City of Huntsville v. City of Madison, 93-6554

• Decision Date: 29 June 1994
• Docket Number: No. 93-6554,93-6554
• Citation: 24 F.3d 169
• Parties: CITY OF HUNTSVILLE, Plaintiff-Appellant, v. CITY OF MADISON; Owens Crossroads, Town of; Gurley, Town of; New Hope, City of; Triana, Town of; Madison County; Marshall County, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 169

24 F.3d 169

63 USLW 2043

CITY OF HUNTSVILLE, Plaintiff-Appellant, v. CITY OF MADISON; Owens Crossroads, Town of; Gurley, Town of; New Hope, City of; Triana, Town of; Madison County; Marshall County, Defendants-Appellees.

No. 93-6554.

United States Court of Appeals, Eleventh Circuit.

June 29, 1994.

Peter S. Joffrion, Michael L. Fees, William F. Patty, Huntsville, AL, for appellant.

William W. Sanderson, Jr., Jeffrey T. Kelly, Huntsville, AL, for City of Madison, City of New Hope, Town of Triana, Town of Gurley.

G. Bartley Loftin, III, Huntsville, AL, for Town of Owens Crossroads.

Julian D. Butler, Fred L. Coffey, Jr., Huntsville, AL, for Madison County.

Appeal from the United States District Court for the Northern District of Alabama.

Before BLACK, Circuit Judge, FAY, Senior Circuit Judge, and GRAHAM ^*, District Judge.

BLACK, Circuit Judge:

This appeal requires us to determine whether the district court has federal question jurisdiction over the declaratory judgment action brought by the City of Huntsville, Alabama. Appellees, other Alabama local governments, had threatened to sue Huntsville for breach of contract as third-party beneficiaries to Huntsville's contract with the Tennessee Valley Authority (TVA). In the district court, Appellant Huntsville sought a declaration of its contractual rights and obligations to Appellees.

Huntsville contends that federal question jurisdiction exists under 28 U.S.C. Sec. 1331 because a determination of its contractual rights and obligations turns on interpretation of a section of the federal statute governing the TVA. We hold that, in the absence of a private cause of action under the federal statute, interpretation of that statute as a necessary element of an otherwise state contract claim is not enough to permit exercise of federal question jurisdiction. Accordingly, we affirm the district court's order dismissing Huntsville's declaratory judgment action for lack of federal question jurisdiction.

I.

In 1980, Huntsville entered into a twenty-year contract with the TVA to purchase excess TVA-generated power for resale to Huntsville's residents and the residents of the Appellee local governments. ¹ Under the contract, Huntsville is permitted to deposit into its general fund an amount "in lieu of taxes," i.e., tax equivalent payments (TEP), from the electrical system revenues. ² The TEP are only to be deposited if funds are left after the electrical system revenues have been used to pay operating expenses and interest, and to establish a reserve fund for the electrical system. The contract requires the TEP to represent the fair share of the cost of government properly borne by Huntsville and caps them at a maximum amount based on a prescribed formula. The contract also provides that Huntsville is responsible for distributing the TEP to the localities in which it operates as required by law or as it deems appropriate under Sec. 13 of the TVA Act.

The first three paragraphs of Sec. 13 of the TVA Act authorize TVA to make payments in lieu of taxation to states and counties in which it has acquired property that had been subjected to state and local taxation. The fourth paragraph, the crux of Huntsville's claim, reads:

Nothing herein shall be construed to limit the authority of the [TVA] in its contracts for the sale of power to municipalities, to permit or provide for the resale of power at rates which may include an amount to cover tax-equivalent payments to the municipality in lieu of State, county, and municipal taxes upon any distribution system or property owned by the municipality, or any agency thereof, conditioned upon a proper distribution by the municipality of any amounts collected by it in lieu of State or county taxes upon any such distribution system or property; it being the intention of Congress that either the municipality or the State in which the municipality is situated shall provide for the proper distribution to the State and county of any portion of tax equivalent so collected by the municipality in lieu of State or county taxes upon any such distribution system or property.

16 U.S.C. Sec. 831l.

Huntsville supplies TVA-purchased electricity to local governments through Huntsville Utilities and has been depositing the TEP from Huntsville Utilities' revenues into its general fund. Huntsville does not redistribute any portion of the TEP to any of the local governments in which Huntsville Utilities operates.

By filing the underlying declaratory judgment action, Huntsville preempted the threatened suit by one of the local governments to force Huntsville to distribute a portion of the TEP funds to the local governments serviced by Huntsville Utilities.

II.

