Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Attorneys of Record for Appellees Lakesha Butler, William Willis, III, and
Kimberly Harper
TIMOTHY C. HOLLEMAN
BOYCE HOLLEMAN & ASSOCIATES
1720 23rd Avenue
Boyce Holleman Boulevard
Gulfport, Mississippi 39501
Telephone: (228) 863-3142
Facsimile: (228) 863-9829
The undersigned counsel of record certifies that the following listed persons
and entities as described in the fourth sentence of Rule 28.2.1 have an interest in the
outcome of this case. These representations are made in order that the judges of this
Appellants Appellees
S. Wayne Easterling
Attorney at Law
P.O. Box 1471
Hattiesburg, Mississippi 39403
/s/ Brannon L. Berry
Attorney of Record for Appellees
i
Case: 18-60365 Document: 00514600051 Page: 4 Date Filed: 08/14/2018
Appellees maintain that oral argument is not needed. While this Court may
has repeatedly held—and recently confirmed—that “to remove under [28 U.S.C.] §
1442, a defendant must show . . . that it has a colorable federal defense.” The sole
preemption. The facts and legal arguments related to Appellants’ assertion of this
defense are adequately presented in the briefs and record. As such, the decisional
ii
Case: 18-60365 Document: 00514600051 Page: 5 Date Filed: 08/14/2018
TABLE OF CONTENTS
CERTIFICATE OF INTERESTED PERSONS……………………………..….....i
STATEMENT REGARDING ORAL ARGUMENT……………………..……....ii
TABLE OF CONTENTS…………………………………...………………….....iii
TABLE OF AUTHORITIES…………………………………………….….….....iv
STATEMENT OF ISSUES PRESENTED FOR REVIEW…………………….....1
STATEMENT OF THE CASE……………………………………………….…...2
SUMMARY OF THE ARGUMENT………………………………………..….....5
ARGUMENT……………………………………………......…..……….….….....6
iii
Case: 18-60365 Document: 00514600051 Page: 6 Date Filed: 08/14/2018
TABLE OF AUTHORITIES
CASES PAGE(S)
Arkansas Elec. Co-op. Corp. v. Arkansas Pub. Serv. Comm’n,
461 U.S. 375, 385-86 (1983)………………………………………………...…4, 11
Bartel v. Alcoa S.S. Co., 805 F.3d 169, 172 (5th Cir. 2015)…………...…….……6
Cessna v. REA Energy Coop., Inc., 258 F. Supp. 3d 566, 576-79
(W.D. Pa. 2017)…………………………………..................................…13, 14, 15
City of El Cenizo, Texas v. Texas, 890 F.3d 164, 178 (5th Cir. 2018)……………....7
D.D.B. v. Jackson Cty. Youth Court, 816 So. 2d 380, 382 (Miss. 2002)…………..2
Fellner v. Tri–Union Seafoods, L.L.C., 539 F.3d 237, 244 (3d Cir. 2008)…….….12
Legendre v. Huntington Ingalls, Inc., 885 F.3d 398, 400 (5th Cir. 2018)………….6
Matter of Cajun Elec. Power Co-op., Inc., 109 F.3d 248, 255
(5th Cir. 1997)………………………………………………………………….2, 10
State v. Kleinert, 855 F.3d 305, 313 (5th Cir. 2017)……………………….……….6
Tallahatchie Valley Elec. Power Ass’n v. Mississippi Propane
Gas Ass’n, Inc., 812 So. 2d 912, 917-21 (Miss. 2002)……………………..…..2, 12
United States v. Zadeh, 820 F.3d 746, 752 (5th Cir. 2016)………………………..10
Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 398-400
(5th Cir. 1998)……………………………………………………………………..6
STATUTES
7. C.F.R. 1710.114(d)(1)………………………………………………………..…8
7. C.F.R. 1717.304……………………….….......................................................…4
7. C.F.R. 1717.306………………………………………………………….…...…4
7.C.F.R.1717.617………………………………………….…………………....8, 9
Miss. Code Ann. § 77-5-235 (1936) (amended July 1, 2016)…………………...1, 7
iv
Case: 18-60365 Document: 00514600051 Page: 7 Date Filed: 08/14/2018
1. Was the district court correct in determining that compliance with both
Mississippi1 and federal law was neither (i) physically impossible nor (ii) an obstacle
to the objectives of Congress, since Appellees limited their demand to only those
revenues in excess of the 30% “safe-harbor” set by the Rural Utilities Service?
1
Miss. Code Ann. § 77-5-235 (1936) (amended July 1, 2016) (“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 the
reimbursement of membership fees, or by way of general rate reductions, as the board may decide.”
(emphasis added)).
1
Case: 18-60365 Document: 00514600051 Page: 8 Date Filed: 08/14/2018
“Most people who live or work in rural America must buy their electricity
from their local co-operative, a unique and largely unregulated type of utility. [. . .]
Electric co-ops are owned by their customers, who are called ‘members’ of the co-
$100 billion in assets and $31 billion in member equity. Because so few members
are aware of their ownership, this $31 billion may be among the largest ‘lost’ pools
cooperative, filed these lawsuits in 2017, seeking the return of excess revenues as
required2 per Miss. Code Ann. § 77-5-235 (1936) (amended July 1, 2016). Notably,
and of significant relevance here, Appellees are only seeking excess revenues above
Utilities Service (“RUS”)—a federal “lending agency” 3 who “lend[s] funds to rural
2
“We have noted time and again the distinction between the mandatory and discretionary
language of statutes. When used in a statute, the word ‘shall’ is mandatory . . . .” D.D.B. v.
Jackson Cty. Youth Court, 816 So. 2d 380, 382 (Miss. 2002).
3
Tallahatchie Valley Elec. Power Ass’n v. Mississippi Propane Gas Ass’n, Inc., 812 So.
2d 912, 920 (Miss. 2002) (quoting the United States Supreme Court’s description of the RUS
(formerly known as the “REA”) as a “lending agency and not a regulatory body”).
4
Matter of Cajun Elec. Power Co., Inc., 109 F.3d 248, 252 (5th Cir. 1997).
2
Case: 18-60365 Document: 00514600051 Page: 9 Date Filed: 08/14/2018
Complaint makes this abundantly clear. See, e.g., ROA 18-60383.592 (“Indeed,
Appellants removed these cases to federal court shortly after being served
with process, citing 28 U.S.C. § 1442(a)(1) as grounds for federal jurisdiction. They
alleged, among other things, that removal to federal court was appropriate because
(1) they were “faced with an impossibility of complying with RUS regulations and
contractual covenants and also being in compliance with the state law” and (2) that
“state law . . . stands as an obstacle to the accomplishment and execution of the full
purposes and objectives as set forth by the Rural Electrification Act, 7 C.F.R. §
1717.617, RUS, and Congress.” Id. Appellees disagreed and timely moved to
ROA 18-60372.302-313.
On April 27, 2018, Honorable Keith Starrett of the United States District
Court for the Southern District of Mississippi remanded each case back to state court.
Citing the relevant RUS regulations and loan obligations, the district court held that
because the “[f]ederal regulations and [ ] loan documents create a ‘safe-harbor’ for
3
Case: 18-60365 Document: 00514600051 Page: 10 Date Filed: 08/14/2018
it was “not impossible for [Appellants] to return capital to its members and comply
with federal law.” See, e.g., ROA 18-60383.593-594 (“Compliance with the
Mississippi statute as Plaintiffs have demanded would not frustrate the objectives of
Congress, as long as Defendant stays within the 30% safe-harbor.”). As for any
purported “state intrusion” upon the purposes and objectives of the relevant RUS
regulations, the district court held that the regulations “explicitly contemplate state
history . . . makes abundantly clear . . . that, although the [RUS] was expected to
within the constraints of existing state regulatory schemes.’” See, e.g., id. at 18-
60383.594 (citing 7 C.F.R. §§ 1717.304, 1717.306 and Arkansas Elec. Co-op. Corp.
Appellants timely appealed the district court’s decision to remand these cases
back to state court. On July 12, 2018, this Court consolidated the appeals, as the
sole issue in each appeal is whether Appellants have a colorable federal defense of
conflict preemption.
4
Case: 18-60365 Document: 00514600051 Page: 11 Date Filed: 08/14/2018
obligations with the RUS to invoke the doctrine of conflict preemption is severely
undercut by the fact that Appellees are only seeking the return of revenues and
receipts in excess of the 30% threshold (“safe-harbor”) set forth by the RUS.
Second, compliance with both Miss. Code Ann. § 77-5-235 and federal law is neither
(i) physically impossible nor (ii) an obstacle to the purposes and objectives of
Notably, one of the very regulations that Appellants contend is in conflict with Miss.
Code Ann. § 77-5-235 provides for the automatic approval of excess revenues if,
among other things, “[a]fter giving effect to the distribution, [Appellants’] equity
will be greater than or equal to 30 percent of its total assets.” 7 C.F.R. § 1717.617.
Finally, even if this Court were to find a possible conflict between Miss. Code Ann.
§ 77-5-235 and federal law, any such conflict would only limit Appellees’ relief to
those revenues over and above the 30% threshold—not preempt their claims
altogether.
5
Case: 18-60365 Document: 00514600051 Page: 12 Date Filed: 08/14/2018
ARGUMENT
removal statute, i.e., 28 U.S.C. § 1442(a)(1). To qualify for removal under this
statute, “defendants must show that they are ‘persons’ within the meaning of the
statute, ‘that the defendants acted pursuant to a federal officer’s directions and that
a causal nexus exists between the defendants’ actions under color of federal office
and the plaintiff’s claims.’” Bartel v. Alcoa S.S. Co., 805 F.3d 169, 172 (5th Cir.
2015) (citing Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 398-400 (5th
Cir. 1998)). “Additionally, they must assert a ‘colorable federal defense.’” Id.
(emphasis added). Notably, “[t]he defendant bears the burden of making this
showing.” Id.; see also Legendre v. Huntington Ingalls, Inc., 885 F.3d 398, 400 (5th
Cir. 2018) (“[I]t remains the defendant’s burden to establish the existence of federal
jurisdiction over the controversy.”). While the federal defense need not be “clearly
sustainable,” it must be nonetheless “plausible.” State v. Kleinert, 855 F.3d 305, 313
(5th Cir. 2017), cert. denied, 138 S. Ct. 642 (2018) (citations omitted).
In the instant case, Appellees do not dispute that Appellants are “persons”
within the meaning of 28 U.S.C. § 1442(a)(1), that Appellants acted under color of
a federal office, or that a causal nexus exists between Appellants’ actions and at least
one of Appellees’ claims. Rather, the only contested issue is whether Appellants
6
Case: 18-60365 Document: 00514600051 Page: 13 Date Filed: 08/14/2018
below, Appellants have not. Therefore, removal is not proper under 28 U.S.C. §
1442(a)(1).
preemption because they cannot comply with Miss. Code Ann. § 77-5-235 and also
comply with 7 C.F.R. §§ 1710.114 and 1717.617. Br. for Appellants, pp. 37-38.
However, conflict preemption only occurs “when compliance with both federal and
Congress.” City of El Cenizo, Texas v. Texas, 890 F.3d 164, 178 (5th Cir. 2018)
(citations omitted). In the instant cases, compliance with both Mississippi and
federal law is neither (a) physically impossible nor (b) an obstacle to the objectives
60383.593-594.
Miss. Code Ann. § 77-5-235 (1936) (amended July 1, 2016) requires electric
7
Case: 18-60365 Document: 00514600051 Page: 14 Date Filed: 08/14/2018
because “this would effectively remove” their discretion to retain (as opposed to
return) excess revenues. Br. for Appellants, pp. 36-39 (maintaining that there is a
direct conflict between federal law and the relief because they cannot both exercise
their RUS- and REA-granted authority to set rates and manage patronage capital
Notably, however, the federal regulations do not, in any way, prohibit electric
asset-to-equity ratio of 30% or greater. For example, the RUS regulations cited by
5
E.g., “patronage capital,” “capital credits,” “net margins,” “member equity,” or any other
term used by Appellants to mask or otherwise disguise revenues and receipts in excess of operating
and maintenance expenses and reasonable reserves.
