Tri-State Generation and Transmission Ass'n, Inc. v. Shoshone River Power, Inc.

Decision Date13 November 1986
Docket NumberTRI-STATE,No. 86-1413,86-1413
Citation805 F.2d 351
PartiesGENERATION AND TRANSMISSION ASSOCIATION, INC., a Colorado corporation, Plaintiff-Appellant, v. SHOSHONE RIVER POWER, INC., a Wyoming corporation; H. David Brannon, a Wyoming resident; Alan Siggins, a Wyoming resident; Martin Nielsen, a Wyoming resident; John S. Bereman, a Wyoming resident; and Rick Wogoman, a Wyoming resident, acting in their official capacity as directors of Shoshone River Power, Inc.; and Pacificorp, a Maine corporation, doing business as Pacific Power & Light Company, Defendants-Appellees, United States of America on Behalf of Rural Electrification Administration, National Rural Electric Cooperative Association and National Rural Utilities Cooperative Finance Corporation, Amici Curiae.
CourtU.S. Court of Appeals — Tenth Circuit

Michael A. Williams, of Sherman & Howard, Denver, Colo. (Robert E. Youle and Edward A. Gleason, of Sherman & Howard, and James L. Applegate of Hirst & Applegate, P.C., Cheyenne, Wyo., with him on briefs), for plaintiff-appellant.

Stephen S. Walters, of Stoel, Rives, Boley, Fraser & Wyse, Portland, Or. (Roy Pulvers, of Stoel, Rives, Boley, Fraser & Wyse and Stanley K. Hathaway, of Hathaway, Speight and Kunz, Cheyenne, Wyo., with him on briefs), for defendants-appellees.

Diane Ennist, Civil Div., Dept. of Justice, Washington, D.C. (Richard K. Willard, Asst. Atty. Gen. and J. Christopher Kohn, Civil Div., Dept. of Justice, Wallace F. Tillman and Michael D. Oldak, National Rural Elec. Co-op Ass'n, John List, National Rural Utilities Co-op Finance Corp. and Richard M. Sharp, of Shea & Gardner, Washington, D.C., on brief), for amici curiae.

Before McKAY, SEYMOUR and BALDOCK, Circuit Judges.

McKAY, Circuit Judge.

Tri-State Generation and Transmission Association, Inc. (Tri-State) asks this court to determine whether the trial court erred in dissolving a preliminary injunction that enjoined completion of the sale of Shoshone River Power, Inc.'s (Shoshone) assets to Pacific Power & Light Company (Pacific). The issue before this court is whether the trial court abused its discretion in failing to enjoin the sale of Shoshone's assets pending the outcome of the trial on the merits.

I.

In 1936, Congress enacted legislation that set in motion a program to meet a perceived need for supplying electric power to rural America. The Rural Electrification Act of 1936, ch. 432, 49 Stat. 1363 (codified as amended at 7 U.S.C. Secs. 901-950b (1980 & Supp.1986)), created the Rural Electrification Administration (REA) and made provisions for loans that would enable rural communities to obtain electric power. Acting in response to the legislation and in order to take advantage of the opportunities provided by creation of the REA, rural communities across America formed electrical distribution cooperatives. In 1942, individuals from Park County, Wyoming, organized one such cooperative, Shoshone, as a not-for-profit corporation under the laws of the State of Wyoming. Although Shoshone's bylaws allow it to provide electric power to consumers who are not members of Shoshone, apparently all consumers of electric power who live within the geographic area served by Shoshone are members of the cooperative.

After distribution cooperatives such as Shoshone were formed, groups of such cooperatives, in an effort to more economically provide power to their member consumers, joined together to form central generation and transmission cooperatives such as Tri-State. The distribution cooperatives that banded together to form Tri-State were organized under the laws of three states: Colorado, Nebraska and Wyoming. Tri-State itself was organized as a not-for-profit corporation under the laws of Colorado. Tri-State's primary purpose is to supply electric power to its member distribution cooperatives. These member cooperatives, in turn, are simply vehicles for delivering power to their own members. In order to accomplish these very expensive objectives, the REA, under its statutory authority, periodically provides or guarantees loans to both distribution cooperatives and generation and transmission cooperatives. Tri-State has received many such loans. 1