Federal district courts have original jurisdiction of all civil actions that arise under the Constitution or laws of the United States. 28 U.S.C. Sec. 1331. Federal question jurisdiction may be based on a civil action alleging a violation of the United States Constitution, see Bivens v. Six Unknown Named Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), or a federal cause of action established by a Congressionally-created expressed or implied private remedy for violations of a federal statute, Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 809, 106 S.Ct. 3229, 3233, 92 L.Ed.2d 650 (1986). ³ In limited circumstances, federal question jurisdiction may also be available if a substantial, disputed question of federal law is a necessary element of a state cause of action. Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 12, 103 S.Ct. 2841, 2848, 77 L.Ed.2d 420 (1983).

This case does not present a constitutional cause of action; nor did Congress expressly create a private cause of action under Sec. 13 of the TVA Act. Moreover, Huntsville does not contend that Sec. 13 contains an implied private remedy permitting it to sue directly under the statute. See Merrell Dow, 478 U.S. at 809 n. 6, 106 S.Ct. at 3233 n. 6 ("Jurisdiction may not be sustained on a theory that the plaintiff has not advanced."). Instead, Huntsville asserts that federal question jurisdiction exists under the TVA Act as applied to its contract with the TVA. That is, Huntsville contends that federal question jurisdiction exists because interpretation of Sec. 13 of the TVA Act is pivotal to the dispute between it and Appellees.

III.

It has long been recognized that a declaratory judgment plaintiff such as Huntsville may only claim federal question jurisdiction if the anticipated lawsuit by the declaratory judgment defendant, in this case Appellee local governments, arises under federal law. See Franchise Tax Bd., 463 U.S. at 18 & n. 19, 103 S.Ct. at 2851 & n. 19 (citing dictum from Public Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 246-48, 73 S.Ct. 236, 242-43, 97 L.Ed. 291 (1952)). Whether federal question jurisdiction may be exercised over Huntsville's action, then, turns in part on what cause of action its declaratory judgment complaint has displaced.

A declaratory judgment action must satisfy the well-pleaded complaint rule ⁴ and show that the "displaced coercive action"--the declaratory judgment defendant's coercive action being displaced by the declaratory judgment suit--is created by federal law or necessarily depends on resolution of a substantial, disputed question of federal law. See id. at 8-18 & n. 19, 103 S.Ct. at 2846-51 & n. 19; Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 879, 94 L.Ed. 1194 (1950); see also McDougald v. Jenson, 786 F.2d 1465, 1476 (11th Cir.) (for a declaratory judgment action, apply the well-pleaded complaint rule to the displaced coercive action), cert. denied, 479 U.S. 860, 107 S.Ct. 207, 93 L.Ed.2d 137 (1986).

In the absence of a federal cause of action under Sec. 13 of the TVA Act, Appellee local governments could only sue Huntsville through a state contract claim as third-party beneficiaries to the Huntsville-TVA contract. Their complaint would allege in part that Huntsville is violating state law by refusing to distribute a portion of the TEP it collects. See infra part IV and note 7. Because the contract is written in the disjunctive, however, see supra note 2, the contract claim would also involve interpretation of federal law: whether Huntsville is in breach of its contract with TVA because its actions are not in accord with Sec. 13 of the TVA Act. ⁵ Accordingly, Huntsville's declaratory judgment complaint displaces a coercive state law action that would involve interpretation of a federal statute.

This case falls squarely within the "litigation-provoking problem" of whether federal question jurisdiction lies when a federal issue is involved in a state cause of action. Merrell Dow, 478 U.S. at 809, 106 S.Ct. at 3233; see also Franchise Tax Bd., 463 U.S. at 8, 103 S.Ct. at 2846. This Court must therefore determine whether, even though there is no federal cause of action, federal question jurisdiction is conferred by the necessity to interpret Sec. 13 of the TVA Act as an element of the state contract action. See Merrell Dow, 478 U.S. at 811-15, 106 S.Ct. at 3234-36. ⁶

IV.

The Huntsville-TVA contract states that Huntsville is responsible for TEP distribution as may be required by law or as it deems appropriate under Sec. 13 of the TVA Act. See supra note 2. An Alabama Supreme Court decision seemingly would require Huntsville to distribute a portion of the TEP funds. See North Courtland v. Courtland, 597 So.2d 1336 (Ala.1992). ⁷ To determine the propriety of Huntsville's actions, therefore, either the federal district court or a state court must both interpret the Huntsville-TVA contract and determine Congressional intent regarding TEP distributions as embodied in Sec. 13 of the TVA Act. For the following reasons, we conclude that the federal district court is not the proper court to undertake that task.

A.

In Merrell Dow, the Supreme Court addressed the question of whether, in the absence of a...