Continental Bank, Nat. Ass'n v. Village of Ludlow
| Decision Date | 31 October 1991 |
| Docket Number | 90-12941-Y.,Civ. A. No. 90-12535-Y |
| Citation | 777 F. Supp. 92 |
| Parties | CONTINENTAL BANK, NATIONAL ASSOCIATION, As Bond Fund Trustee Under the General Bond Resolution adopted August 26, 1976 of the Massachusetts Municipal Wholesale Electric Company, Plaintiff, v. VILLAGE OF LUDLOW, Village of Hardwick, Village of Morrisville, Village of Lyndonville, Village of Stowe, Village of Swanton, Village of North-field, Vermont Electric Cooperative, Inc., and Washington Electric Cooperative, Inc., Defendants. CONTINENTAL BANK, NATIONAL ASSOCIATION, As Bond Fund Trustee Under the General Bond Resolution Adopted August 26, 1976, of the Massachusetts Municipal Wholesale Electric Company, Plaintiff, v. James E. BAKER, Charles Coughlin, Horst Huehmer, Thomas R. Josie, William Kennedy, Michael Madore, Mark Magyar, Wayne Marquis, Neil E. Murray, Bruce Patten, William Rugg, Harold Smith, Joseph Spadea, John Does I-III, Town of Danvers, Danvers Municipal Electric Division, Georgetown Municipal Light Department, Hingham Municipal Lighting Plant, Town of Holden, Holden Municipal Light Department, Hudson Municipal Light Department, Paxton Municipal Light Department, Peabody Municipal Light Plant, Shrewsbury's Electric Light Plant, Sterling Municipal Light Department, West Boylston Municipal Light Plant, and the Massachusetts Municipal Wholesale Electric Company, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
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Arnold P. Messing, Kevin J. Lesinski, Gaston & Snow, Boston, Mass., Howard J. Roin, Mayer, Brown & Platt, Chicago, Ill., for plaintiff Continental Bank Nat. Ass'n.
M. Frederick Pritzker, M. Robert Dushman, Thomas W. Evans, Brown, Rudnick, Freed & Gesmer, Boston, Mass., Edward V. Schwiebert, Carolyn Browne Anderson, Abell, Kenlan, Schwiebert & Hall, Rutland, Vt., for defendants Village of Ludlow, Village of Morrisville, Village of Lydonville and Village of Northfield.
Donald S. Bronstein, Jeffrey M. Bernstein, Bernstein & Bronstein, Boston, Mass., Edward B. French, Law Office of D.P. Stackpole, Stowe, Vt., for defendant Village of Stowe.
Donald S. Bronstein, Jeffrey M. Bernstein, Bernstein & Bronstein, Boston, Mass., Michael L. Burak, Jon T. Anderson, Brian J. Sullivan, Burak & Anderson, Burlington, Vt., for defendant Vermont Elec. Co-op., Inc.
Donald S. Bronstein, Jeffrey M. Bernstein, Bernstein & Bronstein, Boston, Mass., M. Jerome Diamond, Diamond & Associates, Montpelier, Vt., for defendant Washington Elec.
Earle C. Cooley, Cooley, Manion, Moore & Jones, Boston, Mass., for defendants Joseph Spadea, Harold Smith, William Rugg, Bruce Patten, Neil E. Murray, Wayne Marquis, Mark Magyar, Michael Madore, William Kennedy, Thomas R. Josie and Horst Huehmer.
Paul Kenny, Danvers, Mass., for defendants Danvers Mun. Elec. Div. and Town of Danvers.
John O. Mirick, Mirick, O'Connell, DeMallie & Lougee, Worcester, Mass., for defendants Georgetown Mun. Light Dept., Holden Mun. Light Dept., Hingham Mun. Lighting Plant, Shrewsbury's Elec. Light Plant, Sterling Mun. Light Dept. and West Boylston Mun. Light Plant.
Earle C. Cooley, Harry L. Manion, III, Roy Patrick Giarrusso, Cooley, Manion, Moore & Jones, Boston, Mass., for defendants Hudson Mun. Light Dept. and Peabody Mun. Light Dept.
Nicholas J. Scobbo, Gerald J. Caruso, Ferriter, Scobbo, Sikora, Caruso, Rodophele, Boston, Mass., for defendant The Massachusetts Mun. Wholesale Elec. Co.
Martin O'Connell, Morisi & O'Connell, Springfield, Mass., for third-party defendants Daniel Golubek and Westfield Elec. Light Dept.
Brian T. Cuffe, Shafner, Keating & Cuffe, Lynn, Mass., for third-party defendant Frederick Nembergut.
Harold J. Keohane, Craig A. MacDonnell, Keohane, Detore & Keegan, Boston, Mass., for third-party defendant Caroline Stouffer.
George A. Berman, Posternak, Blankstein & Lund, Boston, Mass., for third-party defendants Ferriter, Scobbo, Sikora, Caruso & Rodophele, P.C. and Begley, Ferriter, Lavelle & Welch, P.C.
