373 F.2d 686 (8th Cir. 1967), 18519, Rural Electrification Administration v. Northern States Power Co.

Docket Nº18519.
Citation373 F.2d 686
Party NameRURAL ELECTRIFICATION ADMINISTRATION et al., Appellants, v. NORTHERN STATES POWER COMPANY et al., Appellees.
Case DateFebruary 28, 1967
CourtUnited States Courts of Appeals, Court of Appeals for the Eighth Circuit

Page 686

373 F.2d 686 (8th Cir. 1967)

RURAL ELECTRIFICATION ADMINISTRATION et al., Appellants,

v.

NORTHERN STATES POWER COMPANY et al., Appellees.

No. 18519.

United States Court of Appeals, Eighth Circuit.

February 28, 1967

Page 687

Harvey L. Zuckman, Atty., Dept. of Justice, Washington, D.C., for appellants. J. William Doolittle, Acting Asst. Atty. Gen., Dept. of Justice, Alan S. Rosenthal, Atty., Dept. of Justice, and Patrick J. Foley, U.S. Atty., Minneapolis, Minn., with him on the brief.

Kenneth W. Green, of O'Connor, Green, Thomas, Walters & Kelly, Minneapolis, Minn., and Cyrus A. Field, of Field, Arvesen, Donoho & Lundeen, Fergus Falls, Minn., for appellees. Kenneth W. Green, Frederick W. Thomas and Joe A. Walters, of O'Connor, Green, Thomas, Walters & Kelly, Minneapolis, Minn., Cyrus A. Field, of Field, Arvesen, Donoho & Lundeen, Fergus Falls, Minn., and Arland D. Brusven and Donald E. Nelson, Minneapolis, Minn., on the brief.

Before BLACKMUN, MEHAFFY and LAY, Circuit Judges.

LAY, Circuit Judge.

Appellees filed their complaint below to postpone and restrain the Rural Electrification Administrator from disbursing proceeds of a loan with the East River Electric Power Cooperative, Inc. The loan by the REA is pursuant to § 4 of 7 U.S.C. § 904, and constitutes a 5.9 Million Dollar long-term loan for the construction of transmission facilities in Minnesota and South Dakota. The complaint is to compel the Administrator to perform a duty owed to the appellees pursuant to certain regulations promulgated

Page 688

by the Administrator in handling the loans. 1

Appellants filed a motion to dismiss which was heard contemporaneously with appellees' motion for preliminary restraining order as to the consummation of the loan. The lower court denied the motion to dismiss. The preliminary injunction was denied because of the failure of plaintiffs to establish 'the requisite reasonable certainty or substantial likelihood of success on the merits so as to justify preliminary injunctive relief.' The trial court stated:

'In contrast to plaintiffs' allegations concerning disregard of the procedural requirements of Bulletin 111-3, considerable evidence indicates that defendants have indeed proceeded in accordance with the regulations.' 2 Northern States Power Co. v. Rural Electrification Admin., D.Minn. 1965, 248 F.Supp. 616, 625.

Subsequently, appellees moved for production of certain documents and correspondence regarding the negotiations leading up to the present loan. The REA claimed executive privilege by Secretary of Agriculture, Orville Freeman, and the Administrator to the various documents. The court granted an in camera order requiring the government to produce the documents to enable the court to examine them to determine validity of the claim. Thereafter, the appellants moved to amend the in camera order to require the court, in the event that their claim of privilege was overruled, to return the documents so that they might determine whether to stand on their claim of privilege. The trial court properly, we think, refused such an order. Thereafter, appellants filed notice asserting the executive privilege and their announced refusal to obey the court's order concerning the in camera production. On June 17, 1966, the appellees by their attorneys, moved pursuant to Rule 37(b)(2) for certain sanctions and again for a preliminary injunction. Pursuant to said motion and bases upon the refusal of the appellants to produce the various documents, the court entered an order finding certain 'designated facts' to be taken as true for the purposes of the action. These established facts are generally composed of the allegations of the complaint. The court also found 'the requisite factual showing for preliminary injunction relief * * * is now apparent,' and entered an order enjoining the defendants and anyone under their control from consummating or participating in the loan to East River or in distributing any portion of said loan. Appellants filed the present appeal from the latter order.

