City of Cookeville, Tn v. Upper Cumberland Elec.
| Decision Date | 17 March 2005 |
| Docket Number | No. 2:02-0093.,2:02-0093. |
| Parties | CITY OF COOKEVILLE, TENNESSEE Plaintiff, v. UPPER CUMBERLAND ELECTRIC MEMBERSHIP CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
John H. Sinclair, Jr., Tennessee Attorney General's Office, Frank Stovall King, Jr., King & Ballow, Nashville, TN, Thomas Michael O'Mara, O'Mara & Johnson, PLLC, Cookeville, TN, for Plaintiffs.
J. Richard Lodge, W. Brantley Phillips, Jr., Russell S. Baldwin, Bass, Berry & Sims, Nashville, Jacky Orange Bellar, Bellar & Bellar, Carthage, TN, Robert C. Watson, Office of the United States Attorney, Nashville, TN, Frances M. Toole, Department of Justice, Ben Franklin Station, Georgann Gutteridge, U.S. Department of Agriculture, General Counsel/Rural Utilities Division, Washington, DC, Paul C. Ney, Jr., Trauger, Ney & Tuke, Nashville, TN, for Defendants.
On July 31, 2001, the City of Cookeville Department of Electricity ("Cookeville" or "Plaintiff") filed a Complaint in the Circuit Court for Putnam County, Tennessee, seeking to condemn Upper Cumberland Electric Membership Corporation's ("UCEMC") facilities and service rights within five areas recently annexed by Cookeville. In order to comply with Tenn.Code Ann. § 29-16-106, which requires that all parties having any interest in the land or rights involved in an eminent domain case be made defendants, Cookeville added as defendants the federal Rural Utilities Service ("RUS"), an agency of the United States Department of Agriculture, and the National Rurual Utilities Cooperative Finance Corporation ("CFC"). On November 20, 2002, RUS removed this matter to federal district court pursuant to 28 U.S.C. § 1442(a)(1). On May 15, 2003, this Court consolidated the original action to condemn five areas with another action seeking to condemn four additional service areas. UCEMC has over $33,000,000 in outstanding long-term debt, all of which is secured by mortgages held by RUS and CFC on all of UCEMC's property, including the property at issue in this case. RUS opposes the proposed condemnations and issued an opinion stating its opposition and detailing the reasons thereof.
On November 15, 2004, this action was heard in a bench trial before the Honorable Thomas A. Wiseman, Jr., Senior District Judge for the United States District Court for the Middle District of Tennessee.
While this litigation has been long and sometimes contentious, there is only one central issue before this Court, whether the proposed condemnations frustrate the purpose of the REA. If they do not, then state law is controlling, and the Court should make the calculation required by Tenn.Code Ann. § 6-51-112(a)(2). If the Court finds that the proposed condemnations do frustrate the purpose of the REA, then the condemnation proceedings will be dismissed.
The Court's ruling on partial summary judgment on March 25, 2003 lays out the applicable case law. As it was discussed thoroughly in that order, only a summary is necessary here.
The case law surrounding the issue of condemning service areas of utilities founded under the REA and funded by the RUS is fairly sparse. The United States Court of Appeals for the Sixth Circuit has yet to rule on the issue, and as such, this Court will treat this as a case of first impression. Two lines of thought have developed in the case law from other circuit and state courts. The first states that state law allowing condemnation of utilities founded under the REA and financed by the RUS are preempted by federal law and, as such, are invalid in their application to these utilities, unless the RUS approved of the condemnations. See Public Utility District No. 1 of Pend Oreille Cty. v. United States, 417 F.2d 200 (9th Cir.1969); Public Utility District No. 1 of Franklin Cty. v. Big Bend Elec. Coop., Inc., 618 F.2d 601 (9th Cir.1980); City of Morgan City v. South Louisiana Elec. Coop. Assoc., et al., 31 F.3d 319, 320 (5th Cir.1994). The second line of thought is that the REA was not meant to preempt state law, but rather to operate within the framework of existing state law, thus allowing for condemnation of rural cooperatives. See City of Stilwell v. Ozarks Rural Elec. Coop. Corp., et al., 79 F.3d 1038 (10th Cir.1996); Tlingit-Haida Regional Electrical Authority v. Alaska, et al., 15 P.3d 754 (Alaska 2001).
The purpose of the REA was to electrify rural areas of the United States. See Pend Oreille, 417 F.2d at 201; City of Morgan City, 837 F.Supp. at 195; Wabash Valley Power Assoc. v. REA, 988 F.2d 1480, 1489-90 (7th Cir.1993) (). The courts recognized that this purpose could be hindered by condemning service areas without paying sufficient compensation. See id. The courts further held that, as the body appointed by Congress to the be arbiter of these questions, the RUS decision to approve or disapprove of a proposed condemnation should be given great deference. See Public Utility District No. 1 of Franklin Cty., 618 F.2d at 603; City of Morgan City, 837 F.Supp. at 198; City of Morgan City, 31 F.3d at 324.