Mark Alan Beauregard, Resnic, Beauregard, Waite & Driscoll, Holyoke, Mass., for third-party defendant South Hadley Elec. Light Dept.
Jeffrey M. Bernstein, Stacey L. Cushner, Bernstein & Bronstein, Boston, Mass., for third-party defendant Village of Stowe, Village of Stowe Water and Light Dept.
Continental Bank National Association ("Continental"), the plaintiff in this first diversity action, seeks a declaratory judgment, as bond fund trustee of the Massachusetts Municipal Wholesale Electric Company ("the Agency"), that several Vermont Villages, ("Villages"), breached Power Sales Agreements ("Agreements") executed with the Agency.1
A history and factual background are necessary for a full appreciation of the issues. The Agency, organized under Chapter 775 of the Massachusetts Acts of 19752 as a political subdivision of the Commonwealth, is a joint planning agency, designed to provide bulk power supply for its members, usually municipal electric systems and utilities. The Agency "fine tunes" interest in a power facility by offering members a share in the facility or "project capability." Each of these Vermont Villages bought shares of "project capability" in the Seabrook, New Hampshire nuclear generating plant "Seabrook" and executed Agreements with the Agency to that end. In the Agreements, the Villages agreed to make revenue payments come "hell-or-high-water," viz. regardless of whether or not the project was completed.3 The Agreements also provided that Massachusetts law would apply in any legal dispute. Agreement ¶ 19 at 23.
The Agreements authorized the Agency to, inter alia, finance, plan, and engineer the construction of Seabrook and to issue and sell revenue bonds to achieve that objective. Agreement ¶ 3(a) at 9. Consequently, the Agency executed a General Bond Resolution ("Bond Resolution"), with Continental authorizing the issuance of revenue bonds to finance construction of Seabrook. Bondholders were to be re-paid through revenues from the member utilities. A bond fund was established into which member's payments were deposited to cover the monthly principal and interest obligations of the Agency. As bond fund trustee, Continental was empowered to file suit or proceedings in its own name or on behalf of the bondholders, regardless of whether or not a default occurred. Bond Resolution § 8.4 at 76-78. The Bond Resolution also designated Massachusetts law as applicable to disputes. Bond Resolution § 13.8 at 110.
In 1979, twenty Massachusetts municipal light departments and ten non-Massachusetts utilities ("Participants"), including the eight Vermont Villages, signed separate but identical Seabrook Power Sales Agreements contracting with the Agency for the first right to purchase a share of any electricity generated by the project in exchange for an unconditional obligation to pay a pro rata share of the Agency's costs related to the acquisition, construction, and financing of the Agency's approximately 6% ownership of Seabrook. Between 1981 and 1987, the Agency subsequently issued approximately $517 million in bonds pursuant to its Bond Resolution.
By then, with the Seabrook nuclear power facility mired in political controversy, seemingly endless regulatory proceedings, and enormous cost overruns, the Vermont Department of Public Service ("the Department"), aware that Villages had independently contracted for power with the Agency, brought an action in the Vermont Superior Court sitting in and for Washington County, Vermont, seeking declaratory relief that the Agreements were invalid and therefore not binding on the Villages. The lower court was not persuaded, granting summary judgment to the defendant Agency and six Villages.4 The Vermont Supreme Court, however, agreed with the Department on appeal and declared the Agreements void ab initio.5Vermont Dept. of Public Service v. Massachusetts Municipal Wholesale Elec. Co., 151 Vt. 73, 558 A.2d 215 (1988), cert. denied, 493 U.S. 872, 110 S.Ct. 202, 107 L.Ed.2d 155 (1989).
In the Vermont decision, Chief Justice Allen noted that Vermont law empowered the Villages to collectively purchase "capacity and energy." Id. 151 Vt. at 78, 558 A.2d 215. The Agreements at issue there—and here, however, do not involve a purchase of electricity but of "project capability," and require payments even if the project fails and no electricity is generated. Id. The Villages could only buy electricity, not potential electricity. Id. at 78-81, 558 A.2d 215. Moreover, the take-or-pay provisions obligated the Villages, in the court's opinion, to give financial priority to payments to the Agency, restricting their ability to make spending decisions. Id. at 86, 558 A.2d 215. The Agreements thus constituted an impermissible intrusion upon the province of the municipal legislatures to determine the expenditure of revenues for long-term power supply.6 The Villages, though empowered to purchase electricity, could not restrict or delegate their spending power. Id. at 85-86, 558 A.2d 215. The same held true for the quasi-public Vermont cooperatives. Id. at 88-89, 558 A.2d 215. The court held the Agreements void ab initio.
The Villages here move to dismiss based on three grounds: (1) that since Continental was not a party to the Agreements it lacks standing to sue; (2) that Continental, as bond fund trustee, stands in the shoes of the Agency and, based on the prior disposition in the Supreme Court of Vermont, is collaterally estopped from maintaining this action; and (3) that principles of res judicata prevent a second disposition of these issues. In the alternative, the Villages seek to transfer the matter to the District of Vermont, where a related action is pending.7
Continental brings this second action under the federal securities laws and the Court's diversity jurisdiction as Bond Fund...
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