City of Stilwell, Okl. v. Ozarks Rural Elec. Co-op. Corp., 97-7104

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: Before BRORBY, BARRETT and EBEL; BRORBY
• Citation: City of Stilwell, Okl. v. Ozarks Rural Elec. Co-op. Corp., 166 F.3d 1064 (10th Cir. 1999)
• Decision Date: 26 January 1999
• Docket Number: No. 97-7104,97-7104
• Parties: Util. L. Rep. P 14,256, 1999 CJ C.A.R. 1026 CITY OF STILWELL, OKLAHOMA, a municipal corporation, Plaintiff-Appellee, v. OZARKS RURAL ELECTRIC COOPERATIVE CORPORATION, Defendant-Appellant, and Rural Electric Company, United States of America (ex rel.); National Rural Utilities Cooperative Finance Corporation, Defendants.

Page 1064

166 F.3d 1064

Util. L. Rep. P 14,256, 1999 CJ C.A.R. 1026

CITY OF STILWELL, OKLAHOMA, a municipal corporation Plaintiff-Appellee, v. OZARKS RURAL ELECTRIC COOPERATIVE CORPORATION, Defendant-Appellant and Rural Electric Company, United States of America (ex rel.) National Rural Utilities Cooperative Finance Corporation, Defendants.

No. 97-7104.

United States Court of Appeals Tenth Circuit.

Jan. 26, 1999.

Lloyd E. Cole, Jr., Stilwell, Oklahoma, for Plaintiff-Appellee.

Patrick D. Shore (John R. Eldridge, III of Burke & Eldridge, P.A., Fayetteville, Arkansas, with him on the briefs) of Derryberry, Quigley, Solomon & Naifeh, Oklahoma City, Oklahoma, for Defendant-Appellant.

Before BRORBY, BARRETT and EBEL, Circuit Judges.

BRORBY, Circuit Judge.

This appeal involves a dispute over the calculation of just compensation in a condemnation proceeding under Oklahoma law, and whether the commissioners appointed by the district court and charged with calculating damages qualify as "disinterested" parties. Appellee, the City of Stilwell, Oklahoma, seeks to condemn certain electric distribution facilities of Appellant, Ozarks Electric Cooperative Corporation ("Ozarks"), located within newly annexed portions of the City of Stilwell. Ozarks, a rural electric power distribution cooperative, appeals the district court's order confirming the Commissioners' Report establishing damages the City of Stilwell must pay Ozarks for the condemned facilities. We exercise jurisdiction pursuant to 28 U.S.C. § 1291, and affirm.

BACKGROUND

The City of Stilwell, located in Adair County, Oklahoma, owns and operates a municipal electric utility providing service to customers within and outside the corporate limits. The city recently expanded its corporate limits to encompass territory initially served and developed by Ozarks. Under authority of Okla. Stat. tit. 18, § 437.2(k), the City of Stilwell sought to condemn Ozarks' facilities and commence operation of its municipal electrical utility within the newly-annexed territory. The Oklahoma statute allows municipalities owning and operating electric service utilities to condemn the facilities of rural electric cooperatives operating within the boundaries of the municipality upon payment of fair value. ¹ Since the parties could not agree on the amount the city should pay for Ozarks' facilities, the City of Stilwell commenced this action in Adair County, Oklahoma, for a judicial determination of just compensation. See Okla. Const., Art. II, § 24; Okla. Stat. tit. 66, §§ 53 through 58. The case was later removed to the United States District Court for the Eastern District of Oklahoma, after the City of Stilwell joined the Rural Electrification Administration ² and the National Rural Utilities Cooperative Finance Corporation as parties to the lawsuit. ³

Following removal, Ozarks filed a motion for summary judgment. The district court granted the motion, finding federal law preempted the City of Stilwell's proposed condemnation of Ozarks' facilities because it would frustrate the purpose of the Rural Electrification Act, 7 U.S.C. § 901, et seq. See City of Stilwell v. Ozarks Rural Elec. Coop. Corp., 870 F.Supp. 1025 (E.D.Okla.1994). This court later reversed the district court's ruling in City of Stilwell v. Ozarks Rural Elec. Coop. Corp., 79 F.3d 1038 (10th Cir.1996), applying a narrow reading to the Rural Electrification Act, and finding no clear federal preemption of the states' traditional authority under the police power to regulate utilities. Id. at 1044.