The first line of thought was largely developed before the United States Supreme Court issued its opinion in Arkansas Elec. Coop. Corp. v. Arkansas Public Serv. Commission, 461 U.S. 375, 103 S.Ct. 1905, 76 L.Ed.2d 1 (1983); but see City of Morgan City, 49 F.3d at 1075 (). The facts of Arkansas Elec. Coop. Corp. are not identical to the case at bar, but similar enough to warrant an examination of the Court's reasoning.
In Arkansas Elec. Coop. Corp., a plaintiff cooperative that received funding through the REA challenged the jurisdiction of the Arkansas Public Service Commission [Arkansas PSC] to control its rates. Arkansas Elec. Coop. Corp., 461 U.S. at 377, 103 S.Ct. 1905. The plaintiff cooperative did not actually provide power directly to rural individuals, but sold it to its member cooperatives who then distributed the power. Id. The Arkansas PSC asserted jurisdiction over the rates charged by the member cooperatives based on state statutes. Id. at 382, 103 S.Ct. 1905. The cooperative asserted that state regulation of the rates was preempted by the REA. Id. The Arkansas Supreme Court upheld the Arkansas PSC's jurisdiction over rates, and the United States Supreme Court affirmed. Id. The Court initially held: "Nothing in the Rural Electrification Act expressly pre-empts state rate regulation of power cooperatives financed by the [RUS]." Id. at 385, 103 S.Ct. 1905. As to the argument that the state's involvement would frustrate the important federal interest behind the REA, the Court responded that "the legislative history of the Rural Electrification Act makes abundantly clear that, although the [RUS] was expected to play a role in assisting the fledgling rural power cooperatives in setting their rate structures, it would do so within the constraints of existing state regulatory schemes." Id. at 386, 103 S.Ct. 1905. The Court continued:
There may come a time when the [RUS] changes its present policy, and announces that state rate regulation of rural power cooperatives is inconsistent with federal policy. If that were to happen, and if such a rule was valid under the Rural Electrification Act, it would of course pre-empt any further exercise of jurisdiction by the Arkansas PSC.... the PSC can make no regulation affecting rural power cooperatives which conflicts with particular regulations promulgated by the [RUS]. Moreover, even without an explicit statement from the [RUS], a particular rate set by the Arkansas PSC may so seriously compromise important federal interests, including the ability of [the cooperative] to repay its loans, as to be implicitly pre-empted by the Rural Electrification Act. We will not, however, in this facial challenge to the PSC's mere assertion of jurisdiction, assume that such a hypothetical event is so likely to occur as to preclude the setting of any rates at all.
Id. at 388-89, 103 S.Ct. 1905 (internal citations omitted). Thus, Arkansas Electric involved a different set of facts — setting rates instead of condemning facilities — and was decided on a facial challenge to the state agency's jurisdiction.
After the decision in Arkansas Elec. Coop. Corp., the second line of cases developed which allowed condemnation of rural cooperatives. The United States Court of Appeals for the Tenth Circuit was faced with a case similar to the case at bar and concluded that, in light of Arkansas Elec. Coop. Corp., the REA and RUS were to operate within the bounds of state law, and condemnation under state law should be allowed. City of Stilwell, 79 F.3d at 1044. The City of Stilwell court stated that the reasoning in the first line of cases was in error after Arkansas Elec. Coop. Corp. In City of Stilwell, the RUS did not oppose the condemnation and specifically described the impact of the proposed condemnation as "minimal." Id. at 1045.
Most recently, the Supreme Court of Alaska in Tlingit-Haida Regional Electrical Authority v. Alaska, et al., 15 P.3d 754 757 (Alaska 2001) considered both the first and second line of thought and concluded that the second made more sense after the Arkansas Elec. Coop. Corp. decision. The court reasoned that, because the REA was designed to promote rural electrification, direct interference with property mortgaged to the RUS "could conceivably frustrate the purposes of the Act." Id. Such is not the case, however, if the state regulation is legitimate and allows the utility to recoup its investments. Id. In Tlingit-Haida Regional Electrical Authority, an RUS officer testified that losing the disputed service area would doom the...
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City of Cookeville v. Upper Cumberland Elec.
...of the cooperative outside the annexed area after detaching the portion to be sold." See City of Cookeville v. Upper Cumberland Elec. Membership Corp., 360 F.Supp.2d 873, 879 (M.D.Tenn.2005) (quoting Tenn.Code Ann. § 6-51-112(a)(2)(B)). At a bench trial in November of 2004, each side presen......