Hanna Mining Co. v. Minnesota Power and Light Co., Civ. 5-82-307.

• Decision Date: 24 October 1983
• Docket Number: No. Civ. 5-82-307.,Civ. 5-82-307.
• Citation: 573 F. Supp. 1395
• Parties: The HANNA MINING COMPANY, a Delaware Corporation, as agent, Plaintiff, v. MINNESOTA POWER AND LIGHT COMPANY, a Minnesota Corporation, Defendant.
• Court: U.S. District Court — District of Minnesota

573 F. Supp. 1395

The HANNA MINING COMPANY, a Delaware Corporation, as agent, Plaintiff, v. MINNESOTA POWER AND LIGHT COMPANY, a Minnesota Corporation, Defendant.

No. Civ. 5-82-307.

United States District Court, D. Minnesota.

October 24, 1983.

Robert H. Magie, III, Duluth, Minn., for plaintiff.

Samuel L. Hanson, Minneapolis, Minn., for defendant.

ORDER

MILES W. LORD, Chief Judge.

Defendant Minnesota Power and Light Company moves to dismiss this breach of contract action for, inter alia, lack of subject matter jurisdiction. A magistrate acting pursuant to the special assignment provisions of 28 U.S.C. § 636(b)(1)(B) issued a memorandum recommending the motion be granted. This court, after an independent review of the files, records and proceedings, adopts the recommendation to dismiss for lack of subject matter jurisdiction but follows a different analysis than that of the magistrate.

Plaintiff Hanna Mining Company manages the Butler Taconite Project about 15 miles west of Hibbing on Minnesota's Mesabi Range. In 1974, Hanna Mining, acting as agent for Butler's owners, entered into an electric service agreement under which Minnesota Power would supply up to 44,700 kilowatts of electricity to the taconite project. Hanna Mining agreed to pay for at least 26,820 kilowatts monthly, or 60 per cent of its peak demand, whether or not it actually used that much power. This "minimum demand" provision has spawned the current controversy.

In 1981, Minnesota Power petitioned the Minnesota Public Utilities Commission (PUC) for a rate change. The PUC concluded that the minimum demand provision in the Butler contract was unreasonably preferential and, in a 1982 ruling, ordered it abrogated. In its place the PUC established what is, in effect, a 90 percent minimum demand payment. Most, if not all, of Minnesota Power's large customers other than Hanna Mining already had agreed by contract to such a provision.

Hanna Mining filed this suit after Minnesota Power insisted that the agreement, as amended by the PUC, continue in force. Hanna Mining seeks damages for amounts allegedly improperly billed and a declaration that the entire electric service agreement is a nullity, without force and effect. Jurisdiction of this court is invoked under the diversity of citizenship provisions of 28 U.S.C. § 1332.

Much of the confusion in this case stems from the complex corporate structure of the Butler Taconite Project, apparently the result of tax and pension planning. Indeed, the parties cannot even agree as to what type of entity is Butler Taconite. Hanna Mining contends it is merely a jointly-owned property. Minnesota Power calls it a joint venture or partnership. In any case, Butler Taconite is owned by Inland Steel Mining Company and Itasca Pellet Company. Inland Steel Mining, in turn, is owned by Inland Steel Company. Itasca Pellet Company is owned by Hanna Itasca Company, a subsidiary of Hanna Mining, and Wheeling Itasca Company, a subsidiary of Wheeling-Pittsburgh Steel Corporation. Thus, Hanna Mining not only manages the project, it also has an ownership interest. (The attached chart, provided by defendants, illustrates the corporate hierarchy.)

The magistrate found that Hanna Mining, acting only as a managing agent in signing the contract, was not a real party in interest and therefore not entitled to bring this suit. The magistrate further concluded that Butler Taconite, the real party in interest, failed to meet diversity requirements. This court finds that Hanna is a real party in interest. However, it is the finding of this court that there is no subject matter jurisdiction because the other project owners are indispensable parties whose presence destroys diversity.

This court also finds that it is precluded from asserting jurisdiction by the Johnson Act, which prohibits federal court interference with state control over utility rates.

HANNA MINING IS A REAL PARTY IN INTEREST

Rule 17(a) of the Federal Rules of Civil Procedure sets forth the basic requirement for determining who may bring an action in federal court by stating that "every action shall be prosecuted in the name of the real party in interest." The purpose of the rule is to insure that the party who brings an action possesses, under the substantive law, the right sought to be enforced. Iowa Public Service Co. v. Medicine Bow Coal Co., 556 F.2d 400 (8th Cir.1977); Vernon J. Rockler & Co. v. Graphic Enterprises, Inc., 52 F.R.D. 335 (Minn.1971). State law provides the substantive right in diversity cases. Dubuque Stone Products Co. v. Fred L. Gray Co., 356 F.2d 718 (8th Cir.1966); Dougherty v. Oberg, 297 F.Supp. 635 (Minn.1969).