8
Case: 18-60365 Document: 00514600051 Page: 15 Date Filed: 08/14/2018
equity ratio. Thus, it is not “physically impossible” for Appellants to return excess
revenues while also complying with federal law. This is particularly true in light of
the fact that 7 C.F.R. § 1717.617 provides for automatic approval of excess revenues
if, among other things, “[a]fter giving effect to the distribution, the borrower’s equity
Not to mention, Appellants’ attempt to use their federal loan requirements and
obligations with the RUS to invoke the federal defense of conflict preemption is
severely undercut by the fact that Appellees are only seeking the return of excess
revenues above the 30% safe-harbor provision set forth by the RUS in 7 C.F.R. §
9
Case: 18-60365 Document: 00514600051 Page: 16 Date Filed: 08/14/2018
[they] believe that even 30% equity is more than [Appellants] need to maintain
operations, they limited their demand to the amount of retained patronage capital
above the 30% threshold.” ROA 18-60365.357; ROA 18-60372.1005; ROA 18-
60383.592-593.
as a whole and identifying its purpose and intended effects.” United States v. Zadeh,
820 F.3d 746, 752 (5th Cir. 2016). For the reasons advanced above, as well those
immediately set forth below, compliance with Miss. Code Ann. § 77-5-235 does not
RE Act 6 plainly does not expressly empower or authorize the Secretary to pre-empt
Co-op., Inc., 109 F.3d 248, 255 (5th Cir. 1997) (emphasis added). In fact, “[t]he
[RE Act’s] legislative history . . . makes abundantly clear . . . that, although the
6
Rural Electrification Act of 1936, as amended, 7 U.S.C. § 901, et seq. (“RE Act”).
10
Case: 18-60365 Document: 00514600051 Page: 17 Date Filed: 08/14/2018
[RUS] was expected to play a role in assisting the fledgling rural power cooperatives
in setting their rate structures, it would do so within the constraints of existing state
regulatory schemes.” Arkansas Elec. Co-op. Corp., 461 U.S. at 386. Moreover, as
***
11
Case: 18-60365 Document: 00514600051 Page: 18 Date Filed: 08/14/2018
Tallahatchie Valley Elec. Power Ass’n v. Mississippi Propane Gas Ass’n, Inc., 812
So. 2d 912, 917-21 (Miss. 2002) (Internal quotation marks and citations omitted)
(emphasis added).
III. Obligations That Arise From RUS Loan Documents Do Not Create
Federal Law
Appellants’ reliance on the contents of their “loan contracts” with the RUS,
including, but not limited to, specific provisions related to bankruptcy and the
a loan agreement is not federal law, even though one party is a federal agency. See,
e.g., Fellner v. Tri–Union Seafoods, L.L.C., 539 F.3d 237, 244 (3d Cir. 2008) (“It is
federal law which preempts contrary state law; nothing short of federal law can have
Clause, and indeed the Supremacy Clause itself, mandate this principle . . . .”
(emphasis in original)).
In short, Appellants have failed to demonstrate how the terms of a loan from
the RUS constitute “federal law” for purposes of a conflict preemption analysis.
12
Case: 18-60365 Document: 00514600051 Page: 19 Date Filed: 08/14/2018
as noted by the district court, these are not bankruptcy cases. Id. Even if they were,
IV. Any Possible Conflict Between Miss. Code Ann. § 77-5-235 and
Federal Law Would Only Limit Appellees’ Recovery Rather Than
Preempt Their Claims Entirely.
As recently explained by one federal court, even if this Court were to find a
possible conflict between Miss. Code Ann. § 77-5-235 and federal law, any such
conflict would only limit Appellees’ relief—not preempt their claims altogether.
See, e.g., Cessna v. REA Energy Coop., Inc., 258 F. Supp. 3d 566, 576-79 (W.D. Pa.
2017). To best capture this point, Appellees submit the following excerpts from
Cessna, supra:
The Court will first address [REA Energy Cooperative, Inc.’s (“REA”)]
threshold argument, which is that Plaintiffs’ claims are preempted by
the Supremacy Clause of the United States Constitution.
***
13
Case: 18-60365 Document: 00514600051 Page: 20 Date Filed: 08/14/2018
***
The Court notes that Plaintiffs do not allege sufficient facts in their
complaint to establish that § 1717.617 applies to REA, as REA asserts,
and that Plaintiffs make no allegations in their complaint regarding the
terms of REA’s loan contract with the Service. But even if the Court
assumes without deciding that REA is subject to 7 C.F.R. § 1717.617,
any possible conflict between that regulation and [Pennsylvania’s
capital credit statute] would only limit Plaintiffs’ possible relief rather
than preempt their claims entirely.
14
Case: 18-60365 Document: 00514600051 Page: 21 Date Filed: 08/14/2018
15
Case: 18-60365 Document: 00514600051 Page: 22 Date Filed: 08/14/2018
The Court cannot at this stage and on this limited record determine
whether provisions in REA’s loan contract with the Service should be
afforded preemptive weight. It thus reserves that question, and for
now resolves it on a simpler ground.7 Assuming for the sake of
argument that REA’s loan agreement with the Service requires REA
to maintain equity greater than or equal to 30% of its assets, and that
this provision should have preemptive effect, REA’s equity would
have to actually fall below 30% of its assets before a conflict would
arise. Based on REA’s 2014 financial report, this leaves REA with
approximately $21,000,000 to disgorge before any purported conflict
would arise. Thus, any possible preemption would only limit
Plaintiffs’ relief. It would not preempt their claims entirely.
Cessna, 258 F. Supp. 3d at 574–78 (internal quotation marks and citations omitted)
(emphasis added).
Appellants would have this Court ignore the foregoing analysis of conflict
preemption in the context of “identical” 8 litigation and, instead, hold that a federal
defense previously deemed plausible remains forever plausible. This cannot be the
case. Plausibility does not exist in perpetuity. Stated differently, while conflict
7
Appellees, unlike the plaintiffs in Cessna, are only seeking excess revenues above the
30% percent asset-to-equity ratio (“safe-harbor”) prescribed by the RUS.
8
Br. of Appellants, p. 42.
16
Case: 18-60365 Document: 00514600051 Page: 23 Date Filed: 08/14/2018
preemption may have been deemed “plausible” when REA Energy Cooperative, Inc.
invoked it for purposes of removal in 2016, the United States District Court for the
that state laws requiring electric cooperatives to return excess revenues, like Miss.
Code Ann. § 77-5-235, 9 are not preempted by federal law—at least for the reasons
asserted herein by Appellants. Thus, despite what Appellants would have this Court
believe, Appellees are not asking Appellants to prove their defense. Appellees are
simply pointing out that there is no conflict between federal and Mississippi law as
alleged by Appellants.
CONCLUSION
Based on the foregoing, Appellees respectfully request that this Court affirm
the district court decision to remand the cases to state court and/or hold that federal
Respectfully submitted,
9
The relevant statutes in “Mississippi [and] Pennsylvania . . . are identical.” ROA 18-
60372.357; ROA 18-60383.283; ROA 18-60365.225.
17
Case: 18-60365 Document: 00514600051 Page: 24 Date Filed: 08/14/2018
jglenn@cs-law.com
COSMICH SIMMONS & BROWN,
PLLC
100 Vision Drive, Suite 200
Jackson, Mississippi 39211
Telephone: (601) 519-0328
Facsimile: (601) 863-0078
TIMOTHY C. HOLLEMAN
MS Bar No. 2526
tim@boyceholleman.com
BOYCE HOLLEMAN & ASSOCIATES
1720 23rd Avenue
Boyce Holleman Boulevard
Gulfport, Mississippi 39501
Telephone: (228) 863-3142
Facsimile: (228) 863-9829
18
Case: 18-60365 Document: 00514600051 Page: 25 Date Filed: 08/14/2018
CERTIFICATE OF SERVICE
copy of the foregoing brief was filed with the Clerk of Court for the United States
Court of Appeals for the Fifth Circuit using the Appellate CM/ECF system, and that
19
Case: 18-60365 Document: 00514600051 Page: 26 Date Filed: 08/14/2018
CERTIFICATE OF COMPLIANCE
by the word-count function of Microsoft Word 2013, excluding the parts of the brief
exempted by Federal Rule of Appellate Procedure 32(f) and Fifth Circuit Rule 32.2.
Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of
typeface using Microsoft Word 2013 in 14-point Times New Roman font.
20
Case: 18-60365 Document: 00514600051 Page: 27 Date Filed: 08/14/2018
I hereby certify that, in the foregoing brief filed using the Fifth Circuit
CM/ECF document filing system, (1) the privacy redactions required by Fifth Circuit
Rule 25.2.13 have been made, (2) the electronic submission is an exact copy of the
paper document, and (3) the document has been scanned and is free of viruses.
21
Case: 18-60365 Document: 00514558739 Page: 1 Date Filed: 07/17/2018
Cons. w/18-60383
KIMBERLY HARPER,
Plaintiff - Appellee
v.
SOUTHERN PINE ELECTRIC COOPERATIVE,
Defendant - Appellant
_____________________________________________________
On Appeal from the United States District Court, Southern District of Mississippi
Case Nos. 1:18-CV-79, 2:18-CV-30, and 2:18-CV-31
Honorable Keith Starrett, Presiding
_____________________________________________________
1 of 74
Case: 18-60365 Document: 00514558739 Page: 2 Date Filed: 07/17/2018
CHRISTINA M. SCHWING
LAURA B. RENSTROM
HOLLAND & KNIGHT LLP
50 N. Laura Street, Suite 3900
Jacksonville, Florida 32202
Telephone: (904) 798-7222
Facsimile: (904) 358-1872
PETER C. ABIDE
CURRIE JOHNSON & MYERS, P.A.
925 Tommy Munro Dr., Ste. H
Biloxi, MS 39532
S. WAYNE EASTERLING
P.O. Box 1471
Hattiesburg, MS 39403
2 of 74
Case: 18-60365 Document: 00514558739 Page: 3 Date Filed: 07/17/2018
and entities as described in the fourth sentence of Rule 28.2.1 have an interest in
the outcome of this case. These representations are made in order that the judges
Appellants Appellees
S. Wayne Easterling
P.O. Box 1471
Hattiesburg, MS 39403
/s/ Christina Schwing
i Attorney of Record for Appellants
3 of 74
Case: 18-60365 Document: 00514558739 Page: 4 Date Filed: 07/17/2018
federal officer removal statute, 28 U.S.C. § 1442. The Supreme Court has
repeatedly noted that federal officer removal rights were established to protect
federal officers from interference by hostile state courts. To that end, federal
In all three consolidated cases, the lower court granted a motion to remand
filed by the plaintiffs. This decision is contrary to the liberal construction that
must be provided to federal officer removal, and is also contrary to the decision of
other courts around the country deciding nearly-identical issues. In light of the
proper. Oral argument is likely to assist the Court in resolving this important
jurisdictional issue.
ii
4 of 74
Case: 18-60365 Document: 00514558739 Page: 5 Date Filed: 07/17/2018
TABLE OF CONTENTS
CERTIFICATE OF INTERESTED PERSONS .........................................................i
STATEMENT REGARDING ORAL ARGUMENT .............................................. ii
TABLE OF CONTENTS ......................................................................................... iii
TABLE OF AUTHORITIES ..................................................................................... v
JURISDICTIONAL STATEMENT .......................................................................... 1
STATEMENT OF ISSUES PRESENTED FOR REVIEW ...................................... 3
STATEMENT OF THE CASE .................................................................................. 4
SUMMARY OF THE ARGUMENT ...................................................................... 11
ARGUMENT ........................................................................................................... 13
I. STANDARD OF REVIEW. ................................................................................ 13
II. 28 U.S.C. § 1442(A)(1) MUST BE LIBERALLY CONSTRUED IN FAVOR
OF REMOVAL. ............................................................................................... 14
VI. THE DISTRICT COURT ERRED IN REMANDING THE CASE. ............................. 46
CONCLUSION ........................................................................................................ 52
CERTIFICATE OF SERVICE ................................................................................ 54
iii
5 of 74
Case: 18-60365 Document: 00514558739 Page: 6 Date Filed: 07/17/2018
iv
6 of 74
Case: 18-60365 Document: 00514558739 Page: 7 Date Filed: 07/17/2018
TABLE OF AUTHORITIES
Page(s)
CASES
Ala. Power Co. v. Ala. Elec. Coop., Inc., 394 F.2d 672 (5th Cir. 1968)
.....................................................................................................19, 22, 31, 35, 50
Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm’n, 461 U.S. 375
(2006) .................................................................................................................. 16
Cavallini v. State Farm Mut. Auto Ins., 44 F.3d 256 (5th Cir. 1995) ...................... 36
Caver v. Cent. Ala. Elec. Coop., 845 F.3d 1135 (11th Cir. 2017) ...14, 21, 27, 33, 41
Cessna v. REA Energy Coop., Inc., 258 F. Supp. 3d 566 (W.D. Pa.
