orders to a state trial court, with available state appellate
review, and such review may include initial review by the agency.” Id. at 652.
As this opinion discussed above, Texas has established a centralized
scheme for review of ERCOT’s pricing decisions and PUC orders. That sys-
tem includes agency review, Tex. Util. Code § 39.151(d-4)(6), and
review in specified state courts, Tex. Gov’t Code § 2001.176. The Trus-
tee does not contest that this review scheme is the type of state forum that
normally favors abstention. Instead, the Trustee avers that abstention is not
favored because ERCOT voluntarily availed itself of a federal forum by filing
a claim in Entrust’s bankruptcy. In the Trustee’s view, ERCOT cannot
resort to the bankruptcy system to obtain payment of its invoice while sim-
ultaneously objecting to the bankruptcy system’s methods of determining the
rights and liabilities between creditor and debtor.
That contention appears to raise a question of first impression in this
circuit: Whether a party who sought a federal forum waives its right to
request Burford abstention over claims asserted against it in that federal
forum. The Supreme Court has answered that question in the affirmative for
Younger abstention. Ohio Bureau of Emp. Servs. v. Hodory, 431 U.S. 471, 480
(1977) (“If the State voluntarily chooses to submit to a federal forum, prin-
ciples of comity do not demand that the federal court force the case back into
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the State’s own system.”). Hodory is inapplicable here.17 The fact that
ERCOT availed itself of a federal forum does not require this factor (or any
other factor) to weigh against Burford abstention. First, Hodory implied
strongly that its waiver holding does not extend beyond Younger abstention.
That court also discussed Pullman abstention without mentioning the fact
that the party requesting abstention was the one who sought out the federal
forum. See Hodory, 431 U.S. at 480–81. If Hodory’s holding that a party
cannot invoke Younger abstention after availing itself of a federal forum
applied to other forms of abstention, then one would have expected an
application of that principle in the discussion of Pullman abstention.
Second, Burford abstention implicates a different set of policies than
does Younger abstention. Younger abstention is concerned with preventing
“undu[e] interfere[nce]” of the “National Government” in specific “pend-
ing state proceedings.” Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 10–11 (1987)
(citation omitted). The interests Younger serves are dependent on a state
party’s desire to keep a specific “parallel, pending state criminal [or certain
civil] proceeding” in its own courts. Sprint Commc’ns, Inc. v. Jacobs, 571 U.S.
69, 72 (2013). The purpose of Younger abstention, therefore, is not frustrated
where the state party seeks out a federal forum for a specific state case
voluntarily.
Burford abstention, in contrast, is concerned with “protecting com-
_____________________
17
We note that the Ninth Circuit, in Southern California Edison Co. v. Lynch,
applied Hodory to preclude Burford abstention. 307 F.3d 794, 805–06 (9th Cir.), modified,
307 F.3d 943 (9th Cir. 2002), and certified question answered sub nom. S. Cal. Edison Co. v.
Peevey, 74 P.3d 795 (Cal. 2003). But that decision is readily distinguishable, because there
the state “expressly waived any abstention defense to [the plaintiff’s] action and consented
to the Stipulated Judgment,” id. at 806, whereas here, ERCOT has strenuously argued in
favor of Burford abstention throughout the proceedings. By filing a proof-of-claim in the
bankruptcy court, ERCOT consented only implicitly to the adjudication of the pricing
claims in a federal forum.
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plex state administrative processes from undue federal interference,” to
avoid “disrupt[ing] state efforts to establish a coherent policy.” NOPSI,
491 U.S. at 361–62 (cleaned up). The doctrine, by its terms, applies where a
case is “not [a] mere isolated dispute[]” but “necessarily affect[s] [an] entire
state [regulatory] system.” Burford, 319 U.S. at 324. The interests Burford
serves are based on the nature of the claim and the impact of federal adjudi-
cation on the state system, not on who sought out federal court. ERCOT’s
filing of a proof-of-claim does not make this factor (or any other) weigh
against Burford abstention for the pricing claims.