The magistrate considered and rejected three possible bases upon which Hanna Mining might qualify as a real party in interest: a trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, and an agent with an ownership interest. This court agrees with the magistrate's recommendations as to the first two categories, but not as to the third.

The trustee of an express trust may sue in his own name under Rule 17(a). Hanna Mining did sign the power contract as an agent for Inland Steel and Itasca Pellet. But, unlike a trustee, a mere agent does not possess real party status. A trustee's powers are more expansive than an agent's and include the authority to hold, manage and dispose of assets for the benefit of others. Navarro Savings Assn. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980); U.S. Epperson Underwriting Co. v. Jessup, 22 F.R.D. 336 (Ga. 1958), aff'd per curiam 260 F.2d 355 (5th Cir.1958). In Navarro, the trustees were authorized to take legal title to and invest trust assets, and the trust beneficiaries could interfere in the affairs of the trust only in the most extraordinary situations. This made the trustees, when they brought suit, more than "mere conduits" for a remedy flowing to others. Navarro, 446 U.S. at 465, 100 S.Ct. at 1784. By contrast, Hanna Mining's powers as agent are more limited. Hanna Mining has not taken full legal title to the project. Its activities as manager are subject to the overall direction and approval of Inland Steel and Itasca Pellet. Hanna Mining also lacks the fiduciary status inherent in an express trust, as its management agreement with Inland Steel and Itasca Pellet specifically states that nothing in the pact shall be deemed to create any fiduciary relationship. The necessary attributes of a trust relationship are therefore lacking.

Likewise, Hanna Mining does not qualify as "a party with whom or in whose name a contract has been made for the benefit of another" under Rule 17(a). A senior vice president of Hanna Mining signed the power contract for "The Hanna Mining Company, agent for Inland Steel Company and Itasca Pellet Company." Under general agency rules, an agent who makes a contract for a disclosed principal is not a party to the contract. Instead, the principal becomes the party. Kost v. Peterson, 292 Minn. 46, 193 N.W.2d 291 (1971); Restatement (Second) of Agency §§ 156 and 320 (1957). Hanna Mining argues that it is covered by Section 364 of the Restatement, which provides:

A person with whom an agent makes a contract on behalf of a principal is subject to liability in an action brought thereon by the agent in his own name on behalf of the principal if the agent is a party promisee. (Emphasis added).

However, Hanna Mining ignores comment b to this section, which states that whether or not an agent of a disclosed principal becomes a party to a contract is determined by reference to Section 320.

Hanna Mining is, however, a real party in interest because it is an agent with an ownership interest in the subject matter of the suit. Lubbock Feed Lots, Inc. v. Iowa Beef Processors Inc., 630 F.2d 250 (5th Cir.1980); Corum v. United States, 81 F.Supp. 728 (U.S.Ct.Cl.1949); 6 Wright & Miller, Federal Practice and Procedure § 1553, at 698. Hanna Mining owns 37.5 per cent of Butler Taconite through its wholly-owned subsidiary Hanna Itasca. Thus, when Hanna Mining acts as an agent, it is acting not only for Inland Steel and Itasca Pellet but also on its own behalf.

Minnesota Power argues, and the magistrate found, that Hanna Mining's ownership interest is merely that of a shareholder and that this is not sufficient to meet the real party in interest test. The cases cited by the magistrate and Minnesota Power, Singer v. Allied Factors, Inc., 216 Minn. 443, 13 N.W.2d 378 (1944) and Charles Keeshin, Inc. v. Farmers & Merch. Bank of Rogers, 199 F.Supp. 478 (D.Ark.1961), are inapposite. Neither case deals with a shareholder who also is an agent. The matter before this court is not a situation where a small shareholder with no management interest is trying to usurp the corporation's cause of action. Instead, Hanna Mining is a managing agent with a substantial ownership share. Hanna Mining played an active role in negotiating the power contract, and assumed primary responsibility for monitoring and enforcing Minnesota Power's performance under the agreement. This powerful combination of management and ownership roles makes it clear that Hanna Mining's interest is substantially identical with that of Butler Taconite. See Reserve Mining Co. v. Environmental Protection Agency, 514 F.2d 492, 534 (8th Cir.1975). This is more than adequate to give Hanna Mining substantive rights in this action and the status of a real party in interest.

JOINDER DEFEATS COMPLETE DIVERSITY

Hanna Mining seeks to base the jurisdiction of this court on 28 U.S.C. § 1332(a)(1), which provides for federal jurisdiction over controversies between "citizens of different States." Federal courts are cautious in their exercise of diversity jurisdiction because of the risks to federalism involved when a federal court decides issues of state law. Dougherty v. Oberg, 297 F.Supp. 635, 636-37 (D.Minn.1969). This court must find complete diversity before it...