2017) ................................................................................................................... 43
City of Walker v. Louisiana, 877 F.3d 563 (5th Cir. 2017) ..................................... 14
Crutchfield v. Sewerage and Water Bd. of New Orleans, 829 F.3d 370
(5th Cir. 2016)...............................................................................................34, 48
7 of 74
Case: 18-60365 Document: 00514558739 Page: 8 Date Filed: 07/17/2018
Fuchs v. Rural Elec. Convenience Coop. Inc., 858 F.2d 1210 (7th Cir.
1988) ................................................................................................................... 17
Great Plains Trust v. Morgan Stanley Dean Witter, 313 F.3d 305 (5th
Cir. 2002) ............................................................................................................ 13
Greensboro Lumber Co. v. Ga. Power Co., 643 F. Supp. 1345 (N.D.
Ga. 1986), aff’d, 844 F.2d 1538 (11th Cir. 1988).........................................18, 26
Hagen v. Benjamin Foster Co., 739 F. Supp. 2d 770 (E.D. Pa. 2010) .................... 21
In re Cajun Elec. Power Coop., Inc., 109 F.3d 248 (5th Cir. 1997) .....17, 34, 49, 51
Isaacson v. Dow Chem. Co., 517 F.3d 129 (2d Cir. 2008) ..........................21, 27, 31
Jefferson Cty., Ala. v. Acker, 527 U.S. 423, 119 S. Ct. 2069 (1999)...........15, 33, 50
K.P.’s Auto Sales Inc. v. Gen. Motors Corp., No. 07-30906, 2008 WL
4580087 (5th Cir. Oct. 15, 2008) ......................................................13, 20, 21, 26
Martin v. Fidelity Nat’l Title Ins. Co., 537 F. App’x 597 (5th Cir.
2013) ................................................................................................................... 13
Pub. Util. Dist. No. 1 of Pend Oreille Cty. v. United States, 417 F.2d
200 (9th Cir. 1969).............................................................................................. 16
vi
8 of 74
Case: 18-60365 Document: 00514558739 Page: 9 Date Filed: 07/17/2018
Ruppel v. CBS Corp., 701 F.3d 1176 (7th Cir. 2012) .............................................. 22
Salt River Project Agric. Improvement & Power Dist. v. Fed. Power
Comm’n, 391 F.2d 470 (D.C. Cir. 1968) ............................................................ 16
Savoie v. Huntington Ingalls, Inc., 817 F.3d 457 (5th Cir. 2016) .......................2, 15
State of Fla. v. Cohen, 887 F.2d 1451 (11th Cir. 1989) .......................................... 32
Volkswagen of Am., Inc. v. Robertson, 713 F.3d 1151 (5th Cir. 1983) ................... 13
Watson v. Philip Morris Cos., 551 U.S. 142 (2007) ..............................14, 15, 21, 22
Willingham v. Morgan, 395 U.S. 402 (1969) ..................................13, 14, 15, 16, 33
Zeringue v. Crane Co., 846 F.3d 785 (5th Cir. 2017) .........................................2, 14
STATUTES
7 C.F.R. §§ 1700–1794 ........................................................................................5, 20
vii
9 of 74
Case: 18-60365 Document: 00514558739 Page: 10 Date Filed: 07/17/2018
OTHER AUTHORITIES
Richard P. Kreck, Reevaluating the Rural Electricifation
Administration: A New Deal for the Taxpayer, 16 ENVT’L L. 39,
45046 (1985) ....................................................................................................... 17
viii
10 of 74
Case: 18-60365 Document: 00514558739 Page: 11 Date Filed: 07/17/2018
JURISDICTIONAL STATEMENT
On February 23, 2018, Dixie timely sought to remove this matter to the
United States District Court for the Southern District of Mississippi. ROA.18-
60372.1. On February 26, 2018, Southern Pine filed a timely Notice of Removal.
§ 1442 (the federal officer removal statute), and the Notices of Removal raised
Remand and Memoranda of Law in support thereof. After full briefing, on April
27, 2018, the district court granted the Plaintiffs’ Motions to Remand, declining to
The Cooperatives now appeal from the Court’s Memorandum Opinion and
Order. The rulings were entered by the Honorable Keith Starrett in the United
The Cooperatives timely filed Notices of Appeal. Coast filed its Notice of
Appeal on May 14, 2018. ROA.18-60365.363. Dixie filed its Notice of Appeal on
May 16, 2018. ROA.18-60372.1011. Southern Pine filed its Notice of Appeal on
11 of 74
Case: 18-60365 Document: 00514558739 Page: 12 Date Filed: 07/17/2018
This Court has jurisdiction over the appeals pursuant to 28 U.S.C. § 1291
and 28 U.S.C. § 1447(d). See Savoie v. Huntington Ingalls, Inc., 817 F.3d 457,
460 (5th Cir. 2016) (recognizing that remand orders involving the federal officer
removal statute are reviewable on appeal); see also Zeringue v. Crane Co., 846
F.3d 785, 789 (5th Cir. 2017) (reviewing appeal of district court decision granting
motion to remand).
12 of 74
Case: 18-60365 Document: 00514558739 Page: 13 Date Filed: 07/17/2018
13 of 74
Case: 18-60365 Document: 00514558739 Page: 14 Date Filed: 07/17/2018
Rural electric cooperatives are member-owned, and members provide the capital
that is necessary to establish, expand, and maintain the facilities needed to provide
electric service to this rural area. The business and affairs of each Cooperative is
Rural Electrification Act (“RE Act”), and the Mississippi Legislature passed
Cooperatives have each applied for and received contracts from the United States
60365.5. Coast’s most recent loan contract with RUS is dated November 1, 2017.
1
RUS is the successor to the Rural Electrification Administration (“REA”) created by President
Franklin D. Roosevelt before passage of the RE Act.
4
14 of 74
Case: 18-60365 Document: 00514558739 Page: 15 Date Filed: 07/17/2018
ROA.18-60365.47. Dixie’s most recent loan contract with RUS is dated February
1, 2012. ROA.18-60372.66. Southern Pine’s most recent loan contract with RUS
certain provisions RUS has deemed appropriate to further the purposes of the RE
regular RUS auditing of the use of loan funds (7 C.F.R. §§ 1724, 1726 & 1737,
expenditures, and even the bank used by the cooperative. 7 C.F.R. § 1717.600 et
seq. Moreover, 7 C.F.R. § 1717.617, along with RUS’s loan documents with each
respect to the rates charged, it likewise imposes significant control over the
15 of 74
Case: 18-60365 Document: 00514558739 Page: 16 Date Filed: 07/17/2018
paying their electric bills. Pursuant to their Bylaws, each year when the
Cooperatives close their books, revenue from operations that exceeds the costs of
allowing the Cooperatives to buy equipment, make capital improvements, pay debt
obligations, lower rates by avoiding increased debt, and otherwise operate. To the
extent amounts received from furnishing electric energy exceed operating costs
and expenses, this amount is allocated and later retired to the members through
“capital credits,” also called “patronage capital.” These capital credits are recorded
on the books of the Cooperative and are repaid on a pro-rata basis to members and
former members upon dissolution or at such time that the Board of Directors
decides in its business judgment that the Cooperative can afford to do so without
Under Mississippi law, each Cooperative must also return excess revenues to
16 of 74
Case: 18-60365 Document: 00514558739 Page: 17 Date Filed: 07/17/2018
action against the Cooperatives for: (1) violation of Miss. Code § 77-5-235; (2)
fraudulent concealment; (3) breach of fiduciary duty; (4) unjust enrichment; (5)
In each Complaint, Plaintiffs assert that the Cooperatives are required by law
despite this statutory requirement, the Cooperatives have failed to return millions
of dollars of patronage capital to members. Id. Plaintiffs seek the return of “all
2
Section 77-5-235 was modified in July 2016. There is a dispute between the parties as to which
version of the statute applies to the relief sought by Plaintiffs but such a decision does not need
to be made by this Court for purposes of resolving this jurisdictional issue on appeal.
3
Plaintiffs’ Complaint against Southern Pine also includes a claim for statutory trust. See
ROA.18-60383.46.
7
17 of 74
Case: 18-60365 Document: 00514558739 Page: 18 Date Filed: 07/17/2018
least” the amount of capital in excess of 30% should be refunded to the members.
ROA.18-60383.44-47, ¶¶ 89, 97, 102, 106 (seeking an amount “not less than”
$112,500,000). Plaintiffs do not limit their relief to the amount exceeding 30% of
equity but rather seek “such greater amount as determined by the Court.” ROA.18-
by this Court”).
each Cooperative sought to remove its case to the United States District Court for
the Southern District of Mississippi. The Cooperatives argued that removal was
proper because Plaintiffs’ suits were premised on the Cooperatives’ alleged failure
distributions was made under the direction of a federal agency – i.e., the actions
were made as a result of the Cooperative carrying out the functions of the RUS and
abiding by the RUS guidelines, loan documents, and guiding federal statutes and
18 of 74
Case: 18-60365 Document: 00514558739 Page: 19 Date Filed: 07/17/2018
On April 27, 2018, after full briefing, the district court issued a separate
Memorandum Opinion and Order in each case granting the Motions to Remand.
that Plaintiffs only challenged one element of federal jurisdiction, the court only
court held that federal regulations (specifically, 7 C.F.R. § 1717.617) and the
not impossible for the Cooperatives to return capital to members and comply with
federal law because Plaintiffs limited their requested relief to that over and above
discretion of the Cooperatives’ Board of Directors did not create a conflict with
federal law because the RUS regulations explicitly contemplate state regulation of
Further, the court rejected the Cooperatives’ contention that the appointment of a
19 of 74
Case: 18-60365 Document: 00514558739 Page: 20 Date Filed: 07/17/2018
receiver as requested by the Plaintiffs would trigger a default under the loan
ROA.18-60372.1007-08; ROA.18-60383.594-95.
The Cooperatives have now filed individual appeals from the court’s April
10
20 of 74
Case: 18-60365 Document: 00514558739 Page: 21 Date Filed: 07/17/2018
This Court should find the district court erred by failing to exercise federal
below that they are subject to overarching and detailed contractual and regulatory
oversight and control by RUS by virtue of being RUS borrowers. The REA (now
electrification and has worked hand in hand with rural electric cooperatives since
the Great Depression. Indeed, this Court has called rural electric cooperatives like
federal goal goes far beyond that of a typical creditor and debtor. The regulations
efficiency plans, choose banks, and remove directors in certain instances. Most
importantly, the relevant regulations and the RUS loan contract require that the
11
21 of 74
Case: 18-60365 Document: 00514558739 Page: 22 Date Filed: 07/17/2018
defense. Therefore, Plaintiffs have waived any argument that the other elements of
federal officer jurisdiction have not been met. And here, the Cooperatives have
clearly satisfied all of the elements – including a colorable federal defense – for
establishing federal officer removal. Accordingly, the Court must reverse the lower
court’s erroneous decision failing to exercise federal officer jurisdiction over this
case.
12
22 of 74
Case: 18-60365 Document: 00514558739 Page: 23 Date Filed: 07/17/2018
ARGUMENT
I. Standard of Review.
This Court reviews the denial of a motion to remand de novo. Great Plains
Trust v. Morgan Stanley Dean Witter, 313 F.3d 305, 311 (5th Cir. 2002). The
Court does not review the existence of federal jurisdiction narrowly. In cases
are liberally construed in favor of removal. Willingham v. Morgan, 395 U.S. 402,
406 (1969).
Below, Plaintiffs did not challenge that the Cooperatives were a “person,”
that the Cooperatives acted under color of a federal office, or that a causal nexus
existed between the Cooperatives’ actions and at least one of the claims. The only
disputed issue was whether the Cooperatives asserted a colorable federal defense.
Plaintiffs are now barred on appeal from challenging the other elements of federal
officer jurisdiction. See Volkswagen of Am., Inc. v. Robertson, 713 F.3d 1151,
1152 (5th Cir. 1983) (refusing to consider arguments not presented to the district
court); Martin v. Fidelity Nat’l Title Ins. Co., 537 F. App’x 597, 600 (5th Cir.
2013) (recognizing “general rule [that] arguments not raised before the district
court are waived and will not be considered on appeal”); K.P.’s Auto Sales Inc. v.
