922 F.2d 429 (7th Cir. 1991), 90-1516, United States v. Rural Elec. Convenience Co-op. Co.

Docket Nº:90-1516.
Citation:922 F.2d 429
Party Name:UNITED STATES of America, Plaintiff-Appellant, v. RURAL ELECTRIC CONVENIENCE COOPERATIVE CO., Defendant-Appellee.
Case Date:January 15, 1991
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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922 F.2d 429 (7th Cir. 1991)

UNITED STATES of America, Plaintiff-Appellant,

v.

RURAL ELECTRIC CONVENIENCE COOPERATIVE CO., Defendant-Appellee.

No. 90-1516.

United States Court of Appeals, Seventh Circuit

January 15, 1991

Argued Sept. 19, 1990.

Rehearing Denied March 15, 1991.

Page 430

J. William Roberts, U.S. Atty., Office of the United States Attorney, Springfield, Ill., J. Christopher Kohn, W. Michael Tupman, Department of Justice, Civil Div., Michael W. Kelly, General Counsel, Helen Wyskoczka, Department of Agriculture, Office of the General Counsel, Washington, D.C., for plaintiff-appellant.

Frank K. Heap, Daniel Lawler, John W. Rotunno, Bell, Boyd & Lloyd, Chicago, Ill., for defendant-appellee.

Before FLAUM, EASTERBROOK and KANNE, Circuit Judges.

FLAUM, Circuit Judge.

The United States Rural Electrification Administration (REA) brought suit in district court seeking a preliminary injunction to enjoin state court declaratory judgment proceedings involving two rural electric cooperatives to which it had loaned money. The REA argued that because the state court action implicated significant federal interests, the district court should enjoin the state proceeding in favor of a parallel federal proceeding that the REA had initiated, in which all parties to the state court proceeding had been joined. The district court denied the REA's request for an injunction, and the REA now appeals. We vacate the district court's decision and remand for further proceedings consistent with this opinion.

I.

The REA is a United States government agency that makes and guarantees loans to electrification cooperatives set up to furnish electric power to rural areas. It provides financing to generation and transmission cooperatives ("G & Ts") that generate and sell electrical power, as well as to their member 1 distribution cooperatives that purchase power from the G & Ts and distribute it to commercial and residential consumers.

The relationship between G & Ts, distribution cooperatives, and the REA is structured through an instrument known as a wholesale power contract. The contract obligates a member distribution cooperative to purchase all of its electric power over a fixed term from a G & T. When lending money to G & Ts, the REA requires that they enter into wholesale power contracts with member distribution cooperatives; conversely, when lending money to distribution cooperatives, the REA requires them to enter into similar contracts with G & Ts. This arrangement ensures that G & Ts will be able to earn revenue from the sale of power sufficient to repay their REA

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loans. In addition to taking security interests in the physical assets of both types of cooperatives, the REA takes security interests in the respective rights and interests of each party under the wholesale power contracts.

Since 1957, the REA has been loaning money for the construction of electric power distribution systems to defendant-appellee Rural Electric Convenience Cooperative (RECC), a distribution cooperative operating in Illinois. 2 As of August 1989, RECC owed the REA nearly seven million dollars in principal. As security for this debt, RECC executed a supplemental mortgage in 1974 that amended its original loan agreement with REA and gave REA a security interest in "[a]ll right, title and interest of [RECC] in ... any and all contracts heretofore or hereafter executed by and between [RECC] and any person, firm or corporation providing for the purchase, sale or exchange of electric power...." The mortgage also requires REA's approval in writing before RECC can enter into or amend any contract for the purchase of electric power.

In 1963, with the REA's approval, RECC entered into a wholesale power contract with the Western Illinois Power Cooperative (WIPCO), a generation and transmission cooperative. As amended, the contract's terms extend until 2017. Seven distribution cooperatives (including RECC) located in west-central Illinois were members of WIPCO and each purchased electric power from WIPCO pursuant to wholesale power contracts. WIPCO's fourteen-member board of directors consisted of two members from each of the seven distribution cooperatives. WIPCO was also the recipient of REA loans and guarantees for the construction of electric generating and transmission systems.

In 1989, WIPCO defaulted on its REA-guaranteed loans. As a condition for restructuring WIPCO's debt, the REA required the cooperative to merge with Soyland, a financially healthier G & T that was also a recipient of REA financing. The boards of directors and majorities of both Soyland and WIPCO agreed to the merger, and in March 1989, the entities merged, leaving Soyland as the surviving corporation. As a result of the merger, Soyland succeeded to all of WIPCO's rights under WIPCO's wholesale power contract with RECC, and became liable for all of WIPCO's debts and obligations to the REA.

