Tenn. ex rel City of Cookeville v. Upper Cumberland

• Decision Date: 26 March 2003
• Docket Number: No. 2:02-0093.,2:02-0093.
• Parties: State of TENNESSEE ex rel. CITY OF COOKVILLE, TENNESSEE, Plaintiff, v. UPPER CUMBERLAND ELECTRIC MEMBERSHIP CORPORATION, Hilda G. Legg, Administrator, Rural Utilities Service, an agency of the U.S. Department of Agriculture, Sheldon C. Petersen, Governor & CEO, National Bank of Cooperatives, National Rural Utilities Cooperative Finance Corporation, Defendants.
• Court: U.S. District Court — Middle District of Tennessee

256 F.Supp.2d 754

State of TENNESSEE ex rel. CITY OF COOKVILLE, TENNESSEE, Plaintiff, v. UPPER CUMBERLAND ELECTRIC MEMBERSHIP CORPORATION, Hilda G. Legg, Administrator, Rural Utilities Service, an agency of the U.S. Department of Agriculture, Sheldon C. Petersen, Governor & CEO, National Bank of Cooperatives, National Rural Utilities Cooperative Finance Corporation, Defendants.

No. 2:02-0093.

United States District Court, M.D. Tennessee, Nashville Division.

March 26, 2003.

John H. Sinclair, Jr., Office of the Attorney General and Reporter, Frank Stovall King, Jr., King & Ballow, Nashville, Thomas Michael O'Mara, Cookeville, for Tennessee State of, on the relation of, City of Cookeville, Tennessee, pltfs.

J. Richard Lodge, W. Brantley Phillips, Jr., Russell S. Baldwin, Bass, Berry & Sims, Nashville, Jacky Orange Bellar, Bellar & Bellar, Carthage, Michael L. Roden, Office of the United States Attorney, Nashville, Frances M. Toole, Department of Justice, Georgann Gutteridge, U.S. Department of Agriculture General Counsel/Rural Utilities Division, Washington, DC, Paul C. Ney, Jr., Trauger, Ney & Tuke, Nashville, for Upper Cumberland Electric Membership Corporation, Hilda G. Legg, Rural Utilities Services, an agency of the, Agriculture, Department of, Sheldon C. Peterson, Governor & CEO of National Bank for Cooperatives, National Bank for Cooperatives, National Rural Utilities Cooperative Finance Corporation, defts.

MEMORANDUM

WISEMAN, Senior District Judge.

On July 31, 2001, the City of Cookeville Department of Electricity ("Cookeville" or "Plaintiff) filed a Complaint in the Circuit Court for Putnam County, Tennessee, seeking to condemn Upper Cumberland Electric Membership Corporation's ("UCEMC") facilities and service rights within five areas recently annexed by Cookeville. In order to comply with Tenn. Code Ann. § 29-16-106, which requires that all parties having any interest in the land or rights involved in an eminent domain case be made defendants, Cookeville added as defendants the federal Rural Utilities Service ("RUS"),¹ an agency of the United States Department of Agriculture, and the National Rural Utilities Cooperative Finance Corporation ("CFC"). UCEMC has about $33.96 million in outstanding long-term debt, all of which is secured by mortgages held by RUS and CFC on all of UCEMC's property, including the property at issue in this case. On November 20, 2002, RUS removed this matter to federal district court pursuant to 28 U.S.C. § 1442(a)(1). RUS has not consented to the proposed condemnation. Currently before the Court are two motions by Cookeville, one to remand the case to state court and the other for summary judgment. For the reasons set forth below, the Court DENIES both motions.

I. Motion to Remand

A. Cookeville's Motion

Cookeville filed a Motion to Remand the Case for Lack of Subject Matter Jurisdiction on December 5, 2002. Cookeville claims that the United States, on behalf of RUS, lacks subject matter jurisdiction to prosecute this matter in this Court. In its affirmative defense to the Complaint, RUS claims this Court has subject matter jurisdiction because Cookeville's reliance on Tennessee state law may be preempted if Cookeville's actions are determined to frustrate the purpose of a RUS program defined by federal law. Cookeville claims that this affirmative defense lacks specificity and does not justify district court jurisdiction, because RUS does not allege or demonstrate how it will financially or otherwise suffer if this eminent domain case is remanded. The 1993 Restated Mortgage and Security Agreement ("1993 Agreement"), drafted by RUS, refers to the use of proceeds if the mortgaged property is taken under the power of eminent domain: "In the event the Mortgaged property [sic], or any part thereof, shall be taken under the power of eminent domain, all proceeds and avails therefrom, except to the extent that both of the Mortgagees shall consent to other use and application thereof by the Mortgagor, shall forthwith be applied by the Mortgagor."