After this court remanded the case, the district court continued the condemnation proceedings. It appointed commissioners and instructed them to determine the amount the City of Stilwell owed to Ozarks in damages for the condemnation of its facilities. After completing their analysis, the commissioners filed a report on February 18, 1997, recommending Ozarks receive $1,515,000 as just compensation for the taking. This figure included $170,000 for facilities, $1,200,000 in lost revenue, $26,000 for stranded costs, and $119,000 for reintegration expenses. The commissioners included no amounts for either the value of the territory or the going concern value of the facilities. Ozarks subsequently filed objections to the Commissioners' Report, and the district court held an evidentiary hearing on the matter. Following the hearing, the district court issued an order denying Ozarks' objections and confirming the Commissioners' Report. Although Oklahoma law entitled Ozarks to a jury trial on the issue of damages, the district court denied Ozarks' request as untimely. However, Ozarks does not contest the denial of a jury trial, only the district court's confirmation of the Commissioners' Report.

Ozarks argues that in approving and adopting the Commissioners' Report, the district court erred in several ways. First, it contends the commissioners appointed by the court to calculate just compensation are not "disinterested" as required under Oklahoma law. See Okla. Const. Art. II, § 24; Okla. Stat. tit. 66, § 53(A). It argues the district court erred in not utilizing the procedures under Rule 71A(k) of the Federal Rules of Civil Procedure calling for election or selection of commissioners. Second, Ozarks alleges the commissioners' calculation of damages fails to properly assess reintegration costs because the court should require the City of Stilwell to condemn all Ozarks' facilities within the city limits. Finally, Ozarks challenges the Commissioners' Report for failing to include the value of future revenue streams, "going concern" and lost service territory, and revenue losses of KAMO Electric Cooperative (KAMO)--Ozarks' power supplier. ⁴

For purposes of our review, we treat the district court's order confirming the Commissioners' Report as we would a judgment sustaining a jury verdict. See United States v. Wallace, 201 F.2d 65, 67 (10th Cir.1952) (finding commissioners appointed under federal law to determine just compensation in a condemnation proceeding, serve the function of a jury because the proceeding before the commissioners is quasi-judicial in nature). In the context of this diversity action, Oklahoma law controls the substantive issues involved. Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir.1994) (ruling federal courts sitting in diversity should apply the substantive law of the forum state, including choice of law rules).

Appointment of the Commissioners

The district court appointed commissioners to assess damages for the City of Stilwell's taking of Ozarks' electric distribution facilities because the parties could not agree on a fair price for the transfer. ⁵ In situations where the parties cannot agree, Oklahoma law calls for a calculation of just compensation by a board of at least three "disinterested freeholders" selected from the regular jury list as prescribed by the legislature. Okla. Const. Art. II, § 24; Okla. Stat. tit. 66, § 53(A). In conformity with the state law procedures, the district court appointed three commissioners to make the appraisal. Each of the commissioners the court selected resided in Adair County, received electric service from Ozarks, and was considered an owner-member of Ozarks Electric Cooperative Corporation. ⁶ Additionally, two of the commissioners also had indirect ties to the City of Stilwell Electric Utility. One worked as a manager of a bank in the City of Stilwell, which received its electric service from the city, and the other owned rental property in the City of Stilwell, which also received electric service from the City of Stilwell Electric Utility.

Ozarks argues the district court improperly appointed commissioners from among the residents of Adair County because virtually every resident in the county is either an owner-member of Ozarks or a customer of the City of Stilwell Electric Utility with a pecuniary interest in the outcome of the appraisal. According to Ozarks, this pecuniary interest in the outcome of the damages calculation requires the court to presume bias and disqualify the commissioners.

We agree with Ozarks that bias or prejudice is often an elusive condition of the mind, and the law sometimes requires a presumption of partiality--even in the absence of actual proof--if the mere potential for a conflict of interest exists. Nevertheless, the decision to apply this presumption remains within the discretion of the court. See Gonzales v. Thomas, 99 F.3d 978, 987 (10th Cir.1996) (applying this proposition in the context of juror selection), cert. denied, 520 U.S. 1159, 117 S.Ct. 1342, 137 L.Ed.2d 501 (1997). We find--in the context of selecting commissioners--the court's decision about whether implied bias exists should turn on an objective legal evaluation of the challenged commissioners' "experiences and their relation to the case." Id. (citation omitted). The district court must determine whether the commissioners "may have such a close connection to the circumstances at hand that bias must be presumed." Id. Accordingly, we will not disturb the court's appointments absent some evidence of error causing harm to Ozarks.

Our review of the law and the record leaves us unpersuaded that the court abused its discretion in appointing the commissioners. We do not interpret Oklahoma law to require the commissioners to possess the level of complete and absolute impartiality Ozarks claims. Such an inflexible interpretation of the statute would disqualify virtually every person in Adair County from serving as a commissioner merely because of his or her status as either a customer of the City of Stilwell Electric Utility or owner-member of Ozarks. This is an unnecessary conclusion. In the context of jury selection, a situation analogous to the selection of commissioners, ⁷ we do not automatically exclude a juror simply because he holds an opinion on a particular subject or knows something about the case. See Irvin v. Dowd, 366 U.S. 717, 722-23, 81 S.Ct. 1639...