Gen. Motors Corp., No. 07-30906, 2008 WL 4580087, at *3 n.5 (5th Cir. Oct. 15,
2008) (new arguments raised on appeal, not presented to the district court, are
13
23 of 74
Case: 18-60365 Document: 00514558739 Page: 24 Date Filed: 07/17/2018
waived); see also Lemaire v. Louisiana, 480 F.3d 383, 387 (5th Cir. 2007)
(“[A]rguments not raised before the district court are waived and cannot be raised
officer (or any person acting under that officer) of the United States or of any agent
thereof, in an official or individual capacity, for or relating to any act under color
of such office’ may be removed to federal court.” City of Walker v. Louisiana, 877
(1) it is a “person” within the meaning of the statute; (2) that plaintiff’s claims are
based upon the defendant’s conduct “acting under” a federal office; (3) that a
“causal nexus” exists between its actions performed under color of a federal office
and at least one of the plaintiff’s claims; and (4) that it can state at least a colorable
federal defense to the plaintiff’s claims. Mesa v. California, 489 U.S. 121, 124-25,
129-31 (1989); see also Zeringue v. Crane Co., 846 F.3d 785, 789 (5th Cir. 2017).
The Supreme Court has stated the original purpose in establishing federal
officer removal rights is “to protect federal officers from interference by hostile
state courts.” Willingham v. Morgan, 395 U.S. 402, 405 (1969); see also Caver v.
Cent. Ala. Elec. Coop., 845 F.3d 1135, 1142 (11th Cir. 2017) (citing Watson v.
14
24 of 74
Case: 18-60365 Document: 00514558739 Page: 25 Date Filed: 07/17/2018
Philip Morris Cos., 551 U.S. 142, 150 (2007)) (recognizing that the “statute’s
‘basic’ purpose is to protect the Federal Government from [state] interference with
its ‘operations.’”).
construed” in favor of removal. Bell v. Thornburg, 743 F.3d 84, 88-89 (5th Cir.
2014); Willingham, 395 U.S. at 406; Jefferson Cty., Ala. v. Acker, 527 U.S. 423,
Energy Coop., Inc., No. 3:16-42, 2016 WL 3963217, at *3 (W.D. Penn. July 21,
Appoint Counsel Against or Directed to Defender Ass’n of Phila., 790 F.3d 457,
Court should not resolve any doubts about removal in favor of remand. Savoie v.
Huntington Ingalls, Inc., 817 F.3d 457, 462 (5th Cir. 2016). The Supreme Court
has expressly rejected the notion that the federal officer removal statute is “narrow
or limited” – rather, it is “broad enough to cover all cases where federal officers
can raise a colorable defense arising out of their duty to enforce federal law.”
“[o]ne of the primary purposes of the [federal officer] removal statute – as its
15
25 of 74
Case: 18-60365 Document: 00514558739 Page: 26 Date Filed: 07/17/2018
federal courts.” Id. at 407. Under this standard, the Cooperatives easily meet each
of these requirements.
In 1936, at the depth of the Great Depression, Congress adopted the Rural
companies.” Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm’n, 461 U.S. 375,
380-81 (2006); see also Salt River Project Agric. Improvement & Power Dist. v.
Fed. Power Comm’n, 391 F.2d 470, 473 (D.C. Cir. 1968) (recognizing that the
objective of the RE Act “was to provide electricity to those sparsely settled areas
which the investor-owned utilities had not found it profitable to service” through
When the RE Act was passed in 1936, “Congress determined that the
[S]o long as the United States is interested in keeping the electric lamps lit on the
will light those lamps.” Pub. Util. Dist. No. 1 of Pend Oreille Cty. v. United States,
417 F.2d 200, 201 (9th Cir. 1969). One of the most effective incentives for the
16
26 of 74
Case: 18-60365 Document: 00514558739 Page: 27 Date Filed: 07/17/2018
directly from the federal government at below market interest rates. In re Cajun
Elec. Power Coop., Inc., 109 F.3d 248, 252 (5th Cir. 1997).
cooperatives. But, shortly after its passage, it became apparent to the Rural
investor-owned utilities would not apply for loans due to a requirement that
borrowers serve all customers, not just profitable customers. See Richard P. Kreck,
Taxpayer, 16 ENVT’L L. 39, 45-46 (1985); see also Fuchs v. Rural Elec.
Convenience Coop. Inc., 858 F.2d 1210, 1217 (7th Cir. 1988) (distinguishing rural
electric cooperatives from private actors seeking to reap the highest possible
profits). The REA thus began to encourage the formation of cooperatives. Id. The
low-interest, long-term loans offered by the REA (now RUS) allowed cooperatives
infrastructure. See U.S. DEP’T. OF AGRIC. RURAL DEV., RURAL UTILS. SERV.,
10, 2018).
17
27 of 74
Case: 18-60365 Document: 00514558739 Page: 28 Date Filed: 07/17/2018
The purpose of the RUS loan program was and is “to finance the
Ga. Power Co., 643 F. Supp. 1345, 1358-59 (N.D. Ga. 1986) (“[The electric
United States, acting through the REA. . . . The objectives of the REA Act were to
extend the benefits of economical central station service to the numerous farms in
to provide service.” (citations omitted)), aff’d, 844 F.2d 1538 (11th Cir. 1988).
promulgated model bylaws and a model act for state legislatures to adopt so that
these new cooperatives would be prepared to become REA borrowers.4 See HARRY
Nat’l Home Library Found. 1940) (recognizing that the uniform act “contains
4
The most recent version of the REA Model Act Bylaws are contained in RUS Bulletin 101-5.
RURAL DEV., U.S. DEP’T AGRIC., INFORMATIONAL PUBLICATION 200-3: INDEX OF ELECTRIC
ISSUANCES, BORROWER’S ED. 25, http://www.rd.usda.gov/files/UEP_Electric_Index_IP_200-
3.pdf (last visited July 9, 2018).
18
28 of 74
Case: 18-60365 Document: 00514558739 Page: 29 Date Filed: 07/17/2018
and extended.”). Mississippi adopted its Electric Power Association Law, codified
which led this Court to reject an investor-owned utility’s attempt to halt a REA
Ala. Power Co. v. Ala. Elec. Coop., Inc., 394 F.2d 672, 677 (5th Cir. 1968)
function conceived and directed by the United States. In this regard, the
Cooperatives assist the federal government by carrying out the rural electrification
program, providing electric power supply and distribution services that the RUS
Thus, the relationship between RUS and the Cooperatives is much more than a
19
29 of 74
Case: 18-60365 Document: 00514558739 Page: 30 Date Filed: 07/17/2018
subjected to regular RUS auditing of the use of loan funds. See 7 C.F.R. § 1737.
Further, RUS must approve many of the Cooperative’s contracts and, under some
60372.1003; ROA.18-60383.590; see also K.P.’s Auto Sales Inc. v. Gen. Motors
Corp., No. 07-30906, 2008 WL 4580087, at *3 n.5 (5th Cir. Oct. 15, 2008).
Nonetheless, the Cooperatives can quickly satisfy the first element for federal
U.S.C. § 1442(a). See Simmons v. W. Fla. Elec. Coop. Ass’n, Inc., No.
(recognizing that the electric cooperative is “a ‘person’ who can invoke the
20
30 of 74
Case: 18-60365 Document: 00514558739 Page: 31 Date Filed: 07/17/2018
Energy Coop., Inc., No. 3:16-42, 2016 WL 3963217 (W.D. Penn. July 21, 2016)
(plaintiff did not dispute that the electric cooperative is a “person” under the
statute); Caver v. Cent. Ala. Elec. Coop., 845 F.3d 1135, 1142 (11th Cir. 2017)
(same); Isaacson v. Dow Chem. Co., 517 F.3d 129, 135-36 (2d Cir. 2008) (“[W]e
Foster Co., 739 F. Supp. 2d 770, 776 n.6 (E.D. Pa. 2010) (“[I]t is well settled that
corporations such as Defendants do qualify as persons under the statute and that
60372.1003; ROA.18-60383.590; see also K.P.’s Auto Sales Inc. v. Gen. Motors
Corp., No. 07-30906, 2008 WL 4580087, at *3 n.5 (5th Cir. Oct. 15, 2008).
Nonetheless, the Cooperatives can easily satisfy the “acting under” element.
Watson v. Philip Morris Cos., 551 U.S. 142, 152 (2007). “Cases in which the
21
31 of 74
Case: 18-60365 Document: 00514558739 Page: 32 Date Filed: 07/17/2018
with the federal government to achieve a task that furthers an end of the federal
government.” Ruppel v. CBS Corp., 701 F.3d 1176, 1180–81 (7th Cir. 2012)
(further acknowledging that the acting under element “covers situations . . . where
the federal government uses a private corporation to achieve an end it would have
otherwise used its own agents to complete”). Nonetheless, the words “acting
under” are broad, and the statute must be liberally construed in favor of removal.
purposes of removal under 28 U.S.C. § 1442(a) due to their role in assisting and
carrying out the duties of their federal superior – i.e. RUS. Id. at 152. Indeed, the
Fifth Circuit has expressly stated that “rural electric cooperatives are something
more than public utilities; they are instrumentalities of the United States,”
areas with access to electricity. Ala. Power Co. v. Ala. Elec. Coop., Inc., 394 F.2d
672, 677 (5th Cir. 1968) (emphasis added). Thus, the well-established role of
electric cooperatives is to “assist or help carry out the duties or tasks of RUS . . .
[and work] hand in hand with RUS to assist that agency in facilitating rural
order to fulfill that objective.” Cessna v. REA Energy Cooperative, Inc., Case No.
22
32 of 74
Case: 18-60365 Document: 00514558739 Page: 33 Date Filed: 07/17/2018
3:16-42, 2016 WL 3963217, at *5 (W.D. Penn. July 21, 2016) (internal quotations
omitted).
“In light of the ‘unusually close and detailed regulatory and contractual
relationship’ between Defendant and RUS, and in accordance with the liberal
over the Cooperatives while, at the same time, affording them discretion in
establishing rates and working capital reserves so long as the rates and reserves are
not too low. Moreover, 7 C.F.R. § 1717.617 implicitly grants authority to the
issued, stating:
(a) After giving effect to the distribution, the borrower's equity will be
greater than or equal to 30 percent of its total assets;
(b) The borrower is current on all payments due on all notes secured
under the mortgage;
(c) The borrower is not otherwise in default under its loan documents;
and
23
33 of 74
Case: 18-60365 Document: 00514558739 Page: 34 Date Filed: 07/17/2018
(d) After giving effect to the distribution, the borrower's current and
accrued assets will be not less than its current and accrued liabilities.5
The Cooperative’s loan documents with RUS also require RUS approval of
Without the prior written approval of RUS, the Borrower shall not in
any calendar year make any Distributions (exclusive of any
Distributions to the estates of deceased natural patrons) to its
members, stockholders or consumers except as follows:
(a) Equity above 30%. If, after giving effect to any such Distribution,
the Equity of the Borrower shall be greater than or equal to 30% of its
Total Assets; or
(b) Equity above 20%. If, after giving effect to any such Distribution,
the Equity of the Borrower shall be greater than or equal to 20% of its
Total Assets and the aggregate of all Distributions made during the
calendar year when added to such Distribution shall be less than or
equal to 25% of the prior year's margins.
defined to mean:
5
The court characterized 7 C.F.R. §1717.617 as a “safe harbor,” but such a term is improper.
The regulation is a guideline, not a directive on avoiding a penalty. Indeed, the term “safe
harbor” is not used in the regulation and was instead incorporated by the court from the
Plaintiffs’ argument below. See, e.g., ROA.18-60365.175 (referring to the 30% asset-to-equity
ratio as a “safe harbor”).