RECC, a member of WIPCO, refused to acquiesce to the WIPCO-Soyland merger. On April 19, 1989, one month after the merger, RECC submitted to Soyland a written objection to the merger and demanded that Soyland purchase its membership in WIPCO pursuant to the dissenter's rights provision of the Illinois Merger and Consolidation Act, Ill. Rev. Stat. ch. 32, p 188i (1989) ("IMCA"). 3 Since it made this objection, RECC has made only partial payments to Soyland under their power contract. In June, 1989, RECC filed suit against Soyland in Illinois state court seeking a declaratory judgment that its obligations under the RECC-WIPCO/Soyland wholesale power contract were excused under IMCA's dissenter's rights provisions.

In response to RECC's suit, the United States, Soyland, and CFC filed suit for declaratory judgment against RECC in district court on October 2, 1989. These parties contended that the RECC-Soyland wholesale power contract was valid and binding, that RECC was in violation of its mortgage with REA, and that the RECC had unlawfully repudiated the wholesale power contract without REA's written consent in violation of section 7 of the Rural

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Electrification Act. 4 In an effort to shut down the competing state court proceeding, the United States moved for a preliminary injunction barring further prosecution of RECC's state court action. The government invoked Leiter Minerals v. United States, 352 U.S. 220, 77 S.Ct. 287, 1 L.Ed.2d 267 (1957), where the Supreme Court held that the Anti-Injunction Act, 28 U.S.C. Sec. 2283, which generally prohibits the federal courts from enjoining state court proceedings, does not apply to injunctions sought by the United States. In Leiter, the Court held that the "superior federal interests" present in that case warranted the issuance of an injunction against state quiet title proceedings involving land owned by the United States so that a parallel federal proceeding initiated by the United States could go forward and possible inconsistent state and federal judgments could be avoided. 352 U.S. at 226-28, 77 S.Ct. at 291. Citing Leiter as support, the United States argued in district court that the federal interests in the REA's nationwide rural electrification program entitled it to have its dispute with the RECC adjudicated exclusively in a federal forum. The government contends that "because all of the interested parties were present in federal court--in contrast to state court, in which the Government was not and could not be made a party [due to the doctrine of sovereign immunity]--the federal court was the only forum in which all of the issues could be finally resolved." Government's Brief at 6.

The district court denied the motion for preliminary injunction. The court found that the government had not shown that, absent injunctive relief, an adverse state court judgment would irreparably harm the United States and held that the mere possibility of inconsistent state and federal court judgments did not constitute irreparable harm. The court also concluded that sovereign immunity did not bar the United States from intervening in the state court proceeding to protect its interests, and thus, the government possessed an adequate remedy at law that precluded the award of equitable relief.

II.

We review rulings on motions for preliminary injunctions under a bifurcated standard: factual determinations made by the district court are examined under an abuse of discretion standard, Daryl H. v. Coler, 801 F.2d 893, 897 (7th Cir.1986), whereas the district court's conclusions of law are reviewed de novo, Thornton v. Barnes, 890 F.2d 1380, 1385 (7th Cir.1989). The award of injunctive relief is appropriate in those cases where the moving party can demonstrate that (1) no adequate remedy at law exists; (2) it will suffer irreparable harm absent injunctive relief; (3) the irreparable harm suffered in the absence of injunctive relief outweighs the irreparable harm respondent will suffer if the injunction is granted; (4) the moving party has a reasonable likelihood of prevailing on the merits; and (5) the injunction will not harm the public interest. Somerset House, Inc. v. Turnock, 900 F.2d 1012, 1014-15 (7th Cir.1990); Baja Contractors, Inc. v. City of Chicago, 830 F.2d 667, 675 (7th Cir.1987), cert. denied, 485 U.S. 993, 108 S.Ct. 1301, 99 L.Ed.2d 511 (1988). In order to prevail, the moving party must satisfy each element of this five part test. Roland Machinery Co. v. Dresser Indus., 749 F.2d 380, 386-87 (7th Cir.1984).

It is well settled that the availability of an adequate remedy at law renders injunctive relief inappropriate. See Northern California Power Agency v. Grace Geothermal Corp., 469 U.S. 1306, 1306, 105 S.Ct. 459, 459, 83 L.Ed.2d 388 (1984) (Rehnquist, Circuit Justice) ("A party seeking an injunction from a federal court must...

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