Merritt-Chapman & Scott Corp. v. Public Utility Dist. No. 2

• Decision Date: 22 April 1963
• Docket Number: No. 164,Docket 27783.,164
• Parties: MERRITT-CHAPMAN & SCOTT CORPORATION, Plaintiff-Appellant, v. PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY, WASHINGTON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

319 F.2d 94 (1963)

MERRITT-CHAPMAN & SCOTT CORPORATION, Plaintiff-Appellant, v. PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY, WASHINGTON, Defendant-Appellee.

No. 164, Docket 27783.

United States Court of Appeals Second Circuit.

Argued December 10, 1962.

Decided April 22, 1963.

On Rehearing May 17, 1963.

Rehearing Denied June 19, 1963.

Rehearing Denied August 6, 1963.

COPYRIGHT MATERIAL OMITTED

William L. Lynch, New York City (James W. Lamberton, Dennis J. Kenny and Cleary, Gottlieb, Steen & Hamilton, New York City, on the brief), for plaintiff-appellant.

Whitman Knapp, New York City (Nat W. Washington, Ephrata, Wash., Edmund R. Schroeder, Neal J. Hurwitz and Root, Barrett, Cohen, Knapp & Smith, Leonard Sims, Paul R. Herman, New York City, and Washington & Wickwire, Ephrata, Wash., on the brief), for defendant-appellee.

Orison S. Marden, A. Hayne deYampert and White & Case, New York City, for Bankers Trust Co., as amicus curiae.

Louis J. Lefkowitz, Atty. Gen. of New York, Samuel A. Hirshowitz, First Asst. Atty. Gen., and Sheldon Raab, Deputy Asst. Atty. Gen., New York City, amicus curiae.

Before MEDINA, WATERMAN and SMITH, Circuit Judges.

Rehearing Denied August 6, 1963, en banc.

MEDINA, Circuit Judge.

This is an action to enforce a New York contract dated July 9, 1956 between plaintiff-appellant, Merritt-Chapman & Scott Corporation, a Delaware contractor with principal offices in New York City, and defendant-appellee, Public Utility District No. 2 of Grant County, Washington, a municipal corporation formed under the laws of the State of Washington. On March 7, 1962 a warrant of attachment was issued by the New York Supreme Court, New York County, and a levy made upon certain funds on deposit with Bankers Trust Company, in New York City, for the account of the District. Service of the summons and verified complaint was subsequently made upon the District at Coulee City, Washington. On March 26, 1962 the District removed the action to the United States District Court for the Southern District of New York on grounds of diversity of citizenship, and prior to answer moved to vacate the warrant of attachment and the levy thereunder and to set aside the service of summons on the ground that the funds on deposit with the Bank are immune from attachment levy under the doctrine of governmental immunity, or, alternatively, are trust funds and therefore not property subject to attachment. As there is no in personam jurisdiction, the out-of-state service of summons must be set aside and the case dismissed if the levy is unauthorized and illegal. Judge Noonan vacated the levy and set aside the service of summons because he found the activities of the District to be "governmental" and not "proprietary," and accordingly held the District entitled to immunity. He did not pass upon or discuss the trust fund theory. The opinion below is reported at 207 F.Supp. 443.

I THE FACTS

Defendant-appellee, Public Utility District No. 2 of Grant County, Washington, was established in 1938 pursuant to a general statute providing for the creation of "public utility districts," enacted in 1931 by the people of the State at a general election pursuant to an initiative petition. Revised Code of Washington, Title 54.04.020. Its headquarters are at Ephrata, Washington, and it is co-extensive with Grant County, Washington, which had a population of 39,300 persons in 1955. The District is governed by five Commissioners elected by the people of Grant County at general elections. The District can sue and be sued under Washington law, but its property is not subject to execution, the method of enforcement of judgment being by request or mandamus to the proper District officer. Revised Code of Washington, Titles 54.16.110, 6.04.140, 6.04.150. The District is empowered for all corporate purposes, including the construction of facilities to provide its inhabitants and others with electric power and navigation and other water services, both to issue revenue bonds and to levy and collect general taxes on property within its geographical limits regardless of whether the property owner is served directly by the District. Revised Code of Washington, Titles 54.16.030-54.16.080, 54.24.018.

