Virgil v. Sw. Miss. Elec. Power Ass'n

• Decision Date: 09 April 2020
• Docket Number: NO. 2018-CA-01133-SCT,2018-CA-01133-SCT
• Citation: 296 So.3d 53
• Parties: Ray VIRGIL, Barbara Lloyd and Cassandra Johnson v. SOUTHWEST MISSISSIPPI ELECTRIC POWER ASSOCIATION
• Court: Mississippi Supreme Court

296 So.3d 53

Ray VIRGIL, Barbara Lloyd and Cassandra Johnson

v.SOUTHWEST MISSISSIPPI ELECTRIC POWER ASSOCIATION

NO. 2018-CA-01133-SCT

Supreme Court of Mississippi.

April 9, 2020

Rehearing Denied May 28, 2020

ATTORNEYS FOR APPELLANTS: WALKER (BILL) JONES, III, MICHAEL D. SIMMONS, BRANNON LEE BERRY, Jackson, ROBERT L. JOHNSON, III, Natchez, DAVID WAYNE BARIA, Bay St Louis, JUSTIN RONALD GLENN

ATTORNEYS FOR APPELLEE: CHRISTINA M. SCHWING, W. BRUCE LEWIS, Natchez, LUTHER T. MUNFORD, Ridgeland, ROBERT M. GORE

EN BANC.

GRIFFIS, JUSTICE, FOR THE COURT:

¶1. Southwest Mississippi Electric Power Association (Southwest) is a nonprofit, member-owned electric cooperative corporation created by statute to provide electricity to rural Mississippians. Miss. Code Ann. § 77-5-205 (Rev. 2018). Ray Virgil, Barbara Lloyd, and Cassandra Johnson (Plaintiffs) are members of Southwest. Plaintiffs filed a lawsuit against Southwest and alleged that Southwest failed to return excess revenues and receipts to its members. Southwest moved to compel arbitration. The trial court granted Southwest's motion to compel arbitration. Plaintiffs appealed. We find no error and affirm.

FACTS AND PROCEDURAL HISTORY

¶2. The purpose of rural electric cooperatives such as Southwest is to "promot[e] and encourag[e] the fullest possible use of electric energy by making electric energy available at the lowest cost consistent with sound economy and prudent management of the business of such corporations." Miss. Code. Ann. § 77-5-205 (Rev. 2018).

¶3. To purchase electric energy from Southwest, each member is required to sign a membership application. The membership application states, "[t]he Applicant will comply with and be bound by the provisions of the charter and bylaws of the Association and such rules and regulations as may, from time to time, be adopted by the Association." Southwest's bylaws state that a person may become a member of Southwest by, inter alia, "agreeing to comply with and be bound by the Certificate of Incorporation of the Association and by these bylaws and any amendments thereto and such policies, rules and regulations as may from time to time be adopted by the Board of Directors."

¶4. In February 2017, the board of directors amended the bylaws to include an arbitration provision.¹ The arbitration provision, section 11.05 of the bylaws, stated the following in bold and in all capital letters:

ALTERNATIVE DISPUTE RESOLUTION. Unless otherwise prohibited by law, any controversy or claim arising out of or relating to these bylaws, or the breach thereof, or any controversy or claim arising out of or relating to patronage capital shall be resolved by binding arbitration administered by the American Arbitration Association in accordance with its arbitration rules after all conditions precedent as set forth in Article VIII, Section 8.01, if applicable, have been met. This agreement involves interstate commerce such that the Federal Arbitration Act, 9 U.S.C. § 1, et seq. , shall govern the interpretation and enforcement of this arbitration agreement. The arbitration shall be held in the State of Mississippi at a location to be designated by the party not making the initial demand for arbitration. A judgment on the award rendered by the arbitrator shall be entered in any court having jurisdiction thereof. Each party agrees to pay their own attorneys’ fees and costs and each party agrees to share equally in the cost of the arbitrator.

The parties also agree to (i) waive any right to pursue a class action arbitration, or (ii) to have an arbitration under this agreement consolidated or determined as part of any other arbitration or proceeding. The parties agree that any dispute to arbitrate must be brought in an individual capacity, and not as a plaintiff or class member in any purported class or representative capacity. If any part of this arbitration clause, other than waivers of class action rights, is found to be unenforceable for any reason, the remaining provisions shall remain enforceable. If a waiver of class action and consolidation rights is found unenforceable in any action in which class action remedies have been sought, this entire arbitration clause shall be deemed unenforceable. It is the intention and agreement of the parties not to arbitrate class actions or to have consolidated arbitration proceedings. Should the parties have a dispute that is within the jurisdiction of the justice courts of the State of Mississippi, such dispute may be resolved at the election of either party in justice court rather than through arbitration.

