Marshall County Bd. of Educ. v. Marshall County Gas Dist., 92-6471

• Decision Date: 08 June 1993
• Docket Number: No. 92-6471,92-6471
• Citation: 992 F.2d 1171
• Parties: Util. L. Rep. P 26,323 MARSHALL COUNTY BOARD OF EDUCATION, Plaintiff, J.B. Carlton; Edward Nesmith, Customers of The Marshall County Gas District who bring this action on their own behalf and on behalf of all other customers of the Marshall County Gas District similarly situated; J. Rayford Brothers, Plaintiffs-Appellants, v. MARSHALL COUNTY GAS DISTRICT, a public corporation; Arthur Baugh, individually and in his official capacities as a member of the Board of Directors of the Marshall County Gas District and as Mayor of the City of Albertville, Alabama; Johnny Hart, individually and in his official capacities as a member of the Board of Directors of the Marshall County Gas District and as Mayor of the City of Arab, Alabama; Robert Kelly, in his official capacities as a member of the Board of Directors of the Marshall County Gas District and as Mayor of the City of Guntersville, Alabama; City of Albertville, a municipal corporation; City of Arab, a municipal corporation; City of Guntersville, a municipal corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1171

992 F.2d 1171

Util. L. Rep. P 26,323

MARSHALL COUNTY BOARD OF EDUCATION, Plaintiff,

J.B. Carlton; Edward Nesmith, Customers of The Marshall

County Gas District who bring this action on their own

behalf and on behalf of all other customers of the Marshall

County Gas District similarly situated; J. Rayford

Brothers, Plaintiffs-Appellants, v. MARSHALL COUNTY GAS DISTRICT, a public corporation; Arthur

Baugh, individually and in his official capacities as a

member of the Board of Directors of the Marshall County Gas

District and as Mayor of the City of Albertville, Alabama;

Johnny Hart, individually and in his official capacities as

a member of the Board of Directors of the Marshall County

Gas District and as Mayor of the City of Arab, Alabama;

Robert Kelly, in his official capacities as a member of the

Board of Directors of the Marshall County Gas District and

as Mayor of the City of Guntersville, Alabama; City of

Albertville, a municipal corporation; City of Arab, a

municipal corporation; City of Guntersville, a municipal

corporation, Defendants-Appellees.

No. 92-6471.

United States Court of Appeals, Eleventh Circuit.

June 8, 1993.

Lawrence B. Clark, Morris Wade Richardson, Lange, Simpson, Robinson & Somerville, Birmingham, AL, for plaintiffs-appellants.

Charles R. Hare, Jr. Gullahorn & Hare, P.C., Albertville, AL, for Carlton, Nesmith and Rayford Bros.

R. Stan Morris, Lawrence T. King, Harris, Evans, Berg, Morris & Rogers, P.C., Birmingham, AL, Dave Beuoy, Burke & Beuoy, Arab, AL, for City of Arab, AL.

James C. Huckaby, Jr., William Slaughter, Haskell, Slaughter, Young & Johnston, P.C., Birmingham, AL, for Marshall Co. Gas Dist.

W. Lee Thuston, Mac B. Greaves, Sadler, Sullivan, Herring & Sharp, P.C., Birmingham, AL, for Baugh, Hart and Kelley.

Randy Beard, Guntersville, AL, for City of Guntersville.

Appeal from the United States District Court for the Northern District of Alabama.

Before FAY, Circuit Judge, JOHNSON, Senior Circuit Judge, and MERHIGE ^*, Senior District Judge.

FAY, Circuit Judge:

The plaintiffs, customers of the Marshall County Gas District, allege claims pursuant to 42 U.S.C. § 1983 for deprivation of property in violation of the Fifth and Fourteenth Amendments to the United States Constitution arising out of the distribution of bond proceeds by the defendant gas district. The trial court dismissed the claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a cause of action. Because the plaintiffs have no property interest in the bond proceeds and did not show an interest in the rates paid for gas services sufficient to withstand a 12(b)(6) motion, we AFFIRM.

FACTUAL AND PROCEDURAL BACKGROUND

The Marshall County Gas District [the District] is a public corporation organized pursuant to and under the authority of the Alabama Code by the Cities of Albertville, Arab, and Guntersville [the Member Municipalities]. Although it is an instrumentality or agency of the state, control of the District is vested in a Board of Directors composed of individuals who represent the Member Municipalities. ¹ The District transports, distributes and sells gas and gas services to substantially all of Marshall County except for the City of Boaz, which has its own municipal system. The District is not subject to regulation and Board decisions are not reviewable by any state regulatory agency, including the Alabama Public Service Commission. The Board is free to set rates and charges for gas and gas services furnished by the District without the approval of any local, state, or federal regulatory agency.

