Hargrave v. Canadian Valley Elec. Co-op., Inc.
| Decision Date | 24 April 1990 |
| Docket Number | No. 66188,66188 |
| Citation | 1990 OK 43,792 P.2d 50 |
| Parties | C. Gerald HARGRAVE, a member and Customer of Canadian Valley Electric, Inc., a Cooperative Corporation, on behalf of Himself and all Other Members and Customers, Appellants, v. CANADIAN VALLEY ELECTRIC COOPERATIVE, INC., an Oklahoma Corporation, E.E. Proctor, Ray Masengale, Roy Brewer, J.P. Duvall, Laurence J. Kunze, L.D. Freeman, Raymond I. Reynolds, Raymond M. Knight, and John W. Brockman, Trustees/Directors of Canadian Valley Electric Cooperative, Inc., and Western Farmers Electric Cooperative, an Oklahoma Corporation, and Clark T. McWhorter, J.C. Murray, Donald A. Bean, Earl L. Sloan, Doyle Marlett, Raymond M. Knight, J.M. Goin, Roy Counts, Marvin Scherler, Robert Stooksberry, W.R. Hutchinson, Dale Shaw, A.H. Weichel, Eugene Blackketter, Earl Petree, Ted LaMar, Ralph E. Caldwell, Glen Northcutt, and Lloyd P. Wylie, Trustees/Directors of Western Farmers Electric Cooperative, Appellees. |
| Court | Oklahoma Supreme Court |
Robert H. Anderson, Gary E. Payne, Eagleton, Nicholson, Jones, Blaney & Pringle, Oklahoma City, for appellants.
Almon E. Henson, Henson, Henson, Henson & Marshall, Shawnee, for Canadian Valley Elec. Co-op. Inc., and Trustees.
Leslie Pain, Pain and Garland, Anadarko, for Western Farmers Elec. Co-op. and Trustees.
Larry Derryberry, Patrick D. Shore, Derryberry, Quigley, Parrish & Solomon, Oklahoma City, for Western Farmers Elec. Co-op., et al.
This is a class action brought by a utility ratepayer against a rural electric distribution cooperative corporation and its trustees, and a rural electric generating and transmission cooperative corporation and its trustees. The ratepayers attack a wholesale power contract executed between
the two cooperatives. We are called upon to determine whether summary judgment was properly granted in favor of the defendants. With regard to the ratepayers' contention that particular contract provisions are discriminatory and thus against public policy, we find a remaining factual controversy and remand to the trial court. We do likewise on ratepayers claim that the Trustees breached their fiduciary duties. As to other propositions we affirm the trial court's order of summary adjudication.
Gerald Hargrave, a ratepayer, filed a class action suit in the Seminole County District Court against Canadian Valley Electric Cooperative Inc. [Canadian] and its trustees, and Western Farmers Electric Cooperative [Western] and its trustees. Canadian is a rural electric distribution cooperative. Western is a rural electric generating and transmission cooperative whose members are distribution cooperatives such as Canadian.
Hargrave asserted several different causes of action, all arising out of a contract between Canadian and Western. Referring only to those parts of his petition urged in his brief on appeal, 1 Hargrave alleged that the contract between Western and Canadian was lacking in consideration. He also claims that the trustees of both Canadian and Western breached their fiduciary duty by agreeing to certain terms in the contract, and by not rescinding the contract when they saw its results. He further claimed that the trustees grossly mismanaged Canadian assets by failing to take action to reform or rescind the contract. Finally he asserted that the members of his class of ratepayers were victims of unjust discrimination, contrary to the statutorily expressed public policy of the state.
From 1951 to December 1977 Canadian received its electric power under a contract with the Southwestern Power Administration (SPA), an agency of the federal government. In 1968 the SPA notified Canadian that it would not continue to supply "base" power after the expiration of the contract, but would only supply "peaking" power. Canadian, along with several other SPA customers, formed an organization called the "Sooner Group" and began investigating other sources of long-term power. In 1973, the Sooner Group, including Canadian, contracted with Western for a long-term supply of power.
The contract between Western and Canadian was for thirty-seven (37) years, and involved not only Western's building of additional facilities in order to meet the needs of Canadian, but also a transfer of assets, such as power stations and lines, from Canadian to Western. The contract stated that Western was unable to supply power immediately and that Canadian should continue to obtain its power from SPA until the end of the SPA contract term. However, the contract required Canadian to pay to Western the difference between the amount actually paid to the SPA for power, and the amount Western would have charged had it furnished the electricity, based on a rate chart incorporated into the contract.
