City of Cleveland v. CLEVELAND ELEC., ETC.

• Decision Date: 18 June 1981
• Docket Number: Civ. A. No. C75-560.
• Parties: CITY OF CLEVELAND, Plaintiff, v. The CLEVELAND ELECTRIC ILLUMINATING COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Ohio

538 F. Supp. 1240

CITY OF CLEVELAND, Plaintiff, v. The CLEVELAND ELECTRIC ILLUMINATING COMPANY, Defendant.

Civ. A. No. C75-560.

United States District Court, N. D. Ohio, E. D.

August 7, 1980.

Opinion on Voir Dire Examination August 7, 1980.

Opinion on Motion to Exclude From Venire September 4, 1980.

Opinion on Motion for Change of Venue February 4, 1981.

Opinion on Subsequent Motion to Exclude From Venire June 18, 1981.

COPYRIGHT MATERIAL OMITTED

William B. Norris, Hahn, Loeser, Freedheim, Dean & Wellman, James E. Young, Thomas E. Wagner, Director of Law, City of Cleveland, Cleveland, Ohio, for plaintiff.

John Lansdale, James P. Murphy, Squire, Sanders & Dempsey, Cleveland, Ohio, for defendant.

MEMORANDUM AND ORDER

KRUPANSKY, District Judge.

Presently before the Court is what is styled the Plaintiff's "Motion for Jury Instruction on Voir Dire and at Close of Evidence", whereby the City petitions the Court to instruct the jury, in effect, that any money judgment rendered against the defendant, The Cleveland Electric Illuminating Company ("CEI"), will be borne exclusively by the company and its shareholders and thus will not subsequently manifest itself in the form of higher utility rates for the defendant's retail customers. Plaintiff urges that such an instruction is necessary to eliminate any possibility that a member of the jury panel, which may ultimately be comprised in substantial part of CEI retail customers, may be improperly influenced by a personal financial interest in the outcome of this litigation. To facilitate the impaneling of a fair and impartial jury, the City thus petitions the Court to instruct the jury, in substance, as follows:

You are advised that should you render a judgment in favor of the City of Cleveland and against the Defendant, The Cleveland Electric Illuminating Company, the payment thereof will be by CEI and the burden thereof will be borne exclusively by CEI and its shareholders, and will not be paid by its customers. In other words, the amount of any judgment against the Defendant, The Cleveland Electric Illuminating Company, will not be included in its rates for the sale of electric power to its customers and will not cause its billings to be increased to its customers.

In opposing the instant motion, defendant argues with considerable force that there is no assurance that the substance of the proposed instruction is correct as a matter of law. CEI asserts in this regard that the extent to which a given expenditure of the defendant is properly considered either a legitimate operating expense or, alternatively, a constituent element of CEI's rate base, so as to be reflected in the utility's allowable retail rates, is a matter committed to the sole discretion of the Public Utilities Commission of Ohio ("PUCO"), subject only to review by the Ohio Supreme Court. See O.R.C. §§ 4909.01 et seq. Defendant further submits that it defies economic realities to even postulate that an adverse judgment of the magnitude contemplated herein, that is, in excess of $300,000,000, may be sustained by CEI without some appreciable impact, direct or indirect, upon the utility's subsequent rate structure.

Plaintiff nonetheless insists that the amount of any money judgment rendered in the instant action will necessarily be excluded from consideration in future state rate making proceedings. In support of this broad assertion, the City argues that existing legal precedent forecloses a regulated utility from recouping past losses by the imposition of higher service rates, see Knoxville v. Knoxville Water Co., 212 U.S. 1, 15, 29 S.Ct. 148, 152, 53 L.Ed. 371 (1908); Galveston Electric Co. v. Galveston, 258 U.S. 388, 395, 42 S.Ct. 351, 354, 66 L.Ed. 678 (1921), and similarly precludes a regulatory commission from allowing as a current operating expense nonrecurring expenditures.¹ The plaintiff further maintains that losses resulting from a utility's illegal or unlawful conduct, in this instance, violations of the antitrust laws, are not legitimate expenses for rate making purposes. Such a contention is premised upon the United States Supreme Court's opinion in NAACP v. Federal Power Commission, 425 U.S. 662, 96 S.Ct. 1806, 48 L.Ed.2d 284 (1976), wherein the Court, in assessing the statutory powers and responsibilities of the Federal Power Commission, stated as follows:

The Commission clearly has the duty to prevent its regulatees from charging rates based upon illegal, duplicative, or unnecessary labor costs. To the extent that such costs are demonstrably the product of a regulatee's discriminatory employment practices, the Commission should disallow them. For example, when a company complies with a backpay award resulting from a finding of employment discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., it pays twice for work that was performed only once. The amount of the backpay award, therefore, can and should be disallowed as an unnecessary cost in a ratemaking proceeding.

