Merritt-Chapman & Scott v. PUBLIC UTIL. DIST. 2

• Decision Date: 19 July 1962
• Citation: 207 F. Supp. 443
• Parties: MERRITT-CHAPMAN & SCOTT CORPORATION, Plaintiff, v. PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY, WASHINGTON, Defendant.
• Court: U.S. District Court — Southern District of New York

207 F. Supp. 443

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

United States District Court S. D. New York.

July 19, 1962.

Cleary, Gottlieb & Steen, New York City, for plaintiff, William L. Lynch, James W. Lamberton, Dennis J. Kenny, New York City, of counsel.

Root, Barrett, Cohen, Knapp & Smith, New York City, for defendant appearing specially, Washington & Wickwire, Ephrata, Wash., Whitman Knapp, New York City, Nat W. Washington, Ephrata, Wash., Neal J. Hurwitz, Edmund R. Schroeder, New York City, of counsel.

NOONAN, District Judge.

This is a motion by defendant, Public Utility District No. 2 of Grant County, Washington, made pursuant to Rule 12(b), Federal Rules of Civil Procedure, 28 U.S.C.A. Defendant, appearing specially,¹ moves the court for an order:

1) vacating a warrant of attachment and setting aside the levy thereunder upon the Bankers Trust Company and

2) setting aside the service of summons on the ground that the property and credits alleged to have been attached were not subject to attachment and, in any event, were not the property of or credits of defendant.

Public Utility District #2 of Grant County, Washington, was established by vote in 1938 and has its headquarters at Ephrata, Washington. Since January 1942, the District has owned and operated an electric distribution system serving all of the populated areas of the County. This system is referred to as the Distribution System. The financing operation and ownership of the Distribution System was consolidated under Resolution No. 75 of the District which provides among other things that the District may incur indebtedness to finance the acquisition or construction of additional generating transmission and distribution facilities. "As permitted, * * * the District has established the Production System for the purpose of financing the construction of the Priest Rapids Development by the issuance of the Bonds, the funds, properties, operations and business of which shall be accounted for separately from those of the Distribution System. The Production System is not a separate legal entity but is in the nature of an operating division of the District under the control of the Commission", which administers the District. (Official Statement, page 2).

In 1954, Congress granted the District the right to develop the Priest Rapids Hydro-Electric Project on the Columbia River under a license issued pursuant to the Federal Power Act. On November 4, 1955 and June 1, 1956, the Federal Power Commission granted the District a license permitting the District to develop, construct, operate and maintain as a single project the Priest Rapids Hydro-Electric Project consisting of (1) the Priest Rapids Development, and (2) the Wanapum Development at a site approximately 18 miles upstream from the Priest Rapids Development site.

In order to finance the development, revenue bonds were authorized in the amount of $166,000,000. These funds so acquired were then placed in various funds to wit, the Bond Fund, Revenue Fund, Renewal Fund, Replacement Fund, Construction Fund and Construction Interest Fund. The subject of this motion concerns only the last two funds on deposit in Bankers Trust Company in New York, which have been attached.

Prior to entering into any contract for construction of the Priest Rapids Development, the District and twelve public and private electric utilities (the "Purchasers") entered into power sales contracts. Under these contracts, which will not expire until October 31, 2005, the Purchasers will buy 63.5% of the output of the Production System; the District has reserved 36.5% of the power output for its own Distribution System and for sale to others.

The twelve purchasers operate private and public electric utility systems in the states of Washington, Oregon, Idaho, Montana and Wyoming. Thus approximately 2/3 of the output of the Production System was sold by the District for a term of 49 years. The power reserved by the District for itself and for sale to others was estimated in 1956 to amount to 230,242 kw. In 1955, the District's own Distribution System had a maximum demand for 63,006 kw.

On July 9, 1956 pursuant to competitive bid and award, Merritt-Chapman & Scott Corporation, plaintiff herein, a Delaware corporation with its principal offices in New York, New York, entered into a contract with the defendant District for the construction of the Priest Rapids Dam. A construction period was established that would result in completion of the Production System by October 1961.

On September 28, 1961, the District's construction engineers certified to the District that construction of the dam by Merritt-Chapman & Scott Corporation was completed. When the District refused to pay over the funds claimed by Merritt-Chapman & Scott Corporation to be due upon completion of construction, Merritt-Chapman & Scott Corporation commenced suit against the District in the New York Supreme Court.

On March 7, 1962, the New York Supreme Court issued a warrant of attachment against funds of the District in New York, and a levy was made thereunder on funds on Deposit with Bankers Trust Company, New York, New York. Subsequently, the summons and verified complaint were duly served upon the District, and on March 26, 1962, this cause was removed to this Court by the District.

It is the position of the defendant that:

a) Public Utility District #2 is a political subdivision of the State of Washington, is "engaged in the performance of essential functions", and, therefore, its property is immune from attachment.

b) Public Utility District #2 further maintains that its funds now on deposit with Bankers Trust Company are trust funds and therefore not property subject to attachment.

The court will address itself to the first of the two arguments set forth by the defendant. There seems to be little doubt concerning governmental status of Public Utility District #2. The basic enabling legislation enacted in 1931 by the people of the State of Washington established the District as a political subdivision and municipal corporation of the State. In Public Utility District No. 2 of Grant County v. Washington State Power Commission, 46 Wash.2d 233, 280 P.2d 264 (1955), the Supreme Court of the State of Washington declared Public Utility District #2 to be a "political subdivision of the state".

Public Utility Districts in Washington have been empowered to levy and collect taxes within their respective geographical limits. The districts are to be governed by commissioners elected by the people at general elections. All of the above clearly point to the fact that Public Utility District #2 was and is to be considered a political subdivision of the State.

Whether or not the property of a municipal corporation is subject to foreign attachment appears to depend upon whether such property is derived from a proprietary function engaged in by the municipal corporation. The law is clear in New York that funds of a municipal corporation collected through ordinary governmental means for local purposes cannot be the subject of attachment. Thus in Van Horn v. Kittitas County, Wash., 28 Misc. 333, 59 N.Y.S. 883 (Sup.Ct.N.Y.Co.1899), aff'd 46 App. Div. 623, 61 N.Y.S. 1150, the court in vacating the levy of attachment stated:

"It appears that the treasurer of the defendant (Kittitas County), in the performance of his duties remitted to the Chemical Bank, in the city of New York, a sum of money for the payment of coupons, representing interest about to fall due on certain bonds which had been issued by the defendant, and which, by the terms of the coupons, was payable at that bank. This money had been raised by taxation, and had been appropriated for the payment of interest in question. It is true that there was nothing in the arrangement between the defendant and the bank which constituted the latter a trustee for the holders of the coupons, so as to give such holders an interest in the fund which could be enforced against the bank * * *. The bank was the mere agent of the defendant or of its treasurer, and the money was subject to recall at any time

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