Kansas City Power & Light Co. v. McKay

• Decision Date: 17 June 1953
• Docket Number: Civ. A. No. 4276-50.
• Citation: 115 F. Supp. 402
• Parties: KANSAS CITY POWER & LIGHT CO. et al. v. McKAY, Secretary of the Interior, et al.
• Court: U.S. District Court — District of Columbia

115 F. Supp. 402

KANSAS CITY POWER & LIGHT CO. et al. v. McKAY, Secretary of the Interior, et al.

Civ. A. No. 4276-50.

United States District Court District of Columbia.

June 17, 1953.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Wilmer & Broun, E. Fontaine Broun, Henry T. Rathbun, Washington, D. C., Baker, Hostetler & Patterson, Raymond T. Jackson, Sidney D. L. Jackson, Jr., John R. Baskin, Alan G. Rorick, Cleveland, Ohio, for plaintiffs.

Spencer, Fane, Britt & Browne, Arthur J. Doyle, Kansas City, Mo., for Kansas City Power & Light Co.

Floyd M. Sprague, St. Joseph, Mo., for St. Joseph Light & Power Co.

Patterson, Cowherd, Smith & Patterson, A. Z. Patterson, Kansas City, Mo., for Missouri Public Service Co., Arkansas-Missouri Power Co., and Missouri Edison Co.

R. K. McPherson, Joplin, Mo., for Empire Dist. Electric Co.

James D. James, Lester G. Seacat, Jefferson City, Mo., for Missouri Power & Light Co.

John A. Woodbridge, Charles J. Dougherty, St. Louis, Mo., for Union Electric Co. of Missouri.

Oliver & Oliver, R. B. Oliver, Jr., Cape Girardeau, Mo., for Missouri Utilities Co.

Holmes Baldridge, Asst. Atty. Gen., Charles M. Irelan, U. S. Atty., Washington, D. C. (Edward H. Hickey, Morton Liftin, Attys., Department of Justice, W. Carroll Hunter, Sol., Bernard Gekoski, Henry E. Freedman, Attys., Department of Agriculture, Mastin G. White, Sol., Theodore H. Haas, Atty., Department of the Interior, Washington, D. C., R. L. Davidson, Chief Counsel, Jesse L. Ballard, Atty., Southwestern Power Administration, Tulsa, Okl., of counsel), for defendants.

Dalton, Treasurer & Dalton, John M. Dalton, Kennett, Mo., for M & A Electric Power Cooperative, amicus curiae.

Jack L. Rorschach, Vinita, Okl., for Kamo Electric Cooperative, Inc., amicus curiae.

Stockard & Stockard, Alden A. Stockard, Gregory C. Stockard, Jefferson City, Mo., for Central Electric Power Cooperative, and Sho-Me Power Corp. amici curiae.

Pickett, Pickett & Andereck, Trenton, Mo., of counsel, Eugene E. Andereck, Phil Hauck, Russell N. Pickett, Trenton, Mo., for N. W. Electric Power Cooperative, Inc., amicus curiae.

McLAUGHLIN, District Judge.

On October 3, 1950, Kansas City Power & Light Company, of Kansas City, Missouri, and nine other privately-owned electric-utility corporations,¹ doing business in and about the State of Missouri, joined as plaintiffs in filing suit in the United States District Court for the District of Columbia for injunctive, declaratory and other relief against certain officials of the United States Government responsible for the administration of the Rural Electrification Act of 1936, as amended,² 7 U.S.C.A. § 901 et seq., and Section 5 of the Flood Control Act of 1944, as amended,³ 16 U.S. C.A. § 825s.

Plaintiffs, holders of non-exclusive franchises, engaged in the business of generating, transmitting, distributing and selling electric power and energy at wholesale and retail to consumers in their respective territories, base their right to relief upon alleged violations of specific statutory provisions of the RE Act, supra, and the Flood Control Act, supra, by the Secretary of Agriculture and the Administrator of the Rural Electrification Administration (an agency of the Department of Agriculture⁴), and by the Secretary of the Interior and the Administrator of Southwestern Power Administration (an agency of the Department of the Interior⁵). The Secretary of the Treasury was also joined as a proper but not necessary party defendant.

Jurisdiction of the Court was invoked under the Court's general equity powers, under the Administrative Procedure Act, 5 U.S.C.A. §§ 1001-1009, and under the Declaratory Judgments Act, 28 U.S.C. §§ 2201, 2202. Plaintiffs also pleaded the requisite jurisdictional amount.