24
34 of 74
Case: 18-60365 Document: 00514558739 Page: 35 Date Filed: 07/17/2018
for the Borrower to, in any calendar year, … pay or determine any
patronage refunds, or retire any patronage capital or make any other
Cash Distributions, to its members....; provided, however, that for
purposes of this Agreement a ‘Cash Distribution’ shall be deemed to
include any general cancellation or abatement of charges for electric
energy or services furnished by the Borrower….
below, this contractual and regulatory framework provides the Cooperatives with a
Certainly, with respect to the specific actions at issue in the present case, the
Cooperatives are both permitted to establish rates and working capital reserves in
that Plaintiffs claim should have been distributed to the members so that the
Cooperatives could comply with RUS’s requirement that the Cooperative maintain
pre-approval from RUS assuming certain other conditions are met – but it is not a
mandatory ceiling for the retention of patronage capital. Thus, the Cooperatives
were acting under RUS when they established rates and reserves in their discretion
which, in turn, led to its retention of those funds. See Kritner v. Arab Elec. Coop.,
(concluding that an electric cooperative acted under a federal officer when it acted
25
35 of 74
Case: 18-60365 Document: 00514558739 Page: 36 Date Filed: 07/17/2018
pursuant to its contract with the Tennessee Valley Authority); see also Greensboro
Lumber Co. v. Ga. Power Co., 643 F. Supp. 1345, 1358-59 (N.D. Ga. 1986) (“[The
United States, acting through the REA . . . . The objectives of the REA Act were to
extend the benefits of economical central station service to the numerous farms in
to provide service.” (citations omitted)), aff'd, 844 F.2d 1538 (11th Cir. 1988).
Plaintiffs did not challenge this element before the district court and are
60372.1003; ROA.18-60383.590; see also K.P.’s Auto Sales Inc. v. Gen. Motors
Corp., No. 07-30906, 2008 WL 4580087, at *3 n.5 (5th Cir. Oct. 15, 2008).
Nonetheless, the Cooperatives can easily satisfy this element of federal officer
jurisdiction.
To establish a causal nexus, the claims must be “for or relating to any act”
under color of federal office. 28 U.S.C. § 1442(a)(1).6 The phrase “relating to” has
6
28 U.S.C. § 1442(a)(1) was amended in 2011 to include the phrase “or relating to” in order to
broaden the provision. See Cessna v. REA Energy Cooperative, Inc., Case No. 3:16-422016, WL
3963217, at *6-7 (W.D. Penn. July 21, 2016).
26
36 of 74
Case: 18-60365 Document: 00514558739 Page: 37 Date Filed: 07/17/2018
the act in question and the federal office.” Caver v. Cent. Ala. Elec. Coop., 845
F.3d 1135, 1144 (11th Cir. 2017) (citing In re Commonwealth’s Motion to Appoint
Counsel Against or Directed to Def. Ass’n of Phila., 790 F.3d 457, 471 (3d Cir.
connection] requirement is quite low, as ‘[t]he statute does not require that the
prosecution must be for the very acts which the officer admits to have been done
by him under federal authority.’” Isaacson v. Dow Chem. Co., 517 F.3d 129, 135
(2d Cir. 2008) (stating that the causal connection requirement must be afforded a
2354414 at *4.
Cooperatives are being sued “for or relating to any act under color of such office”
regulatory framework whereby RUS exerts significant controls, RUS, through its
loan agreements with electric cooperatives, provides for discretion to the borrower
(in this instance, the Cooperatives) through its Directors, in addition to imposing
27
37 of 74
Case: 18-60365 Document: 00514558739 Page: 38 Date Filed: 07/17/2018
patronage capital. For example, the following provisions are implicated by the
Without the prior written approval of RUS, the Borrower shall not in
any calendar year make any Distributions (exclusive of any
Distributions to the estates of deceased natural patrons) to its
members, stockholders or consumers except as follows:
(a) Equity above 30%. If, after giving effect to any such
Distribution, the Equity of the Borrower shall be greater than
or equal to 30% of its Total Assets; or
(b) Equity above 20%. If, after giving effect to any such
Distribution, the Equity of the Borrower shall be greater than or
equal to 20% of its Total Assets and the aggregate of all
Distributions made during the calendar year when added to
such Distribution shall be less than or equal to 25% of the prior
year's margins.
38 of 74
Case: 18-60365 Document: 00514558739 Page: 39 Date Filed: 07/17/2018
Clearly, RUS, through its loan contracts with the Cooperatives, provides
significant discretion to the Cooperatives with respect to the rates charged while in
turn imposing significant control over the operations of the Cooperatives, including
with respect to the limitations placed on the distribution of patronage capital by the
and maintained working capital reserves that are too large, which is a direct attack
on the Cooperatives for taking actions that are permitted under Section 5.4(a).
Also, Plaintiffs’ request in the Complaint to repay all excess member capital held
Although the lower court concluded that the Plaintiffs were merely seeking
29
39 of 74
Case: 18-60365 Document: 00514558739 Page: 40 Date Filed: 07/17/2018
receiver. Instead, Plaintiffs have requested that the Court appoint a receiver or
trustee over the Cooperatives “to oversee and protect the interests of the members
85. To the extent the Cooperatives are considered in default under their loans to
RUS, the Cooperatives would be unable to distribute any patronage capital to their
borrower is otherwise in default under its loan documents); see also ROA.18-
(“Provided however, that in no event shall the Borrower make any Distributions
Thus, the Cooperatives are being sued as a result of carrying out the
functions of RUS and abiding by the RUS guidelines, loan documents and
governing federal statutes and regulations. Moreover, given the high level of
through loan documents, it is undeniable that there is a causal nexus between the
30
40 of 74
Case: 18-60365 Document: 00514558739 Page: 41 Date Filed: 07/17/2018
be in default under their loan contracts with RUS, further exemplify the
interconnectedness between the Cooperatives and RUS with respect to the conduct
making yearly cash refunds of all patronage capital. But to make yearly refunds of
all patronage capital as Plaintiffs demand would certainly reduce member equity
far below the 30% required by the applicable regulations and the loan contract. 7
C.F.R. § 1717.617. In other words, making yearly cash refunds of all patronage
capital would implicate RUS regulations and the RUS loan contract. Isaacson, 517
F. 3d at 137.
Below, Plaintiffs contended that they actually only seek the return of
patronage capital in excess of 30% of the Cooperatives’ total assets. But Plaintiffs
did not actually limit their requested relief to only the amounts in excess of 30% of
the Cooperatives’ total assets. And even if this Court agrees with Plaintiffs that
they only seek amounts in excess of the 30% “safe harbor” provided for in 7
capital and would frustrate and impede Congress’ “purpose of bringing abundant,
low cost electric energy to rural America.” Ala. Power Co. v. Ala. Elec. Coop.,
31
41 of 74
Case: 18-60365 Document: 00514558739 Page: 42 Date Filed: 07/17/2018
Inc., 394 F.2d 672, 677 (5th Cir. 1968). Indeed, the relief sought by Plaintiffs in
necessarily cause the Cooperatives to raise rates because of the necessity to replace
the equity demanded by Plaintiffs with additional debt and interest charges.
causal nexus between Plaintiffs’ claims and the Cooperatives’ compliance with
the Cooperatives have raised a colorable federal defense. Courts give this portion
officers can raise a colorable defense arising out of their duty to enforce federal
law.’” State of Fla. v. Cohen, 887 F.2d 1451, 1454 n.4 (11th Cir. 1989) (quoting
32
42 of 74
Case: 18-60365 Document: 00514558739 Page: 43 Date Filed: 07/17/2018
Willingham v. Morgan, 395 U.S. 402, 406-07 (1969)). To that end, federal officer
question element is met if the defense depends on federal law.” Jefferson Cty.,
Ala. v. Acker, 527 U.S. 423, 431 (1999). The colorable federal defense “need only
Magnin v. Teledyine Continental Motors, 91 F.3d 1424, 1427 (11th Cir. 1996); see
also State v. Kleinert, 855 F.3d 305, 313 (5th Cir. 2017) (recognizing that a
The law does not require that the removing defendant virtually win its case
before it can be removed. Acker, 527 U.S. 431; see also Caver v. Cent. Ala. Elec.
Coop., No. 15-0129-WS-C, 2015 WL 4742490, at *4 (S.D. Ala. Aug. 11, 2015)
(explaining that the removing defendant “need not prove its preemption defense in
merely to show that such a federal defense is not without foundation and is made in
good faith”). Instead, the burden imposed on a removing defendant with respect to
asserting a colorable federal defense is a “modest” and “lenient” one. See Morgan
v. Bill Vann Co., No. 11-0535-WS-B, 2011 WL 6056083, at *5 (S.D. Ala. Dec. 6,
2011); Caver, 845 F.3d at 1146. Indeed, a core purpose of federal officer removal
33
43 of 74
Case: 18-60365 Document: 00514558739 Page: 44 Date Filed: 07/17/2018
is to have the validity of the federal defense tried in federal court. Magnin, 91 F.3d
at 1427. Thus, a defendant removing under § 1442(a) need only prove that its
Sewerage and Water Bd. of New Orleans, 829 F.3d 370, 375 (5th Cir. 2016).
(1) compliance with both federal and state law is impossible; or (2) application of
Power Coop. Inc., 109 F.3d 248, 254 (5th Cir. 1997). Otherwise stated, the second
form of conflict preemption applies when application of state law could impede or
frustrate the purpose of a federal statutory scheme. See, e.g., City of Cookeville v.
Upper Cumberland Elec. Mbrshp. Corp., 484 F.3d 380 (6th Cir. 2007) (holding
that state court action which frustrated the purposes of the REA was subject to
and execution of the full purposes and objectives of Congress – specifically the
RUS – in regulating the Cooperatives. The Fifth Circuit has expressly stated that
the REA’s purpose in choosing rural electric cooperatives “was for the purpose of
34
44 of 74
Case: 18-60365 Document: 00514558739 Page: 45 Date Filed: 07/17/2018
bringing abundant, low cost electric energy to rural America.” Ala. Power Co. v.
Ala. Elec. Coop., Inc., 394 F.2d 672, 677 (5th Cir. 1968) (citations and internal
under the REA is to “assist or help carry out the duties or tasks of RUS … [and
work] hand in hand with RUS to assist that agency in facilitating rural
order to fulfill that objective.” Cessna v. REA Energy Coop., Inc., Case No. 3:16-
both Mississippi Code Ann. § 77-5-235 and the state common law claims asserted
in the Complaint – is clearly in conflict with the federal statutory scheme of the
Mississippi law would effectively prohibit the Cooperatives from ever fulfilling
their objective of providing low rate electric services to rural areas by eliminating
level that requires them to raise rates due to the added debt and interest charges
places restrictions on the amounts that the Cooperatives can reserve for items set
forth in the statute, such as construction and contingencies, which are regulated by
RUS and require RUS approval. See 7 C.F.R. §§ 1724, 1726, 1737.
35
45 of 74
Case: 18-60365 Document: 00514558739 Page: 46 Date Filed: 07/17/2018
At the lower court, Plaintiffs belatedly argued that in reality they only seek
the return of patronage capital in excess of 30% of the Cooperatives’ total assets.
But removal is based on allegations in the Complaint, and not contrary positions
taken by Plaintiffs in a motion to remand. Cavallini v. State Farm Mut. Auto Ins.
Co., 44 F.3d 256, 264 (5th Cir. 1995) (recognizing that court must look to
Williams, 482 U.S. 386, 397 (1987) (recognizing that the court is limited to the
facts alleged for the propriety of removal and the existence of federal question
the Complaint, Plaintiffs in no way limited their requested relief to only amounts in
repeatedly refer to this amount as the floor amount they are seeking. See, e.g.,
Plaintiffs would have Miss. Code Ann. § 77-5-235 read to prohibit the
capital in excess of 30% of the Cooperatives’ total assets. However, this would
patronage capital. This is in direct conflict with the intention of the REA and RUS.
46 of 74
Case: 18-60365 Document: 00514558739 Page: 47 Date Filed: 07/17/2018
(emphasis added). RUS’s express command – that the Cooperatives must use
business judgment and discretion to set rates that provide and maintain
(a) After giving effect to the distribution, the borrower's equity will be
greater than or equal to 30 percent of its total assets;
(b) The borrower is current on all payments due on all notes secured
under the mortgage;
(c) The borrower is not otherwise in default under its loan documents;
and
37
47 of 74
Case: 18-60365 Document: 00514558739 Page: 48 Date Filed: 07/17/2018
(d) After giving effect to the distribution, the borrower's current and
accrued assets will be not less than its current and accrued liabilities.
and as a regulatory floor for the amount of patronage capital a cooperative must
inherent in that a Board of Directors is not obligated by the REA or RUS to make
by the Board.
C.F.R. § 1710.114(d)(1), RUS mandates that the Cooperatives are to maintain rates
for its utility services so that sufficient revenue is generated “to provide and
maintain reasonable working capital….” Id. As such, the loan contracts between
RUS and the Cooperatives clearly evidence RUS’s intent to allow the Cooperatives
to have the authority to charge rates that will allow the Cooperatives to retain
7
“Section 5.4. Rates to Provide Revenue to Meet Coverage Ratios Requirements.