B. UCEMC's Response

Defendant UCEMC, in its Response, notes that Cookeville seems to base its Motion to Remand entirely on the assertion that RUS's Answer did not plead a federal defense with sufficient specificity. Section 1442(a)(1), however, authorizes the United States or any federal agency to remove a state court action against it to federal court as long as it was acting under color of office, and unlike the general removal statute, does not require that the action could have been originally filed in federal court. See Williams v. Brooks, 945 F.2d 1322, 1324 n. 2 (5th Cir.1991). In order to give the district court jurisdiction, the federal agency need only raise a federal defense in its answer to the state action. See Mesa v. California, 489 U.S. 121, 136, 109 S.Ct. 959, 103 L.Ed.2d 99 (1989). RUS, in its Answer, stated as an affirmative defense that federal law may preempt the state law on which Cookeville relies, a federal question sufficient to confer federal subject matter jurisdiction. Since federal rules require only notice pleading, this Answer was sufficient notice to Cookeville of the defense under federal law. Whether federal law in fact preempts state law in this instance requires further discovery, and the ultimate success of the affirmative defense is not a prerequisite to this Court exercising jurisdiction. See James Wm. Moore, et al., Moore's Federal Practice § 107.15[1][b][iv][A] (3d ed.2000) (citing Jefferson County v. Acker, 527 U.S. 423, 431, 119 S.Ct. 2069, 144 L.Ed.2d 408 (1999)).

C. Cookeville's Supplement

Plaintiff Cookeville filed a "Supplement to Motion to Remand This Case for Lack of Subject Matter Jurisdiction," in which it argues that new information has come to its attention since filing the original Motion for Remand.² Cookeville learned that there was a 1996 Restated Mortgage and Security Agreement ("1996 Agreement") which restates the mortgagor's (UCEMC) right to sell the mortgagees' (RUS and CFC) security without the mortgagees' prior written approval. Section 3.11 of this 1996 Agreement states:

The Mortgagor may not ... without the prior written approval of each Mortgagee, sell, lease or transfer any Mortgaged Property to any other person or entity (including any subsidiary or affiliate of the Mortgagor), unless

(1) there exists no Event of Default or occurrence which with the passing of time and the giving of notice would be an Event of Default,

(2) fair market value is obtained for such property,

(3) the aggregate value of assets so sold, leased or transferred in any 12-month period is less than 10% of Net Utility Plant, and

(4) the proceeds of such sale, lease or transfer, less ordinary and reasonable expenses incident to such transaction, are immediately

(i) applied as a prepayment of all Notes equally and ratably,

(ii) in the case of dispositions of equipment, materials or scrap, applied to the purchase of other property useful in the Mortgagor's utility business, not necessarily of the same kind as property dispose [sic] of, which shall forthwith become subject to the Lien of the Mortgage, or

(iii) applied to the acquisition or construction of utility plant.

As an Exhibit, Cookeville attaches UCEMC's entry in the 2000 Membership Directory of the Tennessee Valley Public Power Association, where UCEMC's total system assets for 2000 are listed as $87,506,520. As a second Exhibit, Cookeville attaches the affidavit of Joseph A. Peek, Manager of the Cookeville Department of Electricity. This affidavit was subsequently superseded by a Corrected Declaration of Joseph A. Peek, filed on February 7, 2003. Mr. Peek values the fair market value of UCEMC's electric distribution properties and service rights within the five annexed areas on the effective annexation dates in 2000 as $2,284,139.73. According to Cookeville, this amount equals 3.19% of UCEMC's net utility plant, which it is allowed to sell in a twelve-month period without the mortgagees' written consent. The Supreme Court of Tennessee has previously upheld the fairness and equity of using the formula set forth in Tenn.Code Ann. § 6-51-112(a)(2) (formerly, § 6-320(2)). See Duck River Elec, Membership Corp. v. City of Manchester, 529 S.W.2d 202, 208 (Tenn. 1975). Thus, Cookeville argues, because the RUS has authorized UCEMC to dispose of less than 10% of net utility plant in any twelve-month period without consent, the RUS has no preemptive rights to interfere with the sale and no authority to remove the case. Cookeville contends that it has not sued the United States or any agency "in an official or individual capacity for any act under color of such office or on account of any right, title or authority claimed under any Act of Congress for... the collection of the revenue." 28 U.S.C. § 1442(a)(1). Because the RUS will not be "frustrated" unless UCEMC sells more than 10% of RUS security, Cookeville concludes, RUS's affirmative defense does not raise a colorable claim of a federal defense.

D. RUS's Response

After receiving two extensions of time in which to respond, the RUS filed a Response to Cookeville's Motion to Remand on March 7, 2003. The RUS argues, as UCEMC does, that possible federal preemption is clearly a federal question justifying removal, and that RUS's pleadings were sufficient to provide notice to Cookeville of this federal question. In response to Cookeville's argument that the 1996 Agreement allows transfers of less than 10% of net utility plant without prior written approval, the RUS asserts that Cookeville misreads the mortgage agreement. First, the RUS emphasizes that the Court must look at all four requirements, not just the 10% of net utility one. See supra. Cookeville has not addressed the remaining three requirements at all. One of the requirements is that "fair market value is obtained for such property." According to the RUS, whether Tennessee state condemnation law provides fair market value, as...