The relationship of the parties is significant. Northern States Power Company and the Otter Tail Power Company, appellees herein, are in the business of generating, transmitting and distributing electrical service within the states of Minnesota, North Dakota and South Dakota. They are known as private power suppliers. The East River Electric Power Cooperative, Inc., organized under the Electric Cooperative Act of the State of South Dakota, is engaged in the business of the transmission of electric service. It does not own any generating facilities. Appellees have for many years been contractual wheeling agents for the Bureau of Reclamation of the Department of Interior, and provide transmission service to various cooperatives. They also supply electrical energy to various borrowers under the Rural Electrification Act. East River purchases its power supply from the Bureau of Reclamation and delivers the electrical energy over its own transmission system to its South Dakota members. The power supply purchased from the Bureau of Reclamation to East River's Minnesota members

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is presently being transmitted by the appellees to delivery points in Minnesota. In May, 1964, East River applied for a loan with FEA to construct its own transmission lines for service to its Minnesota members.

The Complaint

Summary of the plaintiffs' complaint and the particular regulations is essential to a full understanding of the problems involved:

A. Complaint is filed to postpone * * * actions, for a declaration that such actions are in violation of law; to restrain REA from disbursing loan; to compel Administrator to perform a duty owed to the plaintiffs.

B. Pursuant to statute (7 U.S.C.A. § 901) Administrator of REA is empowered to make loans to cooperative associations for construction and operation of generating plants and transmission lines for furnishing of electrical energy to persons in rural areas who are not receiving central station service. Loans made by REA are funds from Congress made available to certain terms under annual appropriation acts.

C. In 1963 Congress created duties and rights of private power suppliers by directing the Administrator to promulgate regulations 'REA Bulletin 111-3' duly published in Fed.Register (Vol. 29, No. 40, pp. 2765-6) requiring the Administrator, in connection with any loan, to:

(1) make power survey and determine wherein the proposed contract for power is unreasonable;

(2) advise the supplier wherein such contract is unreasonable; and

(3) endeavor to get such contract modified to make it reasonable. No loan is to be made unless a reasonable contract cannot be obtained. 3

D. On May 26, 1964, East River made application for loan to be used for construction of independent transmission lines, including transmission system for service to Minnesota members.

E. Administrator undertook power supply survey and requested plaintiffs and East River to consider, discuss and negotiate long-term arrangement

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for power supply to East River members:

(1) A conference was held on June 11, 1964, by representatives of all parties;

(2) Proposal for 'Joint Plan' sent to East River on July 9, 1964, rejected by East River on July 27, 1964;

(3) On August 3, 1964, REA states proposal must meet certain requirements and submit final plan by October 5, 1964;

(4) Plaintiffs submitted its proposed plan on October 2, 1964;

(5) May 17, 1965, notification by REA that proposals were not satisfactory and loan to East River would proceed. 4

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F. Plaintiffs complied with basic requirements and with all basic suggestions made in August. Plaintiffs are ready, willing and able to provide services and to resolve all questions concerning the proposed contract.

G. Defendants failed and refused to

(1) advise plaintiffs wherein their proposal of October 2, 1964, was unreasonable or deficient;

(2) endeavor to have the proposal made reasonable or the deficiencies corrected. The failure and refusal constitutes:

(a) a willful violation of Rea regulations;

(b) an unlawful failure to preform duty owed to plaintiffs, and

(c) a denial of plaintiffs' rights.

H. Defendants arbitrarily set a cut-off date for negotiations and prejudged the loan substituting East River's judgment for their own. 5

I. Reasons for rejection were not communicated to plaintiffs.

J. Purported certifications were arbitrary and capricious and in excess of statutory authority and were without observance of procedural requirements.

As a result thereof, appellees have incurred damages in the sum of $1,000,000. Appellees pray to enjoin loan pending performance of duty to effectuate a reasonable contract by advising in writing of deficiencies and unreasonableness of their proposal of October 2, 1964; and endeavor with 'deliberate speed' to make the proposed contract reasonable, if at all possible; and otherwise comply with regulations.

The Regulations

We are in accord with the trial court's analysis as to the legal effect of regulations promulgated by the administrator. Congress undoubtedly intended that the Administrator's regulations be followed, whether they speak only of internal policy or not. See Columbia Broadcasting System v. United States, 316 U.S. 407, 62 S.Ct. 1194, 86 L.Ed. 1563. 6 However it does not necessarily follow, as the trial court has assumed, that the legal status of the regulations necessarily permits review by the appellees herein. 7 In Schilling v. Rogers, 363 U.S. 666, 80 S.Ct. 1288, 4 L.Ed.2d 1478,

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the Supreme Court in reviewing statutory restrictions on the Custodian under The Trading With the Enemy Act stated:

'* * * we think the congressional decision to spell out in some detail certain limitations on the power it was conferring on the Executive was not designed to bestow rights on claimants, arising out of an assertedly too-narrow reading by the...

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