City of Morgan City v. South Louisiana Elec., Civ. A. No. 91-0523.

• Decision Date: 25 February 1993
• Docket Number: Civ. A. No. 91-0523.
• Citation: 837 F. Supp. 194
• Parties: CITY OF MORGAN CITY v. SOUTH LOUISIANA ELECTRIC, et al.
• Court: U.S. District Court — Western District of Louisiana

837 F. Supp. 194

CITY OF MORGAN CITY v. SOUTH LOUISIANA ELECTRIC, et al.

Civ. A. No. 91-0523.

United States District Court, W.D. Louisiana, Lafayette-Opelousas Division.

February 25, 1993.

Dale Hugh Hayes, Leonard & Hayes, Morgan City, LA, John D. Whitler, Wallace E. Brand, Brand, Beeny, Berger & Whitler, Washington, DC, for City of Morgan City.

James L. Alcock, Jr., John Schwab, William E. Hodgkins, Schwab & Walter, Baton Rouge, LA, for Cajun Elec. Power Co-op. Inc.

James M. Funderburk, Duval, Funderburk, Sundbery & Lovell, Houma, LA, for South Louisiana Elec. Co-op. Ass'n.

J. Christopher Kohn, U.S. Dept. of Justice, Civ. Div., Washington, DC, Carl E. Perry, Asst. U.S. Atty., Lafayette, LA, Douglas J. Hughes, James G. Bruen, Jr., U.S. Dept. of Justice, Washington, DC, for U.S., thru Rural Electrification Administration (REA).

David W. Leefe, Liskow & Lewis, New Orleans, LA, Clifton S. Elgarten, Amy J. Mauser, Crowell & Moring, Washington, DC, for American Public Power Ass'n, amicus, Nat. Institute of Mun. Law Officers, amicus, and National League of Cities, amicus.

MEMORANDUM RULING

DOHERTY, District Judge.

This matter comes before the Court on a number of motions filed on behalf of both plaintiff and defendants in this matter. In order to facilitate ruling on the issues, the Court asked all parties to further brief the narrow issue of the Rural Electrification Administration ("REA") "approval authority" as to a condemnation by the State of electrical facilities which are indebted to the REA.

Procedural History

On August 3, 1990 the City of Morgan City filed in the 16th Judicial District Court, Parish of St. Mary, a petition for expropriation seeking to condemn property and electric service rights owned by defendant, South Louisiana Electric Cooperative Association ("SLECA"), a federally financed, non-profit cooperative. On January 11, 1991, a petition of intervention was filed on behalf of Cajun Electric Power Cooperative, Inc. ("Cajun"); the United States was also joined as a third party defendant on the basis that the United States holds a security interest in the property which is the subject of this proceeding. The United States timely removed the state court proceeding to this Court on March 11, 1991. Cajun then filed with this Court on June 5, 1991 an amended petition of intervention, alleging noncompliance with 7 U.S.C. § 907 with this Court on June 5, 1991.

On August 29, 1991 Morgan City filed a Motion to Dismiss Cajun's amended petition of intervention and said motion was denied by the Honorable Richard T. Haik, Sr. on October 17, 1991. On December 9, 1991 this case was transferred to the Honorable Rebecca F. Doherty.

Presently before this Court are Motions to Dismiss and in the alternative for Summary Judgment filed on behalf of the United States of America, SLECA and Cajun, seeking to dismiss plaintiff's claims arguing that state law based expropriation cannot proceed under the Supremacy Clause of the United States Constitution, and the Rural Electrification Association, as part of the United States Department of Agriculture, has withheld its statutory and preemptive authority to approve the property transfer under 7 U.S.C. § 907. Also pending before the Court is a Motion for Partial Summary Judgment filed on behalf of the City of Morgan City based on preemption claiming the REA administrator has not met the procedural requirements under the Administrative Procedure Act, 5 U.S.C. § 553, and the Federal Register Act, 44 U.S.C. § 1505 and 1510, which are pre-conditions to administrative preemption by regulation, or in the alternative that the REA administrator has not been delegated by Congress the authority to preempt state law solely for the purpose of relieving the economic pressures on rural electrical cooperatives.

Morgan City has also filed an appeal from Magistrate Judge Methvin's ruling of October 22, 1992 wherein the Magistrate Judge denied the City's Motion to Compel production of documents and answers to interrogatories propounded to the United States of America. Additionally, the United States has filed a Motion to Strike documents filed by the City of Morgan City in support of their appeal of the Magistrate's ruling.

