Caver v. Cent. Ala. Elec. Coop.

• Decision Date: 12 January 2017
• Docket Number: No. 15-15207,15-15207
• Parties: Pamela CAVER, Christine Grandison, Dexter Grandison, Plaintiffs-Appellants, v. CENTRAL ALABAMA ELECTRIC COOPERATIVE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

845 F.3d 1135

Pamela CAVER, Christine Grandison, Dexter Grandison, Plaintiffs-Appellants,

v.CENTRAL ALABAMA ELECTRIC COOPERATIVE, Defendant-Appellee.

No. 15-15207

United States Court of Appeals, Eleventh Circuit.

January 12, 2017

Oscar M. Price, IV, Christian & Small, LLP, Lucas Carrington Montgomery, Montgomery Ponder, LLC, BIRMINGHAM, AL, Joel Connally, Strength & Connally, LLC, MONTGOMERY, AL, James E. Fleenor, Jr., Wilson Franklin Green, Fleenor & Green, LLP, TUSCALOOSA, AL, John Bradford Boyd Hicks, Stone Granade & Crosby, PC, BAY MINETTE, AL, Christine Burns Segarra, Stone Granade & Crosby, PC, DAPHNE, AL, Brian P. Strength, Brian P. Strength Attorney at Law, TUSKEGEE, AL, Rickman E. Williams, III, Pitts Williams & Jones, SELMA, AL, for Plaintiffs-Appellants.

Dennis R. Bailey, J. Evans Bailey, Richard McConnell Freeman, Jr., J. Theodore Jackson, Jr., Rushton Stakely Johnston & Garrett, PA, MONTGOMERY, AL, for Defendant-Appellee.

Ann Ashton Holmes Ott, Edward M. Price, Jr., Farmer Price Hornsby & Weatherford, LLP, DOTHAN, AL, Amicus Curiae for PEA RIVER ELECTRIC COOPERATIVE INC., WIREGRASS ELECTRIC COOPERATIVE, INC.

Robert E. Poundstone, IV, Phillip Henry Butler, George R. Parker, Bradley Arant Boult Cummings, LLP, MONTGOMERY, AL, Marc James Ayers, Bradley Arant Boult Cummings, LLP, BIRMINGHAM, AL, Amicus Curiae for PIONEER ELECTRIC COOPERATIVE, INC., DIXIE ELECTRIC COOPERATIVE.

Christina M. Schwing, Lawrence J. Hamilton, II, Laura Beard Renstrom, Holland & Knight, LLP, JACKSONVILLE, FL, Amicus Curiae for FLORIDA ELECTRIC COOPERATIVES ASSOCIATION.

Before TJOFLAT and HULL, Circuit Judges, and MENDOZA,^* District Judge.

HULL, Circuit Judge:

Plaintiff Pamela Caver and others, on behalf of members of Defendant Central Alabama Electric Cooperative ("CAEC"), brought a putative class action against CAEC, alleging that CAEC wrongfully had refused to pay out "excess revenues" in cash to its members. CAEC supplies electricity to rural communities in Alabama. The federal government loans substantial capital to CAEC and highly regulates CAEC's operations and provision of government-subsidized electricity to rural customers.

Defendant CAEC removed this case to federal court under the federal officer removal statute, 28 U.S.C. § 1442(a)(1). The district court denied Plaintiff Caver's motion to remand the case back to state court.

Subsequently, the district court granted CAEC's motion to dismiss the complaint. The district court pointed out that when CAEC's revenues exceed its operating costs and other expenses, CAEC does credit each members' capital account with the cooperative. The district court held that CAEC's distribution of excess revenues to its members by making credits to their capital accounts, as opposed to making cash payments, complied with Alabama state law. After thorough review and with the benefit of oral argument, we affirm the district court's ruling on both issues.

I. JURISDICTION BACKGROUND

As background to the jurisdiction issue, we review the extensive interrelationship between the federal government and Defendant CAEC.

A. History of Rural Electrification

In 1935, during the Great Depression, President Franklin D. Roosevelt, through an executive order, created the Rural Electrification Administration ("REA") "[t]o initiate, formulate, administer, and supervise a program of approved projects with respect to the generation, transmission, and distribution of electric energy in rural areas." Exec. Order No. 7037. The following year, Congress passed the Rural Electrification Act of 1936 (the "RE Act"). 7 U.S.C. § 901. By passing the RE Act, Congress affirmed the creation of the REA and authorized the REA to make loans "for rural electrification and the furnishing of electric energy to persons in rural areas." Pub. L. No. 74–605, 49 Stat. 1363; accord 7 U.S.C. § 902(a).

The federal government thus initiated this program of rural electrification. Specifically, the program was formulated and supervised by the REA, and all projects required REA approval. The President and Congress's objective in creating the REA "was to provide electricity to those sparsely settled areas which the investor-owned utilities had not found it profitable to service. To this end REA makes long-term low-interest loans to approved non-profit cooperatives." Salt River Project Agric. Improvement & Power Dist. v. Fed. Power Comm'n, 391 F.2d 470, 473 (D.C. Cir. 1968) ; see also City of Stilwell v. Ozarks Rural Elec. Coop. Corp., 79 F.3d 1038, 1041 (10th Cir. 1996) (explaining that the REA "was created by the [RE Act] to provide financing to power suppliers as an inducement to provide economical electric power to rural America").