While authorizing the REA to make loans to carry out the purposes of the Rural Electrification Act, Congress cautioned that loans should not be made unless the REA first determined that "the security therefore is reasonably adequate." 7 U.S.C. Sec. 904 (1982). In order to effectuate that mandate, the REA, before granting loans to generation cooperatives such as Tri-State, requires all the member distribution cooperatives to enter into full requirements contracts with the generation cooperative. See Government Amici Brief at 7. The REA imposes such an arrangement on Tri-State and its distribution cooperatives; all Tri-State's distribution cooperatives are required to contract to fulfill all their energy requirements through Tri-State before the REA makes or guarantees loans to Tri-State. Record, vol. 2, at 36-37, 112-14. Furthermore, the term of each requirements contract must match that of the payment period of Tri-State's loans. Each time the REA extends or guarantees a loan to Tri-State, it requires each member distribution cooperative to commensurately extend its requirements contract term so as to cover the same period as the loan. In essence, the requirements contracts guarantee a complete payback of the loans.

Using funds from REA loans or REA-guaranteed loans, Tri-State makes the capital outlays necessary to develop the generation and transmission capacity which will satisfy the present and future electric power requirements of the distribution cooperatives. The record in this case reflects that, after Tri-State's most recent capital expenditures, market circumstances made it possible for Pacific to satisfy, over existing power lines, the electrical needs of consumers who currently purchase electric power from Shoshone and similar distribution cooperatives at prices substantially below the cost of power produced by Tri-State. Pacific thereupon entered into a Memorandum of Understanding with Shoshone to "purchase all of the assets" of Shoshone for a fixed price. The agreement between Pacific and Shoshone includes an indemnification clause under which Pacific agrees to indemnify Shoshone and its directors, officers and employees for any claims arising out of the sale of Shoshone's assets to Pacific. Memorandum of Understanding between Pacific Power & Light Company and Shoshone River Power, Inc., Dated October 3, 1985, at 3-4 (included as Exhibit 47, Addendum to Brief for Plaintiff-Appellant). The record indicates that Shoshone plans to distribute the proceeds of the sale to its constituent members, but it does not indicate whether Shoshone would then dissolve or whether Shoshone would retain any assets or perform any functions after the sale is completed. In any event, prior to selling its assets (the major component of which is the power-delivery subscriptions of its members and the minor part of which is its poles and power lines) to Pacific, Shoshone had to obtain: (1) approval of its members and (2) approval of the Wyoming Public Service Commission.

Before Shoshone could obtain either approval, Tri-State brought this action, alleging that Shoshone would breach its requirements contract by such a sale and seeking, among other things, to permanently enjoin the transaction between Pacific and Shoshone. Pursuant to a stipulation among the parties, the trial court initially entered a preliminary injunction. The stipulation allowed Shoshone to pursue approval of its members for the sale of the assets. To more easily obtain that approval, Shoshone amended its bylaws. The original bylaws required approval of two-thirds of the members of Shoshone before any sale of Shoshone's assets and did not allow proxy voting, making such approval difficult and cumbersome. Shoshone therefore amended its bylaws to allow absentee voting and consequently obtained approval of the sale by a vote of 1,036 to 99. However, of those who voted, 1,010 voted absentee; and Tri-State claims that absentee voting does not comport with Wyoming corporation law. Even so, it appears that an overwhelming majority of the members of Shoshone support the sale and its consequent short-term, lower power rates.

After Shoshone's members voted to approve the asset sale, Pacific moved to dissolve the existing injunction, while Tri-State moved to supplement the preliminary injunction. The trial court held a hearing to consider both motions. It then issued a supplemental preliminary injunction to allow the parties time to submit the evidence necessary for the court's final decision. Finally, approximately one month later, the trial court entered a new order containing findings of fact and conclusions of law, as well as dissolving the supplemental preliminary injunction. The court made no specific findings regarding the prerequisites for the issuance of a preliminary injunction. However, although it was not explicit, the trial court apparently reasoned that if Shoshone would breach its requirements contract by selling its assets to Pacific, damages would be adequate to compensate Tri-State.

Pacific and Shoshone immediately took steps to complete the sale of the assets, but the Wyoming Public Service Commission did not approve the sale until May 1, 1986. The decision of the Commission was appealed within a few hours after it was entered, and consequently the Wyoming courts stayed the sale. Even so, Pacific and Shoshone claim that the asset transfer was completed before the Wyoming appeal. The record, however, reflects that the transfer was not completed.

Tri-State appeals the trial court's dissolution of the preliminary injunction under 28 U.S.C. Sec. 1292(a)(1) (1982). This court entered a temporary stay of the completion of the transaction between Pacific and Shoshone pending oral argument, and, after oral argument,...

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