This Court GRANTS the Motion to Dismiss filed on behalf of the United States of America, SLECA and Cajun and DENIES the Motion for Partial Summary Judgment filed on behalf of the City of Morgan City. Further, this Court upholds the Magistrate's ruling and therefore DENIES the appeal by the City of Morgan City which renders MOOT the motion by the United States of America to strike documents filed in connection with the City of Morgan City's appeal of the Magistrate's ruling for the following reasons to wit:

This case concerns the pending expropriation by the City of Morgan City of approximately 252 SLECA customers, as well as the lines, poles, transformers and other equipment serving these customers. This expropriation is a result of Phase II of Morgan City's annexation plans, which went into effect in 1986. The annexation itself has occurred and therefore will not be affected by the outcome of this case. A Phase III annexation which would involve an additional approximately 267 SLECA customers and the same lines, poles, transformers and related equipment will occur in the future according to the sworn deposition testimony of the Honorable Cedric S. LaFleur, Mayor of the City of Morgan City and its consulting engineer, Harold J. Beard. Morgan City has offered to pay SLECA a total of $895,955.78 over a period of 8 years at $111,994.47 a year, for the expropriation of SLECA's facilities in Phase II. (SLECA Exhibit 1)

On June 16, 1992 a 28 page report with numerous attachments and studies, produced by the staff of the REA, was adopted by the administrator pursuant to 7 U.S.C. § 907, withholding his approval of the proposed expropriation by the City of Morgan City.

The REA Act provides at 7 U.S.C. § 907:

"No borrower of funds under § 4 of § 201 (7 U.S.C. § 904 or § 922) shall, without the approval of the Administrator, sell or dispose of its property, rights, or franchises, acquired under the provisions of this Act, until any loan obtained from the Rural Electrification Administration, including all interest and charges, shall have been repaid."

The central issue in this matter has been the ongoing dispute between the parties as to the authority of the REA Administrator under § 907 to withhold approval of the expropriation and thereby essentially preempt Morgan City's state granted power of expropriation. This Court, in a minute entry dated December 4, 1992, asked all parties to brief the narrow issue of whether or not the REA has the authority pursuant to 7 U.S.C. § 907 to prevent the expropriation of SLECA's property by the City of Morgan City.

The Court now must make a determination of whether 7 U.S.C. § 907 preempts, by conflict and pursuant to the Supremacy Clause, the state expropriation power granted by the State of Louisiana to the City of Morgan City.

The inquiry begins with analysis of 7 U.S.C. § 907. Does the prohibition that no borrower shall without the administration's approval "sell or dispose of its property ..." extend to involuntary disposal, i.e., expropriation.

This Court notes that the issue of REA's authority to approve or disapprove an expropriation pursuant to § 907 has been previously addressed in the Ninth Circuit cases of Public Utility District No. 1 of Pend Oreille County v. United States, 417 F.2d 200, 201-202 (9th Cir.1969) and Public Utility District No. 1 of Franklin County v. Big Bend Electric, 618 F.2d 601, 603 (9th Cir.1980). In both cases, the Ninth Circuit held that under § 907 a borrower's property may not be disposed of by any means, including involuntary condemnation or expropriation, without REA's approval. The Fifth Circuit has expressly approved the holding and rationale of Big Bend, supra, in the case of City of Madison, Miss. v. Bear Creek Water Association, Inc., 816 F.2d 1057, 1060 (5th Cir. 1987).

It is apparent to this Court that the Fifth Circuit Court of Appeals has enforced the Supremacy Clause principles barring municipal condemnations that interfere with federal programs. In Bear Creek, 816 F.2d 1057, a municipality attempted to condemn property of a water association financed in part by the Farmers' Home Administration ("FmHA") under a federal program. The district court granted FmHA's motion for summary judgment because the water association was indebted to FmHA, and federal statute, 7 U.S.C. § 1926(b), prevented municipal condemnations of property owned by federally indebted water associations.

In affirming the district court the Fifth Circuit cited the opinion of Big Bend and emphasized that the Supremacy Clause prevents municipalities from condemning property Congress has protected from being removed from its role in a federal program stating:

The case at bar exemplifies the evil Congress wished to avoid. The association's affidavits showed that the municipality desires to condemn ... the most densely populated (and thus most profitable) territory now served by the association. Even if fair value is paid for the loss of the facilities, such an action would inevitably have an adverse effect on the remaining customers ... in the form of lost economies of scale resulting in higher per user costs. To allow expanding municipalities to `skim the cream' by annexing and condemning those parts of the water association with the highest population density (and thus the lower per use cost) would undermine Congress' purpose of facilitating inexpensive water supplies for farmers and other rural residents and protecting those associations' ability to repay their FmHA debts. See Big Bend, 618 F.2d 601 (9th Cir.1980) (Similarly rejecting utilities attempt to condemn property owned by cooperative finance by REA).

Id. at 1060.

Morgan City and the amici curiae, American Public Power Association, the...