The purpose of Washington public utility districts, which the Washington courts have declared to be "political subdivisions of the state" (Public Utility District No. 2 of Grant County v. Washington State Power Commission, 1955, 46 Wash.2d 233, 234, 280 P.2d 264, 265), is to "conserve the water and power resources of the State of Washington for the benefit of the people thereof, and to supply public utility service, including water and electricity for all uses." Laws 1931, c. 1, § 1; Revised Code of Washington, Title 54.04.020. Since January, 1942 the District has owned and operated an electrical distribution system serving in 1956 more than 13,000 customers located within Grant County. On August 2, 1945 the District adopted Resolution No. 75 which provides that the District, pursuant to the authority of the basic enabling statute, may incur indebtedness to finance the acquisition or construction of additional generating, transmission and distribution facilities to meet the growing power needs of Grant County and the State of Washington. These additional facilities were to constitute an operating division of the District, but under separate accounting procedures, and revenues from the facilities might be pledged to the retirement of the indebtedness. Thereafter, the District became interested in the development of a hydro-electric project at the Priest Rapids site on the Columbia River, and its financial and other activities in relation thereto and the contract which it entered into with Merritt-Chapman & Scott Corporation, constitute the subject matter giving rise to this litigation.

The development of the Columbia River for comprehensive purposes of public benefit, including electric power production, navigation and flood control, was long a matter of concern by both the federal and Washington State governments. Thus in 1925 a full report was prepared by the United States Army Corps of Engineers. House Document No. 308, 69th Cong., 1st Sess. Section 204 of the Flood Control Act of 1950 (Public Laws 516, 64 Stat. 170, 179, Laws of the 81st Cong., 2d Sess., c. 188) lists the "Priest Rapids Dam, Columbia River, Washington" as one of the "works of improvement for the benefit of navigation and the control of destructive flood waters" authorized to be prosecuted under the direction and supervision of the Secretary of the Army and the Corps of Engineers. In 1952 the District applied to the Federal Power Commission for a permit to investigate this site, and in 1954 Congress enacted Public Law 544 (Laws of 83rd Cong., 2d Sess., c. 589, 68 Stat. 573), Section 1 of which modified the 1950 Act to permit the District specifically, or "any division, subdivision, agency, or commission of the State of Washington" to proceed with the project under terms and conditions of a license to be procured from the Federal Power Commission. Section 2 specified that the site shall be developed "as a part of the comprehensive plan for economically feasible control and utilization of the water resources for flood control, navigation, power, and other beneficial purposes." Section 4 provided that navigation locks and flood control features should be provided at federal expense. Section 5 provided that, at the request of the District, the Corps of Engineers would acquire "lands, easements, rights-of-way, or other interest in land in accordance with Federal laws and procedures governing flood-control projects and subsequent conveyance thereof to the licensee." The District's affidavits state that "in point of fact, the Corps of Engineers has acted and is still acting as the land acquisition agency for the defendant District." Section 6 provided that the licensee "shall offer a reasonable portion of the power capacity and a reasonable portion of the power output of the project for sale within the economic market area in neighboring States." A requirement that preference be given to governmental agencies and cooperatives was eliminated from the Act as unnecessary "upon the premise that public bodies organized as nonprofit agencies to perform a public purpose could be entrusted with the responsibility of conducting their operations in the best public interest." Senate Report No. 1656 to accompany H.R. 7664, page 4, 83rd Cong., 2d Sess. (1954).

In 1955, the Federal Power Commission granted the District a fifty-year license permitting it to develop the Priest Rapids site through the construction of two projects: the Priest Rapids Development and the Wanapum Development at a site 18 miles upstream from the Priest Rapids Development. The license authorized the District to build and operate the Priest Rapids Development and the upstream Wanapum Development as a multipurpose project, integrated with the Columbia River Basin comprehensive plan, and to serve functions of power generation, flood control, navigation and migratory fish passage. Specific requirements in the license for the non-power functions include: adequate provisions for passage of upstream fish migrations; provisions to facilitate future installation of navigation locks; provisions for flood control storage by drawing the reservoirs down below normal operating levels, with compensation to the District by the federal government for reduced power output as a consequence of lowered reservoir levels. The District was required by the license to begin construction of the Priest Rapids Development by July 1, 1956 and to complete construction by September 12, 1961, subsequently extended to July 1, 1958 and September 12, 1963 respectively. This litigation concerns only the Priest Rapids Development, although it may be noted in passing that the District has issued $195,000,000 of revenue bonds for the Wanapum project.

Early in 1956 the...