Taffet v. Southern Co.

• Decision Date: 06 May 1991
• Docket Number: 90-8452,Nos. 90-7088,s. 90-7088
• Citation: 930 F.2d 847
• Parties: , RICO Bus.Disp.Guide 7753 M.R. TAFFET and Robert M. Fierman, on behalf of themselves and all of the persons, corporations, municipalities, and other entities, other than the defendants, who are similarly situated, Plaintiffs-Appellants, v. The SOUTHERN CO., Southern Company Services, Inc., Alabama Power Company and Arthur Andersen & Co., Defendants-Appellees. Frederick Rodgers CARR, Carr Sales Company, O.E.M. Products, Inc., Timothy Dunn Stokely, Clark Stokely, III and All Others Similarly Situated, Plaintiffs-Appellants, v. The SOUTHERN COMPANY, Southern Company Services, Inc., Georgia Power Company, and Arthur Andersen & Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 847

930 F.2d 847

59 USLW 2703, RICO Bus.Disp.Guide 7753

M.R. TAFFET and Robert M. Fierman, on behalf of themselves

and all of the persons, corporations, municipalities, and

other entities, other than the defendants, who are similarly

situated, Plaintiffs-Appellants, v. The SOUTHERN CO., Southern Company Services, Inc., Alabama

Power Company and Arthur Andersen & Co.,

Defendants-Appellees.

Frederick Rodgers CARR, Carr Sales Company, O.E.M. Products, Inc., Timothy Dunn Stokely, Clark Stokely, III and All Others Similarly Situated, Plaintiffs-Appellants, v. The SOUTHERN COMPANY, Southern Company Services, Inc., Georgia Power Company, and Arthur Andersen & Co.,

Defendants-Appellees.

Nos. 90-7088, 90-8452.

United States Court of Appeals Eleventh Circuit.

May 6, 1991.

Eddie Leitman, Leitman, Siegal, Payne & Campbell, P.C., Andrew P. Campbell, S. Lynne Stephens, Birmingham, Ala., Richard H. Gill, Copeland, Franco, Screws & Gill, P.A., J. Fairley McDonald, III, Montgomery, Ala., John A. Boudet, Baker & Hostetler, Jerry R. Linscott, Orlando, Fla., Andrew M. Scherffius, Andrew M. Scherffius, P.C., A. Timothy Jones, Freeman & Hawkins, Joseph C. Freeman, Jack N. Sibley, Atlanta, Ga., Larry Moffett, Daniel, Coker, Horton and Bell, P.A., Jackson Henderson Ables, III, Jackson, Miss., for M.R. Taffett et al.

M. Roland Nachman, Jr., Balch & Bingham, T.W. Thagard, Jr., Maury D. Smith, John P. Scott, Jr., Montgomery, Ala., for Alabama Power.

James E. Joiner, Troutman, Sanders, Lockerman & Ashmore, Hugh M. Davenport, Atlanta, Ga., for Southern Co.

M. Robert Thornton, King & Spalding, Michael C. Russ, Atlanta, Ga., for Arthur Andersen & Co.

Joe C. Freeman, Jr., Freeman & Hawkins, A. Timothy Jones, Jack N. Sibley, Andrew M. Scherffius, Atlanta, Ga., Nixon, Yow, Waller & Capers, Augusta, Ga., for Frederick Rodgers Carr et al.

Hugh M. Davenport, James E. Joiner, Michael C. Russ, M. Robert Thornton, Atlanta, Ga., for Southern Co. et al.

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

Appeal from the United States District Court for the Southern District of Georgia.

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

JOHNSON, Circuit Judge:

In both of these class actions, the plaintiffs appeal the district courts' grant of defendants' motions to dismiss for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). ¹ These appeals require us to address issues of first impression in this Circuit, including the applicability of the clear statement doctrine, Burford abstention, the primary jurisdiction doctrine, and the filed rate doctrine to suits by consumers against state-regulated utilities. We reverse the district courts and remand for trials on the merits.

I. STATEMENT OF THE CASE

A. Factual Background

Alabama Power Company and Georgia Power Company, two subsidiaries of the Southern Company, are required by the Internal Revenue Service ("IRS") to use an accounting method by which the companies "expense" on their books maintenance spare parts in the year used rather than the year purchased. They are also required to depreciate emergency parts over the life of the equipment rather than to expense them at the time they are initially purchased or put into service. At least as early as 1981, however, the two subsidiaries were allegedly expensing spare parts contrary to the regulations. The effect of the improper accounting was to overstate the utilities' expenses and understate their income.