To the extent that these and other similar costs, such as attorneys' fees, can be or have been demonstrably quantified by judicial decree or the final action of an administrative agency charged with consideration of such matters, the Commission clearly should treat these costs as it treats any other illegal, unnecessary, or duplicative costs. We were told by counsel during oral argument that the Commission would routinely disallow the costs of a backpay award resulting from an order of the National Labor Relations Board or the decree of a court based upon a finding of an unfair labor practice. The governing principle is no different in the area of discriminatory employment practices.

Id. at 668, 96 S.Ct. at 1810-1811. In urging this tribunal to find the rationale of NAACP v. Federal Power Commission controlling, the City argues that in the event "public utilities were permitted to recoup antitrust judgments through the rate making process, they would be immunized from the economic consequences of violation of the antitrust laws". Memorandum in Support of Motion, at p. 6.

In assessing the plaintiff's aforestated contentions, the Court must observe at the outset that these arguments are more properly addressed to the appropriate forum, the PUCO. It is clearly not the province of this Court to adjudicate the complex regulatory issues which may ultimately arise upon the entering of a money judgment in the instant litigation. These determinations are purely matters of local concern, entrusted to the specialized expertise of the PUCO, subject to limited review by the appropriate appellate courts. This tribunal, in addition to lacking any special competence in the area of rate regulation, would appear, more fundamentally, to lack the underlying judicial authority necessary to direct compliance with any rate-related determination the Court might ill-advisedly decree. Indeed, the provisions of the Johnson Act², 28 U.S.C. § 1342, expressly prohibit, in the absence of special circumstances, federal court interference with the states' administration of their public utility rates. See Tennyson v. Gas Service Co., 506 F.2d 1135 (10th Cir. 1974); Bridgeport Hydraulic Co. v. Council on Water Co., etc., 453 F.Supp. 942, 953-54 (D.Conn.1977), aff'd., 439 U.S. 999, 99 S.Ct. 606, 58 L.Ed.2d 674 (1978); Kalinsky v. Long Island Lighting Co., 484 F.Supp. 176 (E.D.N.Y.1980); South Central Bell Telephone Co. v. Public Service Commission of Kentucky, 420 F.Supp. 376 (E.D.Ky.1976).

In view of the Johnson Act prohibition against federal intrusion upon the states' regulation of public utility rates, it is highly questionable whether this Court possesses jurisdiction to enforce any determination it might reach regarding the propriety of including, for ratemaking purposes, the amount of any ensuing antitrust judgment.³ In addition to the Court's apparent inability to control the resolution of those issues which appear likely to be joined before the PUCO in the aftermath of a substantial damage award herein, the Court, in view of the present state of the law, can only speculate as to the disposition the state regulatory process might ultimately find most consistent with Ohio's regulatory objectives. The Court is, for example, directed to no legal precedent, and its research fails to disclose any legal authority, emanating from Ohio or elsewhere, which specifically addresses itself to the proper regulatory treatment afforded adverse antitrust judgments. Although the City conjectures that the Ohio regulatory process will elect to follow and apply the aforementioned rationale of NAACP v. Federal Power Commission, supra, and thus disallow the amount of any money judgment as a loss resulting from unlawful conduct, the Court's review of the applicable authorities discloses little, if any, underlying support for the plaintiff's speculation. The Court, for instance, is unaware of any legal authority which holds or otherwise intimates that the principles of NAACP v. Federal Power Commission necessarily obtain in the context of state, as opposed to federal, rate regulation.⁴ The case authorities leave similarly unresolved the applicability of the aforesaid precedent to the realm of antitrust damage awards. Cf. City of Columbus v. Public Utilities Commission, 154 Ohio St. 107, 93 N.E.2d 693, 706-707 (allowing as operating expense fees expended to secure indemnity from patent infringement claims). Lastly, and perhaps most importantly, it is highly questionable whether the rationale of NAACP v. Federal Power Commission, will be subsequently extended in such a manner as to indiscriminately disallow, in their entirety, and irrespective of the economic consequences, damage awards of the magnitude contemplated herein. The Court observes in this regard that established regulatory objectives include the preservation of the regulated entity's "financial integrity", so as to enable the utility to "attract capital, and...