(a) Prospective Requirement. The Borrower shall design and implement rates for utility service
furnished by it to provide sufficient revenue … (i) to pay all fixed and variable expenses when
and as due, (ii) to provide and maintain reasonable working capital, and (iii) to maintain, on
an annual basis, the Coverage Ratios.” (emphasis added).
38
48 of 74
Case: 18-60365 Document: 00514558739 Page: 49 Date Filed: 07/17/2018
between federal law and the relief sought by Plaintiffs allegedly pursuant to
Mississippi law because the Cooperatives cannot both exercise their RUS- and
while also compulsively returning all patronage capital (or the minimum floor) to
its members.
would eliminate all authority from the Board of Directors to determine appropriate
Prayer for Relief ¶ 4. Not only would appointment of a receiver or trustee usurp the
receiver is an event of default under the loan contract between RUS and the
60372.84-85, at § 7.1(g). The district court read such a provision as only applying
to bankruptcy. But the language is not so limited and instead applies in any
39
49 of 74
Case: 18-60365 Document: 00514558739 Page: 50 Date Filed: 07/17/2018
respect to any provision of its loan documents or any other agreement with RUS:
(1) Such borrower, if directed in writing by RUS, shall replace its general manager
within 30 days after the date of such written notice; and (2) Such borrower shall
not hire a general manager without prior written approval by RUS.”). As such, the
relief requested by Plaintiffs is in direct conflict with federal law in that it will
cause the Cooperatives to be in default under its RUS loan contracts and cede
control over its operations to a third party at the direction of a state court. Such
relief is wholly inconsistent with the underlying federal policies. As such, the
This issue is not one of first impression to district and circuit courts across
the country. Notably, courts across the country have regularly and repeatedly
40
50 of 74
Case: 18-60365 Document: 00514558739 Page: 51 Date Filed: 07/17/2018
Caver, for instance, the Eleventh Circuit affirmed a district court’s order denying a
plaintiff’s motion to remand, concluding that each of the elements for removal had
been clearly established. Caver v. Cent. Ala. Elec. Coop., 845 F.3d 1135, 1146
(11th Cir. 2017). There, the plaintiff’s case was premised on her argument that
Alabama’s excess revenue statute required the cooperative to pay out to its
members $24 million in equity held in capital accounts. Id. Specifically as to the
“colorable federal defense” prong, the Court recognized that the cooperative “has
an unusually close and detailed regulatory and contractual relationship with RUS
dating back to 1939, and that relationship controls almost all of [the cooperative’s]
remaining equity being less than 30% of its remaining assets. Id. The Eleventh
Circuit held that such a financial barrier “would lead to a conflict between federal
and state law” and therefore the cooperative’s preemption defense “is plausible and
satisfies the lenient colorable federal defense requirement for removal under §
1442(a)(1).” Id.
was proper under 28 U.S.C. §1442(a)(1). Simmons v. W. Fla. Elec. Coop. Ass’n,
41
51 of 74
Case: 18-60365 Document: 00514558739 Page: 52 Date Filed: 07/17/2018
claims against the cooperative and contended that Florida law required the
cooperative sought removal under federal officer jurisdiction. After reviewing the
history of electric cooperatives, the Court noted that rural electric cooperatives
were set out by Congress “in pursuit of an important national goal: bringing
electricity to rural America.” Id. at *2. The court then recognized that “[i]n this
rural electricity when those in private industry would not do it – applying the
federal officer removal statute is fully consistent with the purpose of the statute.
Id. West Florida asserted that making patronage refunds in the amounts the
plaintiffs demanded would violate federal law. Recognizing that the cooperative’s
assertions “are supported by a federal rule,” the court stated that West Florida’s
position “is at least colorable, which is all that is required to support removal.” Id.
at *3.
Likewise, the court in Cessna was confronted with an identical set of facts as
the present case. Cessna v. REA Energy Coop., Inc., No. 3:16-42, 2016 WL
3963217, at *8 (W.D. Penn. July 21, 2016). In Cessna, the class action plaintiffs
patronage capital. Id. at *1-3. The electric cooperative sought to remove the
42
52 of 74
Case: 18-60365 Document: 00514558739 Page: 53 Date Filed: 07/17/2018
action into federal court under 28 U.S.C. § 1442(a). Id. at *3. The court in Cessna
upheld removal under 28 U.S.C. § 1442(a), holding that the allegations in the
notice of removal met all of the requirements for federal officer removal. Id. at *8.
Specifically, as to the “colorable federal defense,” the court recognized that the
cooperative “demonstrated that the acts forming the basis of Plaintiffs’ state action
Later, the same court applied the heightened standard on a motion to dismiss
to the same preemption defense, concluding that the “limited record” did not allow
defeat the plaintiffs’ claims. See Cessna v. REA Energy Coop. Inc., 258 F. Supp.
3d 566, 574-78 (W.D. Pa. 2017) [hereinafter Cessna II]. After considering the
preemption arguments, the court dismissed the plaintiffs’ claims against the
At the lower court, Plaintiffs argued that Cessna II stands for the proposition
at the removal stage of the proceedings, the Cooperatives must only present a
43
53 of 74
Case: 18-60365 Document: 00514558739 Page: 54 Date Filed: 07/17/2018
“plausible” or “colorable” federal defense. But at the motion to dismiss stage, the
courts apply a heightened standard. Applying that heightened standard, the Cessna
II court simply held that the “limited record” did not allow the court to determine
preemptive weight.
the court’s holding. While the Cessna II court did not conclusively find that
dismissal was proper based on conflict preemption, this does not mean that conflict
motion to dismiss, courts can only consider the allegations of the Complaint,
whereas later in litigation, at the motion for summary judgment stage, other
evidence can be used. This is precisely why the Cooperatives chose not to assert
conflict preemption as a defense in their motion to dismiss papers, but rather chose
to wait for a more appropriate time. In short, just because the Cessna II court
found that the limited record was not sufficient to grant the motion to dismiss on
grounds of conflict preemption does not mean that such a defense is not
“plausible” when evidence can be considered – and that is the only standard that
44
54 of 74
Case: 18-60365 Document: 00514558739 Page: 55 Date Filed: 07/17/2018
Numerous other district and circuit courts have similarly allowed removal in
nearly identical cases where plaintiffs brought putative class actions against
electric cooperatives asserting that the cooperatives violated state laws by not
refunding patronage capital and where the cooperatives were acting under RUS
regulations and control and were limited in the distributions they could make. See
Davis v. Cent. Ala. Elec. Coop., Case No. 15-0131-WS-C, 2015 WL 4742496
(S.D. Ala. Aug. 11, 2015); Kritner v. Arab Elec. Coop., No. 4:15-cv-341-VEH,
2015 WL 2354414, at *5 (N.D. Ala. May 14, 2015) (finding the Tennessee Valley
2354384, at *5 (N.D. Ala. May 14, 2015) (same); Sparks v. Cullman Elec. Coop.,
No. 4:15-CV-339, 2016 WL 927032 (N.D. Ala. Mar. 11, 2016) (concluding that
are clearly plausible or colorable such that federal courts have an interest in taking
jurisdiction over the case. The district court erred in holding otherwise.
45
55 of 74
Case: 18-60365 Document: 00514558739 Page: 56 Date Filed: 07/17/2018
The district court’s order suffers from several major flaws. First, although
the district court was required to “liberally construe” the elements of federal officer
jurisdiction in favor of removal, the court instead liberally construed the Plaintiffs’
Complaint in favor of remand. In doing so, the court failed to recognize that the
relief Plaintiffs seek in the Complaint goes well beyond the 30% “safe harbor” and
frustrates the purpose of a federal statutory scheme. The district court concluded
that it is “not impossible” for the Cooperatives to return capital to its members and
comply with federal law, as long as the Cooperatives stay within the 30% “safe
60372.1006-07; ROA.18-60383.593-94.
The court concluded that the RUS regulations and the Cooperatives’ loan
documents create a 30% “safe harbor” and so long as Plaintiffs only seek the return
ROA.18-60383.593.
limited. Plaintiffs seek the return of “all excess member capital” held by the
46
56 of 74
Case: 18-60365 Document: 00514558739 Page: 57 Date Filed: 07/17/2018
60365.41, ¶ 101. Plaintiffs contend that “at least” the amount of capital in excess of
106 (seeking an amount “not less than” $112,500,000). Plaintiffs do not limit their
relief to the amount exceeding 30% of equity but rather seek “such greater amount
(“such greater amount deemed equitable by this Court”). Such language does not
restrict the Plaintiffs to only seeking 30% and not a penny more but instead does
just the opposite. The express allegations of the Complaint seek not only
everything in excess of 30%, but also include a demand for “such greater relief as
determined by the Court,” leaving it open for them to argue they should get even
more. Moreover, in addition to the 30% minimum, they seek attorneys’ fees and
interest, which by these express terms of the Complaint put them in conflict with
The district court rejected the Cooperatives’ argument, stating: “The Court
does not interpret this language to imply that Plaintiff seeks funds beyond what is
permitted by the regulatory safe harbor. Rather, Plaintiff wants every cent above
47
57 of 74
Case: 18-60365 Document: 00514558739 Page: 58 Date Filed: 07/17/2018
reaching this conclusion, the district court disregarded the express relief sought by
Plaintiffs and further failed to properly apply the standard that federal officer
removing under § 1442(a) need only prove that its entitlement to a federal defense
“is subject to reasonable debate.” Crutchfield v. Sewerage and Water Bd. of New
Orleans, 829 F.3d 370, 375 (5th Cir. 2016). Here, it is at least “subject to
reasonable debate” whether Plaintiffs seek more than the 30% threshold,
particularly in light of the very allegations of the Complaint which seek the return
of all excess capital and at a minimum everything above 30%, and attorneys’ fees
and interest.
to only the amount over and above the 30% threshold, such a request still
maintaining reserves, which is in direct conflict with the clear intention of the REA
and RUS. See 7 C.F.R. § 1710.114(d)(1). Likewise, the 30% threshold would
eliminate the Cooperative’s ability to adequately plan for the future, as all
construction work plans must be approved by RUS before construction can begin.
See 7 C.F.R. § 1710.250. Because the RUS regulations require the Cooperatives to
seek RUS approval for construction work plans and to maintain sufficient reserves
48
58 of 74
Case: 18-60365 Document: 00514558739 Page: 59 Date Filed: 07/17/2018
for working capital, the 30% limit argued by Plaintiffs would necessarily impede
and frustrate the purpose of the federal RUS scheme by creating situations where
the Cooperatives would be stripped of their ability to properly fund reserves and
Likewise, the lower court erred in concluding that the Plaintiffs were merely
electricity. In re Cajun Elec. Power Coop., Inc., 109 F.3d 248, 254 (5th Cir.
1997). Indeed, the relief sought by Plaintiffs in their lawsuits would necessarily
cause the Cooperatives to raise rates because of the necessity to replace the equity
demanded by Plaintiffs with additional debt and interest charges. The Fifth Circuit
has expressly stated that the purpose of electric cooperatives is to bring “abundant,
low cost electric energy to rural America.” Ala. Power Co. v. Ala. Elec. Coop.,
Inc., 394 F.2d 672, 677 (5th Cir. 1968). But ironically, Plaintiffs’ lawsuit and the
49
59 of 74
Case: 18-60365 Document: 00514558739 Page: 60 Date Filed: 07/17/2018
relief sought therein will do nothing more than result in higher rates because the
Cooperatives will be forced to replace the equity lost with more costly debt,
by this Court.
The court’s conclusion also wrongfully assumes that the Cooperatives must
prove, for purposes of federal jurisdiction, that they are entitled to a judgment on
the merits. But an indisputable federal defense is not required to show that federal
defense. See Jefferson Cty., Ala. v. Acker, 527 U.S. 423, 432 (1999) (“To choose
between those readings of the Ordinance is to decide the merits of this case. Just as
requiring a clearly sustainable defense rather than a colorable defense would defeat
the purpose of the removal statute.”); Kritner v. Arab Elec. Coop., No. 4:15-cv-
cooperative had a colorable federal defense based on its loan contract with the
TVA in a patronage capital refund case but declining to determine whether the
offered interpretation of the contract for purposes of removal was correct). The
Cooperatives’ burden at the removal stage is not as onerous as the district court
federal defense.