In 1982, with the help of the accounting firm of Arthur Andersen & Company, both utilities allegedly devised schemes to cover up the wrongful accounting. The two utilities filed requests for a change in accounting method with the IRS for the stated purpose of properly reflecting their spare-part inventories for federal tax purposes. But the two utilities declared to the IRS only a small portion of the amount of spare parts that they had previously improperly expensed. This had the effect of making their inventories appear smaller than they actually were. The utilities then allegedly established dual sets of books. Each utility kept one set of accounts for the IRS. But other records, recorded on personal computers, kept track of the true amount of inventory. As the utilities reduced their inventory of previously expensed parts, deductions from the inventory listings on the secret books would be made, but deductions would not be made from the books kept for the IRS until it appeared advantageous to do so. This dual bookkeeping system allowed the utilities to use up a large amount of the previously improperly expensed parts without the wrongful accounting being discovered. ² The practice continued until 1988 when an undercover investigator for the IRS unmasked the scheme.

The improper accounting was profitable not only because it resulted in a reduced or deferred tax burden but because it influenced the rates the utilities could charge their customers. In both Alabama and Georgia, the utilities may charge only the rates established by the state Public Service Commission ("PSC"). The PSC sets the rate according to the profitability of the utility. The smaller the utility's income appears, the more likely the PSC is to approve a rate hike.

B. Procedural History

Within a few days of each other, two class actions were filed. Customers of Alabama Power initiated a class action against Alabama Power, Southern Company and Arthur Andersen & Company ("the Taffet class"), and customers of Georgia Power initiated a class action against Georgia Power, Southern Company and Arthur Andersen & Company ("the Carr class"). Both suits limited the proposed class to customers who purchased electricity from the approval date of the utility's rate application in 1981 to the date of the court's order.

The Taffet class alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") under 18 U.S.C.A. Secs. 1961-1968 and fraud in violation of state law. The Carr class additionally alleged, inter alia, violations of the Sherman Anti-Trust Act under 15 U.S.C.A. Secs. 1 & 2, the Public Utility Holding Company Act of 1935 under 15 U.S.C.A. Sec. 79 et seq., the Georgia RICO Act under Ga.Code Ann. Secs. 16-14-1 et seq., and civil rights violations under 42 U.S.C.A. Secs. 1983 & 1985.

The defendants in both cases filed motions to dismiss. The motion was granted against the Taffet class on January 5, 1990, on the grounds that the clear statement doctrine, abstention, the primary jurisdiction doctrine, and the filed rate doctrine barred the complaint. The motion was granted against the Carr class on March 1, 1990, on the same grounds. 731 F.Supp. 1067 (S.D.Ga.). Both classes now appeal, requiring us to consider each of these grounds of dismissal. The defendants also raise the question of whether the plaintiffs have stated a claim under RICO, asserting that the plaintiffs have suffered no cognizable injury. We address each issue in turn.

II. DISCUSSION

Dismissal, as a question of law, is subject to plenary review by the appellate court. See Bailey v. Carnival Cruise Lines, Inc., 774 F.2d 1577, 1578 (11th Cir.1985). In reviewing the district court's dismissal of the plaintiffs' claims under Federal Rule of Civil Procedure 12(b)(6), this Court must read the facts alleged in the complaint in the light most favorable to the plaintiffs and may affirm only if " 'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.' " H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 109 S.Ct. 2893, 2906, 106 L.Ed.2d 195 (1989) (quoting Hishon v. King & Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)).

A. The Clear Statement Doctrine

Both district courts grounded their dismissals of the plaintiffs' RICO claims on the "clear statement doctrine." This doctrine of statutory construction counsels that a federal court should not apply a federal statute to an area of traditional state concern unless Congress has articulated its desire in clear and definite language to alter the delicate balance between state and federal power by application of the statute to that area. ³ See, e.g., McNally v. United States, 483 U.S. 350, 360, 107 S.Ct. 2875, 2881-82, 97 L.Ed.2d 292 (1987) (declining to apply a federal mail fraud statute in such a way that it might allow the federal government to set "standards of disclosure and good government for local and state officials" in the absence of clear and definite language that this was the intent of Congress). Courts, through the application of this doctrine, thus "remand" statutes to the legislative body for clarification, thereby requiring that Congress express its will deliberately and unambiguously on issues it perhaps could not have foreseen at the time the statute was originally enacted. The rationale for this approach to statutory construction lies in the admonition that "federal judges--who have no constituency--have a duty to respect legitimate policy choices made by those who do." Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 866, 104 S.Ct. 2778, 2793, 81 L.Ed.2d 694 (1984). Congress, however, may possess neither the resources nor the will to address every issue so "remanded" to it by the courts. See, e.g., Potomac Elec. Power Co. v. Director, Office of Workers' Compensation Programs, 449 U.S. 268, 284, 101 S.Ct. 509, 517, 66 L.Ed.2d 446 (1980) (noting the difficulty posed in continuing judicial interpretation of a statute which Congress had not chosen to reexamine in more than half a century). Moreover, the literalism which this approach engenders can lead to unnecessarily harsh results. See, e.g., Mohasco Corp. v. Silver, 447 U.S. 807, 828, 100 S.Ct. 2486, 2498, 65 L.Ed.2d 532 (1980) (Blackmun, J., dissenting) (noting that inequitable results come about when the court closes its eyes...