The District is statutorily authorized to borrow money and to issue bonds payable solely out of the revenues from operation of its natural gas transmission and distribution system. ² The District, through its Board of Directors, authorized the sale and issuance of Gas Revenue Bonds, Series 1989 [Series 1989 Bonds] in the principal amount of $7,015,000. The bonds were issued on September 12, 1989, under a Trust Indenture from the District to Southtrust Bank in Birmingham, Alabama. The District received approximately $6,609,032 from Southtrust for the Series 1989 Bonds, of which $609,032 was deposited in the District's debt service reserve fund and $6,000,000 was distributed in equal shares of $2,000,000 to the Member Municipalities. The principal and interest payment Alabama law defines and authorizes the District to distribute "net income" to the Member Municipalities. ⁴ The District's stated purpose for the Series 1989 Bonds was three-fold: to reimburse the District for capital improvements to the gas distribution system made in past years with internally generated funds, to reimburse the District for depreciation of certain assets, and to establish certain reserve funds. According to the District, "net income" could have been paid to the Member Municipalities in prior years if not for these expenditures. Thus, the District viewed the $2,000,000 distributions to the Member Municipalities as "net income" that would have been available for distribution during past years had it not been for the monies expended for capital improvements and reserve funds.

                due on the $7,015,000 debt are payable solely out of the revenues collected by the District.   The Member Municipalities are in no way responsible for the debt of the District. 3
                

The plaintiffs, customers who reside in the District but outside the three municipalities, filed this class action asserting claims pursuant to Title 42 U.S.C. § 1983 for violation of their rights under the Fifth and Fourteenth Amendments to the United States Constitution. ⁵ The plaintiffs sought declaratory and injunctive relief, and damages arising out of the allegedly unlawful transfer of the Series 1989 Bond proceeds by the District to the Member Municipalities. They allege this transfer resulted in higher rates for gas and gas services and constituted an unconstitutional taking of their property without just compensation in violation of their rights to substantive due process and equal protection.

Specifically, the plaintiffs assert a property right in the Series 1989 Bond proceeds distributed to the Member Municipalities and claim they are legally entitled to have the proceeds applied only for those purposes authorized by the Alabama Code. The plaintiffs take issue with the $6,000,000 distribution, claiming the District made an illegal transfer to the Member Municipalities because (a) the bond proceeds did not constitute distributable "net income" as defined by Alabama Code § 11-50-411, or (b) the distributions substantially exceeded the "net income" that could have been distributed at the time. As a result of the allegedly unlawful payment of $6,000,000 to the Member Municipalities, the plaintiffs claim the District increased the rates for gas and gas services to provide the additional revenues necessary to service the principal and interest on the Series 1989 Bonds. They argue that had the District retained the bond proceeds in interest-bearing obligations, or invested in new revenue-producing extensions, improvements or additions to the distribution system, the District's revenues would have increased and thus enabled the District to reduce, or at least not increase, its rates for gas and gas services. The plaintiffs reason that the distribution by the District, and the taking by the Member Municipalities, of the bond proceeds imposed an impermissible burden on During a hearing on discovery disputes, the magistrate judge sua sponte directed the parties to submit briefs on the issues of (1) subject matter jurisdiction, (2) the grounds for the constitutional rights allegedly violated, and (3) the applicability of the Johnson Act, 28 U.S.C. § 1342. Following submission of these briefs, and in accordance with Dime Coal Co. v. Combs, 796 F.2d 394, 396 (11th Cir.1986), the district court found that it had subject matter jurisdiction and addressed the sua sponte order as a challenge to the plaintiffs' federal cause of action under Federal Rule of Civil Procedure 12(b)(6).

                them because ultimately the proceeds were spent by the Member Municipalities on projects beneficial to city residents, but of no benefit to the nonresident plaintiffs.   They further reason their property has been wrongfully taken, in the form of higher rates for gas services, to service the debt from which they did not benefit
                

The trial court predicated the dismissal of all § 1983 claims upon its holding that the complaint asserted a property interest in the actual rates paid for gas and gas services, rather than a property interest in the proceeds from the Series 1989 Bonds. Because the only burden borne by the plaintiffs is the burden to pay a set rate for gas and gas services, and because the plaintiffs failed to allege facts sufficient to show that other customers of the District did not bear the same burden, the trial court dismissed the § 1983 equal protection claim. The court also dismissed the § 1983 takings claim, reasoning that the bond proceeds are the property of the District, not the customers, and that the plaintiffs' property interest in the rates paid for gas and gas services did not rise to the level of an unconstitutional taking because the fee was imposed to reimburse the government for the cost of services rendered. Since there was no deprivation of a constitutionally protected property interest under the Fifth Amendment, the court dismissed the Fourteenth Amendment substantive due process claim as well. See Rymer v. Douglas County, 764 F.2d 796, 801-02 (11th Cir.1985) (The test for violation of a substantive due process right "adds little or nothing that the taking clause does not encompass."). ⁶

STANDARD OF REVIEW

This court reviews de novo the trial court's order dismissing the complaint. Executive 100, Inc. v. Martin County, 922 F.2d 1536, 1539 (11th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 55, 116 L.Ed.2d 32 (1991). The factual...