50
60 of 74
Case: 18-60365 Document: 00514558739 Page: 61 Date Filed: 07/17/2018
The district court next asserts that the RUS regulations explicitly
the entire doctrine of conflict preemption – i.e., where the application of state law
might plausibly impede or frustrate the purpose of a federal statutory scheme, the
conflict preemption doctrine dictates that the federal rule must govern over the
state rule. See In re Cajun Elec. Power Coop., 109 F.3d at 254. Here, in order to
application of Miss. Code § 77-5-235 and its dictate for the Cooperatives to return
the purpose of certain RUS regulations – in particular, the RUS requirement that
the asset-to-equity ratio cannot exceed 30%. At this stage of the case, the
Cooperatives are not required to definitively prove the success of its conflict
CONCLUSION
Based on the foregoing, the Cooperatives respectfully request that this Court
reverse the district court and conclude that federal jurisdiction is proper under
§ 1442(a)(1).
51
61 of 74
Case: 18-60365 Document: 00514558739 Page: 62 Date Filed: 07/17/2018
Respectfully submitted,
PETER C. ABIDE
Miss. State Bar No. 1026
pabide@curriejohnson.com
CURRIE JOHNSON & MYERS, P.A.
925 Tommy Munro Dr., Ste. H
Biloxi, MS 39532
Telephone: (228) 385-1010
Facsimile: (228) 285-1011
52
62 of 74
Case: 18-60365 Document: 00514558739 Page: 63 Date Filed: 07/17/2018
S. WAYNE EASTERLING
Miss. State Bar No. 5290
easterlinglaw@aol.com
P.O. Box 1471
Hattiesburg, MS 39403
Telephone: (601) 544-8900
53
63 of 74
Case: 18-60365 Document: 00514558739 Page: 64 Date Filed: 07/17/2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 19th day of July, 2018, an electronic copy
of the foregoing brief was filed with the Clerk of Court for the United States Court
of Appeals for the Fifth Circuit using the Appellate CM/ECF system, and that
54
64 of 74
Case: 18-60365 Document: 00514558739 Page: 65 Date Filed: 07/17/2018
CERTIFICATE OF COMPLIANCE
by the word-count function of Microsoft Word 2013, excluding the parts of the
brief exempted by Federal Rule of Appellate Procedure 32(f) and Fifth Circuit
Rule 32.2.
Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of
spaced typeface using Microsoft Word 2013 in 14-point Times New Roman font.
55
65 of 74
Case: 18-60365 Document: 00514558739 Page: 66 Date Filed: 07/17/2018
I hereby certify that, in the foregoing brief filed using the Fifth Circuit
CM/ECF document filing system, (1) the privacy redactions required by Fifth
Circuit Rule 25.2.13 have been made, (2) the electronic submission is an exact
copy of the paper document, and (3) the document has been scanned and is free of
viruses.
56
66 of 74
Case: 18-60365 Document: 00514561854 Page: 1 Date Filed: 07/17/2018
Dear Counsel,
The following pertains to your brief electronically filed on
Appellants' Brief.
We filed your brief. However, you must make the following
corrections within the next 14 days, or on or before August 2,
2018.
You need to correct or add:
67 of 74
Case: 18-60365 Document: 00514561854 Page: 2 Date Filed: 07/17/2018
Caption on the brief does not agree with the caption of the case
in compliance with FED. R. APP. P. 32(a)(2)(C). Caption must
exactly match the Court's Official Caption (See Official Caption
below)
Note: Once you have prepared your sufficient brief, you must
electronically file your 'Proposed Sufficient Brief' by selecting
from the Briefs category the event, Proposed Sufficient Brief, via
the electronic filing system. Please do not send paper copies of
the brief until requested to do so by the clerk's office. The
brief is not sufficient until final review by the clerk's office.
If the brief is in compliance, paper copies will be requested and
you will receive a notice of docket activity advising you that the
sufficient brief filing has been accepted and no further
corrections are necessary. The certificate of service/proof of
service on your proposed sufficient brief MUST be dated on the
actual date that service is being made. Also, if your brief is
sealed, this event automatically seals/restricts any attached
documents, therefore you may still use this event to submit a
sufficient brief.
Failure to timely provide the sufficient brief may result in the
dismissal of your appeal pursuant to 5TH CIR. R. 42.3.
Sincerely,
LYLE W. CAYCE, Clerk
By: _________________________
Rebecca L. Leto, Deputy Clerk
504-310-7703
68 of 74
Case: 18-60365 Document: 00514561854 Page: 3 Date Filed: 07/17/2018
LAKESHA BUTLER,
Plaintiff - Appellee
v.
COAST ELECTRIC POWER ASSOCIATION,
Defendant - Appellant
________________________________
Cons. w/18-60372
WILLIAM WILLIS, III,
Plaintiff - Appellee
v.
DIXIE ELECTRIC POWER ASSOCIATION,
Defendant - Appellant
______________________________
Cons. w/18-60383
KIMBERLY HARPER,
Plaintiff - Appellee
v.
SOUTHERN PINE ELECTRIC COOPERATIVE,
Defendant - Appellant
69 of 74
Case: 18-60365 Document: 00514561883 Page: 1 Date Filed: 07/17/2018
CORRECTED
July 19, 2018
Dear Counsel,
The following pertains to your brief electronically filed on July
17, 2018.
We filed your brief. However, you must make the following
corrections within the next 14 days, or on or before August 2,
2018.
You need to correct or add:
70 of 74
Case: 18-60365 Document: 00514561883 Page: 2 Date Filed: 07/17/2018
Caption on the brief does not agree with the caption of the case
in compliance with FED. R. APP. P. 32(a)(2)(C). Caption must
exactly match the Court's Official Caption (See Official Caption
below)
Note: Once you have prepared your sufficient brief, you must
electronically file your 'Proposed Sufficient Brief' by selecting
from the Briefs category the event, Proposed Sufficient Brief, via
the electronic filing system. Please do not send paper copies of
the brief until requested to do so by the clerk's office. The
brief is not sufficient until final review by the clerk's office.
If the brief is in compliance, paper copies will be requested and
you will receive a notice of docket activity advising you that the
sufficient brief filing has been accepted and no further
corrections are necessary. The certificate of service/proof of
service on your proposed sufficient brief MUST be dated on the
actual date that service is being made. Also, if your brief is
sealed, this event automatically seals/restricts any attached
documents, therefore you may still use this event to submit a
sufficient brief.
Failure to timely provide the sufficient brief may result in the
dismissal of your appeal pursuant to 5TH CIR. R. 42.3.
Sincerely,
LYLE W. CAYCE, Clerk
By: _________________________
Rebecca L. Leto, Deputy Clerk
504-310-7703
71 of 74
Case: 18-60365 Document: 00514561883 Page: 3 Date Filed: 07/17/2018
LAKESHA BUTLER,
Plaintiff - Appellee
v.
COAST ELECTRIC POWER ASSOCIATION,
Defendant - Appellant
________________________________
Cons. w/18-60372
WILLIAM WILLIS, III,
Plaintiff - Appellee
v.
DIXIE ELECTRIC POWER ASSOCIATION,
Defendant - Appellant
______________________________
Cons. w/18-60383
KIMBERLY HARPER,
Plaintiff - Appellee
v.
SOUTHERN PINE ELECTRIC COOPERATIVE,
Defendant - Appellant
72 of 74
Case: 18-60365 Document: 00514563318 Page: 1 Date Filed: 07/17/2018
Dear Counsel,
We have reviewed your electronically filed Brief of Appellants and
it is sufficient.
You must submit the 7 paper copies of your brief required by 5TH
CIR. R. 31.1 within 5 days of the date of this notice pursuant to
5th Cir. ECF Filing Standard E.1.
The paper copies of your brief/record excerpts must not contain a
header noting "RESTRICTED". Therefore, please be sure that you
print your paper copies from this notice of docket activity and
not the proposed sufficient brief/record excerpts filed event so
73 of 74
Case: 18-60365 Document: 00514563318 Page: 2 Date Filed: 07/17/2018
Sincerely,
LYLE W. CAYCE, Clerk
By: _________________________
Rebecca L. Leto, Deputy Clerk
504-310-7703
74 of 74
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 1 of 8
For the reasons provided below, the Court grants Plaintiffs’ Motion to Remand
I. BACKGROUND
The Rural Utilities Service (“RUS”) “makes loans and loan guarantees to finance
electric service in rural areas . . . .” 7 C.F.R. § 1710.100. Congress created the agency
“to provide rural America with low cost electricity and telephone service by lending
funds to rural electric and telephone systems directly at below-market interest rates.”
United States v. Cajun Elec. Power Co., Inc., 109 F.3d 248, 252 (5th Cir. 1997). The
Mississippi’s legislature “passed the Electric Power Association Act in order to enable
its rural citizens to benefit from the federal law.” Tallahatchie Valley Elec. Power Ass’n
v. Miss. Propane Gas Ass’n, Inc., 812 So. 2d 912, 916 (Miss. 2002).
received a loan from RUS. See Exhibit 2 to Notice of Removal, Butler v. Coast Elec.
Power, Ass’n, 1:18-CV-79-KS-JCG (S.D. Miss. Mar. 12, 2018), ECF No. 1-2. Plaintiffs
contend that Defendant violated Mississippi law by retaining excess revenues that it
does not need to fund its operations. See Exhibit 1 to Notice of Removal at 5-6, Butler
v. Coast Elec. Power, Ass’n, 1:18-CV-79-KS-JCG (S.D. Miss. Mar. 12, 2018), ECF No.
1-1. Plaintiffs allege that Defendant holds patronage capital equal to 45% of its assets,
while the recommended ratio is 30%. Id. at 5. Therefore, Plaintiffs demand that
Defendant refund to its members all patronage capital in excess of 30% of its assets,
Defendant removed the case under 28 U.S.C. § 1442(a)(1), which grants federal
courts removal jurisdiction over cases in which federal officers or persons acting under
federal officers are defendants. Plaintiffs filed a Motion to Remand [6], which the Court
now addresses.
II. DISCUSSION
Under 28 U.S.C. § 1442, “an action ‘against or directed to . . . any officer (or any
person acting under that officer) of the United States or of any agency thereof, in an
official or individual capacity, for or relating to any act under color of such office’ may
be removed to federal court.” City of Walker v. Louisiana, 877 F.3d 563, 569 (5th Cir.
2017) (quoting 28 U.S.C. § 1442(a)(1)). To remove under the statute, “a defendant must
show: ‘(1) that it is a person within the meaning of the statute, (2) that it has a
colorable federal defense, (3) that it acted pursuant to a federal officer’s directions”
2
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 3 of 8
and/or under color of a federal office, “and (4) that a causal nexus exists between its
actions under color of federal office and the plaintiff’s claims.’” Id. (quoting Zeringue
“Federal officer removal . . . is unlike other removal doctrines” in that “it is not
narrow or limited.” Id. When a defendant removes a case pursuant to 28 U.S.C. § 1442,
the Court is not required to resolve any doubts about removal in favor of remand.
Savoie v. Huntington Ingalls, Inc., 817 F.3d 457, 462 (5th Cir. 2016). Rather, the Court
must construe the statute to uphold its intended purpose of “protect[ing] the Federal
Government from state interference with its operations.” Watson v. Philip Morris Cos.,
Inc., 551 U.S. 142, 146-50, 127 S. Ct. 2301, 168 L. Ed. 2d 42 (2007); see also City of
Walker, 877 F.3d at 569. But Defendant still has the burden of establishing the Court’s
jurisdiction. City of Walker, 877 F.3d at 569 (citing Winters v. Diamond Shamrock
U.S.C. § 1442(a), that it acted under color of a federal office, or that a causal nexus
exists between its actions and at least one of their claims. The only disputed issue is
whether Defendant has a colorable federal defense. Defendant argues that it has a
it can not comply with both federal regulations and Mississippi law as Plaintiffs have
interpreted it.
A defendant removing under § 1442(a) “need not prove the asserted [federal]
3
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 4 of 8
defense, but need only articulate its ‘colorable’ applicability to the plaintiff’s claims.”
Winters, 149 F.3d at 400. Neither the Fifth Circuit nor the Supreme Court has defined
“colorable” within the context of 28 U.S.C. § 1442. Zeringue, 846 F.3d at 790. But “the
Supreme Court has clarified that a non-colorable federal claim, for the purposes of
federal question jurisdiction, is a claim that is ‘immaterial and made solely for the
Arbaugh v. Y & H Corp., 546 U.S. 500, at 513 n. 10, 126 S. Ct. 1235, 163 L. Ed. 2d 1097
(2006)). The Fifth Circuit adopted this definition for § 1442 analyses. Id. Alternatively,
the Fifth Circuit has held that a defendant removing under § 1442(a) need only prove
that its entitlement to a federal defense “is subject to reasonable debate.” Crutchfield
v. Sewerage and Water Board of New Orleans, 829 F.3d 370, 375 (5th Cir. 2016).
occurs when compliance with both federal and state regulations is a physical
execution of the full purposes and objectives of Congress.” City of El Cenizo, Texas v.