It is alleged in the complaint that defendants⁶, acting pursuant to a confederated plan, had conspired in concert with each other and with others, unknown to plaintiffs, to enter into a system of contracts between the United States and five federated rural electric cooperatives to enable SPA to acquire by the use of REA funds, without Congressional authorization and in violation of the law, steam or thermal generating capacity and transmission lines which would allegedly duplicate plaintiffs' facilities and thereby deprive plaintiffs of existing and potential customers and bring destructive competition to the plaintiff utilities and other privately-owned utilities operating in and adjacent to what is known as the Southwestern Power Area.

The complaint further alleges that defendants, as part of the conspiracy, had executed or were about to execute several contracts in each of which the Government (as represented by REA or by SPA) was or would be named as one party to the contract and one of the above-mentioned five federated rural electric co-operatives, namely, N. W. Electric Power Cooperative, Inc., Central Electric Power Cooperative, Sho-Me Power Corporation, KAMO Electric Cooperative, Inc., or M & A Electric Power Cooperative⁷, was, or would be, named as the other party to the contract.

The federated cooperatives are privately owned corporations whose members consist of smaller rural electric distribution cooperatives. They are independent corporations organized under the laws of their respective States to enable the rural residents they serve to secure electric service as intended under the provisions of the RE Act. It is asserted by plaintiffs that the federated cooperatives are merely "paper organizations".

Plaintiffs' position is that defendants, through the REA and SPA, have conspired and combined to misuse their powers under the guise of the law and are merely using the cooperatives as conduits or nominees in an effort to build and to utilize a competing or public power generating and transmission system duplicating plaintiffs' facilities and invading plaintiffs' territories. This invasion, they assert, constitutes unlawful competition by defendants which has caused irreparable injury to plaintiffs jointly and severally.

Plaintiffs seek an injunction to restrain the Secretary of Agriculture and the Administrator of REA from making loans under the contracts severally executed between the Government through REA, and the five federated rural electric cooperatives in connection with the construction of electric generating and transmission facilities; to restrain the Secretary of the Interior and the Administrator of SPA from proceeding under certain lease and power agreements entered into between the Government, acting through SPA, and the federated cooperatives; and to prevent the Secretary of the Treasury as custodian of the public funds of the United States from making any disbursements to the other defendants to enable them to carry out the unlawful acts set forth in the complaint.

Defendants seasonably moved to dismiss the complaint on the basic premise that plaintiffs had no standing to bring suit because no justiciable issue was presented to the Court. In making this motion, defendants relied strongly on the rule announced in Alabama Power Co. v. Ickes, 1938, 302 U.S. 464, 58 S.Ct. 300, 82 L.Ed. 374. However, this branch of the Court then sitting in the Motions Division found that the petition raised the issue as to whether the sales and loans complained of and sought to be enjoined were sales and loans for an unlawful purpose in violation of the aforesaid statutes and denied the defendants' motion. The determination of the question of plaintiffs' special interests under the Declaratory Judgments Act and the Administrative Procedure Act was reserved to abide the presentation of evidence at the trial.

Answering, defendants then entered a general denial to all allegations of the complaint except the execution of the challenged contracts and formal allegations, and averred that all of the actions complained of were lawful and were taken pursuant to and in conformity with statutory authorization.

Later, another Judge of this Court heard and denied a motion by defendants for summary judgment. Subsequently, the case was specially assigned to this branch of the Court for the hearing of all motions, and for pre-trial and trial.

During an oral hearing of motions by plaintiffs and defendants for the production of documents under Rule 34 of the Federal Rules of Civil Procedure, 28 U.S.C. the desirability of a separate trial to determine the legality or illegality of the several contracts in the controversy, became apparent. In accordance with the provisions of Rule 42(b) of the Rules of Civil Procedure such separate trial was ordered, and has been held. This opinion is rendered with respect to the issue therein involved.

The contracts challenged, individually and as part of one of the five systems of contracts, are of three basic types, respectively denominated, (1) loan agreements or contracts, (2) lease-option contracts, and (3) power contracts. All agreements in a system were made in reference to one another.

By the terms of the loan contracts executed in the name of the United States by the REA, funds are to be advanced to the respective federated cooperatives for the construction of generating and transmission facilities (steam or diesel generating plants, transmission lines and related electrical facilities) e. g. see Plaintiffs' Exhibit 5 REA-NW Loan Contracts.

The loan agreements provide that before any funds are advanced to the respective cooperatives they must enter into the second type of agreement⁸, namely the lease contract, with SPA, calling for the leasing to SPA for a period of 40 years of the transmission facilities to be constructed from the funds advanced. By the lease contracts SPA obtains control of the facilities for the 40-year period, and agrees to pay all costs of operation, maintenance, repair and capital replacements, as well as the amortization payments on the loans.

The loan agreements and lease contracts also call for the execution of the third type of...