The takings claim is more straightforward. A key goal of Burford is to
“prevent the confusion of multiple review of the same general issues” that
could stem from federal adjudication of a claim implicating a uniform state
scheme. 319 U.S. at 326. That means abstention is favored where allowing
“various . . . courts to pass upon the Commission’s rules and orders, would
lead to intolerable confusion” in the state system. Id. at 327 (internal quota-
tion marks and citation omitted). The takings claim seeks damages from a
Mass Transition, but ERCOT is provided absolute immunity from damages
actions arising out of a Mass Transition. See 16 Tex. Admin. Code
§ 25.43(o)(2). Adjudicating the takings claim, therefore, would not inject
intolerable confusion into Texas’s specialized system of review, as no adjudi-
catory body within that system would ever pass on the merits of that type of
claim. This factor weighs against abstention for the takings claim.
V.
So, where do we stand after all of that? For each pricing claim, at least
four of the five factors favor abstention. Thus, the bankruptcy court abused
its discretion in declining to abstain. See Just Energy, 57 F.4th at 254–55
(holding that the district court abused its discretion in declining to abstain
where “four of the five factors favor[ed] abstention.”). For the takings claim,
factors two, three, and four weigh in favor of abstention and factors one and
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five weigh against. Our court has held that abstention was not warranted
even where three factors favored abstention. See Grace Ranch, 989 F.3d
at 318–19 (factors one, two, and three favored abstention).
But the Burford factors are not a numerical score card; a 3-2 tilt in one
case is not necessarily dispositive of a 3-2 result in another.18 The factors
function as a tool to guide courts in determining whether those principles are
implicated in a given case.
The bankruptcy court abused its discretion in refusing to abstain from
the takings claim even though factors one and five counseled against absten-
tion. As we have discussed extensively, federal adjudication of the constitu-
tionality of the Mass Transitions and POLR program risks dramatic intrusion
into Texas’s specialized system of electric utility regulation and would dis-
rupt Texas’s efforts to establish a coherent and uniform policy for electric
utilities.19 Under the specific circumstances of this case, the fact that the
takings claim arises under federal law and that Texas does not provide any
sort of specialized system for review does not support hearing the claim.
The threat federal adjudication poses to Texas’s specialized system of
utility regulation—a system we have described previously as “the type of
complex state administrative process that Burford abstention aims to pro-
tect,” Just Energy, 57 F.4th at 252 (cleaned up)—is clear and direct and
_____________________
18
Cf. Wilson, 8 F.3d at 314 (“The Burford line of cases reveals several factors that
are relevant in making this determination . . . .” (emphasis added)). Burford abstention is
proper “where timely and adequate state-court review is available and where the exercise
of federal review of the question in a case and in similar cases would be disruptive of state
efforts to establish a coherent policy with respect to a matter of substantial public concern.”
Id. (cleaned up).
19
Contra Grace Ranch, 989 F.3d at 319 (recognizing that the claims at issue in that
case “d[id] not involve an integrated state regulatory scheme in which a federal court’s
tapping on one block in the Jenga tower might cause the whole thing to crumble.”).
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implicates the heart of the policies underlying Burford. The bankruptcy court
abused its discretion in declining to abstain from the takings claim.
VI.
Having determined that the bankruptcy court abused its discretion in
refusing to abstain from adjudicating the Trustee’s claims, we must deter-
mine what to do about that abuse of discretion.
Where Burford abstention is warranted, the ultimate trajectory of the
case differs depending on the nature of the claims abstained from. Where “a
federal court is asked to provide some form of discretionary relief[,]” the
court may dismiss the action. Allstate, 517 U.S. at 730. But where a cause of
action seeks damages, a federal court may not dismiss the claim and may only
“postpose adjudication of a damages action pending the resolution by the
state courts of a disputed question of state law.” Id. at 730–31. See also B.C.
Rogers Poultry, 174 F.3d at 701 n.5 (5th Cir. 1999) (“Although remanding a
damages case [to state court] is inappropriate, . . . a court c[an] stay an action
pending resolution in state court of an issue relevant to the federal case if the
Burford doctrine call[s] for abstention.” (citation omitted)).
The parties agree that Counts I–IV seek equitable or discretionary
relief, and we direct the bankruptcy court to dismiss them under Burford
accordingly. See Allstate, 517 U.S. at 730. The parties also agree that the
takings claim (Count V) and the gross negligence pricing claim (Count VI)
are actions for damages, so Allstate requires the bankruptcy court to stay
those counts pending resolution of related state proceedings. See id. at 730–
31. The complication is that, for the takings claim, there is no “pending reso-
lution in state court of an issue relevant to the federal case.” B.C. Rogers
Poultry, 174 F.3d at 701 n.5 (citation omitted).