Between the years of 1974 and 1977, Canadian paid some four million dollars to the SPA for power supplied to Canadian customers, such as Hargrave. Canadian paid another four million dollars to Western, based on the rate Western would have charged had it provided the power. Because of these additional costs, Canadian began charging its customers a "blended" or higher rate, which combined the costs of power supplied by the SPA with those costs incurred from Western. Thus, Hargrave and other plaintiff ratepayers in the class paid eight million dollars for four million dollars worth of power. At no time during this period did Western actually The district court certified the case as a class action, and allowed customers of Canadian to "opt out" of the class. At the end of the "opt out" period, there were approximately ten thousand plaintiffs who had chosen to remain in the suit.
supply power to Canadian. After the expiration of the SPA contract, Western did begin to supply power according to the terms of the Canadian/Western contract.
Canadian and Western, along with their trustees, filed motions for summary judgment, alleging that there were no material factual disputes. Defendants also argued that Ratepayers were procedurally barred from bringing suit because they had not first demanded action be taken by the corporation. The court withheld judgment and ordered the parties to present a list of stipulated facts. Ratepayers submitted a list of stipulations to the defendants, and over twenty (20) of the suggested stipulations were rejected by the defendants. After a long delay, the parties together presented the trial judge with a list of stipulated facts. Thereafter, the judge granted the defendants' motions for summary judgment as to all three causes of action, and Ratepayers appealed. In their petition in error, Ratepayers only question the propriety of summary judgment as to the first cause of action.
In an unpublished opinion the Court of Appeals reversed the trial court's order granting summary judgment, holding that "there is no sufficient basis for requiring Canadian customers to pay Western for power generation and distribution when Western was neither generating, selling or distributing power...." The district court was directed to determine the amount of overcharges and refund it to plaintiffs. From this the defendants filed a petition for writ of certiorari, which was granted by this Court on July 6, 1989.
Initially we must address the procedural question of whether Ratepayers' failure to demand that the trustees take action is a bar to the suit. Plaintiff ratepayers agree that no demand was made to the trustees of either Canadian or Western. However, in Ratepayers' second amended petition and on appeal they contend that any such demand would have been futile, as evidenced by the actions of the trustees of Canadian and Western.
We agree that general rules which apply to shareholder derivative actions apply in this situation involving a class of consumers, inasmuch as both Canadian and Western are incorporated as cooperative corporations. See 18 O.S.1981, §§ 421 and 437.1. A stockholder, or in this case, a customer of Canadian, may bring suit only when the corporation refuses to maintain or defend an action. Barnett v. Bodley, 348 P.2d 502, 505 (Okla.1959). Ordinarily before a court will entertain an action brought by shareholders, the shareholders must first show that they sought relief through corporate channels without success. Guaranty Laundry Co. v. Pullium, 191 P.2d 975, 979 (Okla.1948).
The exception to this rule is when any request for action within the corporation would have been futile. Id. See also Lewis v. Graves, 701 F.2d 245, 248 (2nd Cir.1983); Bell v. Arnold, 487 P.2d 545, 547-48 (Colo.1971). A demand on the board of trustees or directors should not be required prior to institution of a derivative action if the allegations in the petition permit the inference by the court that the trustees or directors upon whom demand would be made lack the "requisite disinterestedness to determine fairly whether the corporate claim should be pursued." Lewis v. Curtis, 671 F.2d 779, 785 (3rd Cir.1982) cert. denied, 459 U.S. 880, 103 S.Ct. 176, 74 L.Ed.2d 144 (1982). The purpose behind this exception is to allow the trustees or directors of the corporation the opportunity to "occupy their normal status as conductors of the corporation's affairs." Lewis v. Graves, 701 F.2d at 247, quoting Brody v. Chem. Bank, 517 F.2d 932, 934 (2nd Cir.1975). Whether or not an action would have been futile depends on the facts and circumstances of each case, and lies within Such "demand is presumptively futile where the directors are antagonistic, adversely interested, or involved in the transactions attacked." Lewis v. Graves, 701 F.2d at 248. In the present case, it was the trustees of Canadian and Western, acting on behalf of their respective corporations, who negotiated the contract. It was the trustees who allowed the contract to proceed unaltered even though approximately four million dollars was paid to Western for power not generated...
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