If the arbitration clause is deemed unenforceable or the parties otherwise litigate a dispute in court, the parties agree to waive any right to a trial by jury in any proceeding brought in court.

¶5. On December 22, 2017, Plaintiffs filed a complaint against Southwest, alleging that Southwest unlawfully had failed to return to its members more than $13 million in excess member equity. By Mississippi law, an electric cooperative may not be organized for pecuniary profit. Miss. Code Ann. § 77-5-205. Mississippi Code Section 77-5-235(5) provides,

A corporation's rates for energy furnished or offered by the corporation shall be sufficient at all times to pay all operating and maintenance expenses necessary or desirable for the prudent conduct and operation of its business and to pay the principal of and interest on such obligations as the corporation may have issued and/or assumed in the performance of the purpose for which it was formed. The revenues and receipts of a corporation shall first be devoted to such operating and maintenance expenses and to the payment of such principal and interest and thereafter to such reserves for improvement, new construction, depreciation and contingencies as the board may from time to time prescribe. Revenues and receipts not needed for these purposes shall be returned to the members by such means as the board may decide, including through the reimbursement of membership fees, the implementation of general rate reductions, the limitation or avoidance of future rate increases, or such other means as the board may determine.

Miss. Code. Ann. § 77-5-235(5) (Rev. 2018). Plaintiffs contended that Southwest had unduly retained excess revenue as "new member equity," despite the excess funds not being necessary "to fund expenses, debt service or reserves ...."²

¶6. Southwest filed a Renewed Motion to Compel Arbitration and Stay Proceedings, in which it argued that the matter should be decided by an independent arbitrator under its bylaws.³ Southwest argued that arbitration was the appropriate avenue of resolving the dispute because a presumption favors arbitration, because the members agreed to be bound by the bylaws, and because the members directly benefitted from the contract by receiving electricity and capital credits from the cooperative.

¶7. Plaintiffs argued that they did not agree to arbitrate the dispute. Upon applying for electricity, each Plaintiff signed a one-page application for electricity. The application for electricity was the only document Plaintiffs signed with Southwest, and it made no mention of an arbitration provision. Additionally, Plaintiffs argued that because the mandatory arbitration provision contained in the bylaws directly conflicted with the nonmandatory provision in the same bylaws, the arbitration provisions were ambiguous and unenforceable. Plaintiffs further argued that Southwest owed a heightened duty to members of the cooperative to fully explain the terms of the contract Plaintiffs were signing, including the implication of arbitration. And lastly, Plaintiffs argued that the membership application was unconscionable.

¶8. The trial court granted Southwest's motion to compel arbitration, finding that the parties had entered into a valid arbitration agreement and that Plaintiffs had failed to meet their burden of proof as to unconscionability. The trial court found that the allegations in the complaint arose out of Southwest's bylaws and patronage capital and fell within the scope of the arbitration provision. The trial court stated that a strong public policy favors arbitration. Because Plaintiffs each signed a membership application, the trial court held that Plaintiffs had expressly agreed to be bound by the terms of Southwest's bylaws as amended from time to time. The trial court also found that Section 77-5-223 granted the board authority to amend the bylaws and that Plaintiffs had each reaped the benefits of their membership status with Southwest since signing the membership application.

¶9. Plaintiffs appealed and presented three issues for review:

1. Whether the trial court erred by finding that the parties entered into a valid arbitration agreement.

2. Whether the trial court erred by finding that the dispute fell within the scope of the arbitration provision.

3. Whether the trial court erred by finding that no external factors precluded arbitration in this matter.

The parties also submitted supplemental briefing at the direction of this Court.

¶10. This is the first of several similar cases, which appear to be class-action lawsuits,⁴ that have been filed around the state of Mississippi against electric power cooperatives (also referred to as electric power associations). A similar case is now before this Court for review —Delta Electric Power Association v. Archie Campbell , No. 2019-CA-00206-SCT. Two other cases were before this Court—Coast Electric Power Association v. Lakesha Butler , No. 2018-CA-01728, and Dixie Electric Power Association v. William Willis , No. 2019-CA-0000—but these cases were removed to federal court after the United States Court of Appeals for the Fifth Circuit held that the electric power cooperatives presented a colorable federal defense. Butler v. Coast Elec. Power Ass'n , 926 F.3d 190 (5th Cir. 2019). There are also several similar cases at present pending before trial courts that have not yet been appealed but will be...