The Mass Transition is certainly bound up in Texas’s intricate regu-
latory scheme, but the takings claim in no way turns on questions of Texas
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utility law. And, in contrast to the pricing claims, ERCOT has not pointed
to any pending Texas case that would resolve (or even be informative on) the
question of whether a Mass Transition is an unconstitutional taking. There-
fore, we must decide what Allstate requires where a complaint asserts two
actions for damages and abstention is warranted on both, but only one of the
actions is related to a pending state case. Do we direct the bankruptcy court
to stay both actions? Or do we direct it to stay only the action that is related
to the state proceedings and allow the other action to proceed?
In such circumstances, the best reading of Allstate requires staying
both damages actions. To be sure, parts of B.C. Rogers Poultry and Allstate
imply that a damages action can be stayed under Burford only where there is
a related state case currently pending.20 But that language must be read in
context with other parts of the Supreme Court’s opinion. The majority opin-
ion said specifically that “given the situation the District Court faced in this
case, a stay order might have been appropriate.” Allstate, 517 U.S. at 731
(emphasis added). That language suggests that whether to stay an action for
damages is a question dependent on the circumstances confronting the fed-
eral court—circumstances justifying a stay may often be present where there
is a related state proceeding currently pending, but a proceeding directly on
point is not a prerequisite to a stay.21
_____________________
20
See B.C. Rogers Poultry, 174 F.3d at 701 n.5. (“[A] court [may] stay an action
pending resolution in state court of an issue relevant to the federal case if the Burford doc-
trine call[s] for abstention.” (citation omitted)); Allstate, 517 U.S. at 730–31 (stating that a
court can “postpone adjudication of a damages action pending the resolution by the state
courts of a disputed question of state law.”).
21
The First Circuit appears to agree with our interpretation of Allstate. See gener-
ally Dunn v. Cometa, 238 F.3d 38 (1st Cir. 2001). In Dunn, there was a pending divorce and
custody proceeding between Mr. Dunn and Ms. Cometa, but “Mr. Dunn decided not to
pursue economic misconduct” claims in state court even though those claims could have
impacted the amount of alimony awarded had they been raised. Id. at 40. Instead, Mr.
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The takings claim has dramatic implications for Texas’s regulation of
electric utilities. It is not hyperbole to say that a federal determination that
the Mass Transitions are unconstitutional takings would upend Texas’s
unique electricity markets. Such an intrusion would come at a time when the
Texas Supreme Court is currently wrestling with several key issues relating
to its grid and the actions of ERCOT and the PUC during Uri.22 Even if there
are no cases currently before Texas courts that are directly relevant to the
takings claim, the respect for state systems that underlies Burford counsels in
favor of allowing Texas courts to handle their tangentially related business
before a federal court adjudicates the takings claim.23 Therefore, under
Allstate, we direct the bankruptcy court to stay both the gross negligence
claim and the takings claim pending resolution of current state proceedings
that bear on ERCOT’s and the PUC’s actions during Uri.
* * * *
For the reasons explained, we REVERSE the bankruptcy court’s
denial of ERCOT’s motion to abstain, REVERSE the bankruptcy court’s
denial of ERCOT’s motion to dismiss Count’s I–IV and VI of the Trustee’s
complaint, and VACATE the bankruptcy court’s order dismissing Count V
of the complaint with prejudice. Because Burford abstention is called for, we
_____________________
Dunn filed a federal action, seeking damages on that tort and others. The First Circuit
found that Burford abstention was warranted and, crucially, “vacate[d] the dismissal of all
counts and remand[ed] for a stay in accordance with [Allstate] pending resolution of the
filed state court action.” Id. at 42–43. In short, Dunn directed a stay even though the
pending state case was only tangentially related to the economic-misconduct tort.
22
PUC v. Luminant Energy Co., No. 23-0231, 2023 Tex. LEXIS 971 (Sept. 29,
2023).
23
Cf. Pennzoil, 481 U.S. at 11 n.9 (“The various types of abstention . . . reflect a
complex of considerations designed to soften the tensions inherent in a system that
contemplates parallel judicial processes.”).
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REMAND with instruction to dismiss Counts I–IV and stay Counts V
and VI pending the resolution of current state proceedings that bear on
ERCOT’s and the PUC’s actions during Uri.
34