"In response to the RE Act and its precursor Executive Branch order, cooperative electrical systems were formed to seek government subsidized loans and deliver electricity to rural consumers." In re Cajun Elec. Power Coop., Inc., 109 F.3d 248, 252 (5th Cir. 1997). In 1939, Alabama passed the Electric Cooperative Act, which provides for the creation of cooperative, nonprofit membership corporations "for the purpose of supplying electric energy and promoting and extending the use thereof." Ala. Code § 37–6–2. Other states approved similar legislation, and by 1968 there were "nearly 1,000 rural electric cooperatives which own and operate electric systems financed by the United States, acting through REA, pursuant to the Rural Electrification Act of 1936." Salt River Project, 391 F.2d at 472.

B. Federal Loans and Regulation

Defendant CAEC, like other rural electric cooperatives, receives substantial loans from the federal government, specifically the United States Department of Agriculture Rural Utilities Services ("RUS"). The RUS is the successor to the REA.

The latest loan agreement between CAEC and RUS is dated February 2, 2009. The loan agreement limits CAEC's discretion to make "Distributions" to its members. The loan agreement defines "Distributions" to mean to "declare or pay any dividends, or pay or determine to pay any patronage refunds, or retire any patronage capital or make any other Cash Distributions, to its members, stockholders or consumers." Loan Agreement Art. 1.

Under the loan agreement, CAEC cannot pay patronage refunds, or retire any patronage capital, or make any cash distributions to its members if doing so would cause its equity to fall below 30% of its total assets, as follows:

Limitation on Distributions.

Without the prior written approval of RUS, [CAEC] shall not in any calendar year make any Distributions (exclusive of any Distributions to the estates of deceased natural patrons) to its members, stockholders or consumers except as follows:

(a) Equity above 30%. If, after giving effect to any such Distribution, the Equity of [CAEC] shall be greater than or equal to 30% of its Total Assets; or

(b) Equity above 20%. If, after giving effect to any such Distribution, the Equity of [CAEC] shall be greater than or equal to 20% of its Total Assets and the aggregate of all Distributions made during the calendar year when added to such Distribution shall be less than or equal to 25% of the prior year's margins.

Provided however, that in no event shall [CAEC] make any Distributions if there is unpaid when due any installment of principal of (premium, if any) or interest on any of its payment obligations secured by the Mortgage, if [CAEC] is otherwise in default hereunder or if, after giving effect to any such Distribution, [CAEC's] current and accrued assets would be less than its current and accrued liabilities.

Loan Agreement § 6.8.

A loan agreement with RUS, such as CAEC's, "imposes certain restrictions and controls on the borrowers and gives RUS ... the right to approve or disapprove certain actions contemplated by the borrowers." 7 C.F.R. § 1717.600(a).¹ RUS's regulations contain the same restriction on distributions as the loan agreement. 7 C.F.R. § 1717.617. Among other things, the loan agreement and regulations allow RUS, at certain times: (1) to set standards for property maintenance; (2) to set accounting standards; (3) to inspect the utility system, the books, and documents of every kind; (4) to regulate power requirement studies; (5) to regulate long-range engineering and construction plans, as well as design and construction standards; (6) to approve plans and specifications for construction; and (7) to set contract bidding requirements. See generally 7 C.F.R. § 1717.600, et seq. ; 7 C.F.R. § 1718, app. A. The loan agreement and the regulations also require CAEC, in certain situations, to seek RUS approval: (1) to extend its electric system; (2) to hire a general manager; (3) to enter into certain contracts; (4) to merge or sell portions of its business or assets; (5) to make distributions to its members; or (6) to take on additional debt. See generally§ 1717.600, et seq. ; § 1718, app. A. In addition to these federal regulations and restrictions, Alabama law also regulates CAEC's operations as discussed below.

C. Alabama Code § 37–6–1, et seq.

Alabama state law authorizes the creation of rural electric distribution cooperatives, such as Defendant CAEC, and regulates them.² Ala. Code § 37–6–1, et seq. As a cooperative, Defendant CAEC is prohibited from making a profit on business conducted with the members. Ala. Code §§ 37–6–2, 37–6–20.

The difference between CAEC's revenues and operating costs and other expenses is considered "margins" or "excess revenues" that belong to its members as "patronage capital." Loan Agreement § 6.8; CAEC Bylaws § 8.02; Ala. Code § 37–6–20. Defendant CAEC must account for the patronage capital that belongs to its members. CAEC Bylaws § 8.02. CAEC's members each have an account in his or her name that reflects a credit or debit for each year the member was or continues to be a CAEC member.

The particular Alabama statute at issue in this case is § 37–6–20 of the Alabama Code, which provides for the "Disposition of excess revenues" by an electric cooperative such as CAEC. Specifically, ...