Texas, 885 F.3d 332, 346 (5th Cir. 2018). Whether a state law imposes “a sufficient
examining the federal statute as a whole and identifying its purpose and intended
effects.” United States v. Zadeh, 820 F.3d 746, 752 (5th Cir. 2016).
Defendant to disburse all patronage capital not needed to maintain its operations:
4
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 5 of 8
MISS. CODE ANN. § 77-5-235(5). But cooperatives which borrow money from the RUS
“must design and implement rates for utility service to provide sufficient revenue . . .
to pay all fixed and variable expenses, to provide and maintain reasonable working
capital and to maintain on an annual basis the coverage ratios required by . . . this
section.” 7 C.F.R. § 1710.114(d)(1). Defendant’s loan document with RUS includes the
argues that the Mississippi law cited above directly conflicts with the federal policy
that Defendant’s Board of Directors should have the discretion to maintain reasonable
working capital.
Plaintiffs argue that Defendant can comply with both Mississippi and federal
law because neither the regulations nor the loan documents prohibit it from refunding
Indeed, Plaintiffs plainly drafted the Complaint to avoid entanglement with federal
regulations. Although Plaintiffs believes that even 30% equity is more than Defendant
needs to maintain its operations, they limited their demand to the amount of retained
1
Defendant argues that Plaintiffs did not, in fact, limit their demand to funds
in excess of the 30% threshold, focusing on Plaintiffs’ demand of “no less than”
5
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 6 of 8
The Court agrees with Plaintiffs. Federal regulations and Defendant’s loan
(a) After giving effect to the distribution, the borrower’s equity will be
greater than or equal to 30 percent of its total assets;
(b) The borrower is current on all payments due on all notes secured
under the mortgage;
(c) The borrower is not otherwise in default under its loan documents;
and
(d) After giving effect to the distribution, the borrower’s current and
accrued assets will be not less than its current and accrued
liabilities.
Without the prior written approval of RUS, the Borrower shall not in any
calendar year make any Distribution . . . to its members, stockholders or
consumers except as follows:
(a) Equity above 30%. If, after giving effect to any such Distribution,
the Equity of the Borrower shall be greater than or equal to 30%
of its Total Assets . . . .
Exhibit 2 to Notice of Removal [1-2], at 17. Therefore, it is not impossible for Defendant
$53,000,000.00. The Court does not interpret this language to imply that Plaintiffs
seek funds beyond what is permitted by the regulatory safe harbor. Rather,
Plaintiffs want every cent retained above the regulatory threshold distributed to
Defendant’s members.
6
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 7 of 8
to return capital to its members and comply with federal law. Compliance with the
Defendant apparently contends that any state intrusion upon the discretion of
its Board of Directors creates a conflict with federal law. But RUS regulations
1717.304, 1717.306, and “[t]he RE Act plainly does not expressly empower or authorize
Elec. Power Co-op., 109 F.3d at 255; see also Arkansas Elec. Coop. Corp. v. Arkansas
Pub. Serv. Comm’n, 461 U.S. 375, 385-86, 103 S. Ct. 1905, 76 L. Ed. 2d 1 (1983). The
the [RUS] was expected to play a role in assisting the fledgling rural power
existing state regulatory schemes.” Arkansas Elec. Coop., 461 U.S. at 386.
Defendant also argues that Plaintiffs’ demand that the Court appoint a receiver
until Defendant has refunded all the disputed funds creates a conflict with federal law.
event of default, and that federal regulations require a cooperative to replace its
management if it defaults. See 7 C.F.R. § 1717.609(b). The relevant portion of the loan
contract provides:
7
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 8 of 8
***
Exhibit 2 to Notice of Removal [1-2], at 19-20. This is not a bankruptcy case. Therefore,
Defendant has not demonstrated how this event of default would be triggered by
demonstrated to the Court’s satisfaction that the terms of a loan from the RUS
III. CONCLUSION
For these reasons, the Court grants Plaintiffs’ Motion to Remand [2]. This case
8
Case: 24CH1:17-cv-02569-JS Document #: 32 Filed: 08/13/2018 Page 1 of 3
Defendant, Coast Electric Power Association (“Coast” and/or the “Defendant”), by and
through the undersigned counsel, hereby responds to Plaintiff’s Second Amended Complaint,
stating as follows:
“operative Complaint”). The only substantive change between the Plaintiff’s First Amended
Complaint, filed May 3, 2018, and the operative Complaint is the inclusion of a count for
negligence per se. See MEC Doc. #30, Second Am. Compl. at ¶¶ 107-109. This new count, just
as the other eight counts of Plaintiff’s Complaint, implicates Coast’s Bylaws and is related to
patronage capital, both of which are specifically encompassed in the arbitration provision agreed
to by the Parties. See Bylaws, Exhibit 2 to Coast’s Motion to Compel Arbitration, at § 11.07.
2. Currently pending before the Court are Coast’s Motion to Stay Litigation and its
Motion to Compel Arbitration, both filed on May 14, 2018. These motions have been previously
docketed as MEC Doc. #12 (Motion to Compel Arbitration) and MEC Doc. #13 (Motion to Stay
Litigation).
3. Coast hereby incorporates these motions as if fully set forth herein and
respectfully requests that this Court enter an Order staying all proceedings in this action until the
Case: 24CH1:17-cv-02569-JS Document #: 32 Filed: 08/13/2018 Page 2 of 3
resolution of Coast’s appeal pending in the Fifth Circuit Court of Appeals, or granting Coast’s
and deadlines be stayed pending a ruling on Coast’s Motion to Compel Arbitration. This is
consistent with Mississippi law. See e.g., Century 21 Maselle and Assocs., Inc. v. Smith, 965 So.
2d 1031, 1038 (Miss. 2007) (“[a]ll proceedings, including the filing of responsive pleadings
shall be suspended upon the timely filing and notice of a ‘Motion to Compel Arbitration and
5. The comprehensive stay of the proceedings requested by Coast in both the Motion
to Stay Litigation and the Motion to Compel Arbitration includes, without limitation, staying
Coast’s requirement to file a response to the operative Second Amended Complaint as well as
Court enter an Order staying these proceedings pending the outcome of Coast’s appeal to the
2
Case: 24CH1:17-cv-02569-JS Document #: 32 Filed: 08/13/2018 Page 3 of 3
CERTIFICATE OF SERVICE
I, Peter C. Abide, do hereby certify that I have this date electronically filed the foregoing
with the Clerk of the Court using the MEC system which sent notification of such filing to all
counsel of record:
3
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 1 of 22
Plaintiff Lakesha Butler, et al., alleges the following against Defendant Coast Electric
Power Association:
provides services to more than 79,000 members, and its service area stretches into 3 Mississippi
counties.
and created under Miss. Code Ann. § 77-5-205 (1936). A “cooperative” corporation is one that is
democratically controlled by its members; operated at cost and without profit; and managed solely
3. An electric cooperative may not retain revenues that exceed those necessary to pay
operating and maintenance expenses and reasonable reserves. Such excess revenues are considered
improper “profits.” Any such profits must be returned to the member-ratepayers to whom they
belong. Miss. Code Ann. § 77-5-235 (1936) (“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
1
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 2 of 22
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 (i) the reimbursement of membership fees,
or (ii) by way of general rate reductions, as the board may decide.”) (enumerations added).
must refund any excess revenues to its members (the “Refund Requirement”). See id.
accumulated millions of dollars of revenue that it has failed to return to its members. As of the
end of the 2016 calendar year, it held more than $158,181,000 million of its member-owners’
money (which it disguises as “Patronage Capital”) and has invested nearly one-third (1/3) of it in
associated organizations.
6. On information and belief, as of the end of the 2016 calendar year, Coast Electric
Power Association was improperly holding excess revenues (disguised as “Patronage Capital”)
equal to 45% of its Assets. This number far exceeds the recommended 30%. The amount of capital
in excess of 30% amounts to nearly $53,000,000 million and this amount should be refunded to its
members.
7. The Refund Requirement does not mean that Coast Electric Power Association was
not entitled to retain any revenues. However, it does require the return of excess revenues and
receipts, i.e., amounts that are not necessary to pay for expenses, debt service, and “from time to
8. But the excess revenues held by Coast Electric Power Association is not necessary
to pay for expenses, debt service or reasonable reserves. The federal agency responsible for issuing
loans to electric cooperatives has established a safe harbor—a level of capital and liquidity that
will always be sufficient to maintain adequate reserves to allow for the return of excess
2
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 3 of 22
revenues/member equity.
9. At the close of the 2016 fiscal year, Coast Electric Power Association held excess
revenues equal to approximately 45% of its total assets. This ratio far exceeded that of many of
the other electric cooperatives in the State. Coast Electric Power Association could easily return
more than $53,000,000 million to its memberowners while maintaining a safe and stable level of
10. Coast Electric Power Association does return excess revenues to its members. But
Coast Electric Power Association provides these refunds by overcharging members for services,
and then returning a portion of the overcharge to them in a show of benevolence. This money
reflects overpayments that ought never to have been made in the first place, and its return is merely
11. Coast Electric Power Association’s retention of excess revenues subverts the very
owners of Coast Electric Power Association do not receive any return on their proportionate share
of excess revenues and instead forego the time-value and use of their own money.
member-owner funds presents a special source of concern. Congressman Jim Cooper (D.,
Tennessee) 1 wrote an article describing the great potential for mismanagement and self-dealing
that is created when electric cooperatives retain excess amounts of revenues, such as is the case
1
Congressman Cooper is a graduate from the University of Oxford as well as Harvard Law School.
3
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 4 of 22
13. Plaintiff, therefore seeks to have Coast Electric Power Association return the
Parties
power association formed under the Electric Power Association Law. It has the power to sue and
Jurisdiction
17. This is an action in equity requiring Coast Electric Power Association to place
excess revenues (i.e., “member equity, “patronage capital,” “capital credits,” “net margins,” or any
other terms used by Coast Electric Power Association to mask revenues and receipts in excess of
expenses and reasonable reserves) into a constructive or statutory trust and return the same in
18. This Court has jurisdiction over the subject matter of this action pursuant to Miss.
19. This Court has personal jurisdiction over Coast Electric Power Association since
it is organized and operated in this state; operates, conducts, engages in, and carries on a business
or business venture in this state; and has an office and agency in this state.
2
If an Electric Cooperative operates for a profit it can lose its 501(C)(12) tax exempt status.
4
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 5 of 22
Venue
20. This Court is the proper venue pursuant to Miss. Code Ann. § 11-11-3 as Coast
Electric Power Association has, or usually keeps, an office for transaction of its customary
Factual Allegations
I. Coast Electric Power Association Must Refund Excess Revenues to Its Member-
Owners.
21. The principles by which electric cooperatives are organized and operated are
fundamentally different from the principles governing the traditional corporate model widely used
22. In the traditional corporate model, shareholders’ rights depend upon the
shareholders’ investment of capital. Shareholders vote based on the amount of stock they purchase
and expect to profit in proportion to their risk. The corporation is organized and operated to
maximize profit. Shareholders choose directors based on their ability to increase corporate profits.
each member-owner-ratepayer having an equal vote without regard to his or her proportionate
share of excess revenues. Trustees must be chosen from among the cooperative’s members.
24. Electric cooperatives are designed to operate without profit, for the benefit of the
consumers/members and not for the benefit of the corporate entity itself or any investors—or any
board members.
25. Under common law, these organizational and operational principles are frequently
summarized as: (1) electric cooperatives must be democratically controlled by their members, (2)
electric cooperatives must operate at cost, and (3) electric cooperatives must be operated for the
5
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 6 of 22
26. Cooperatives therefore maintain a special relationship of trust with their members
since they operate for their members-owners’ benefit and not to maximize profit.
27. Electric cooperatives that operate pursuant to these principles are exempt from
federal income taxes under Internal Revenue Code section 50l (c) (12) and its predecessors. Coast
Electric Power Association is classified as a section 50l (c) (12) corporation for federal tax
purposes.
28. To ensure that electric cooperatives actually are operating according to their
fundamental organizational and operating principles to maintain their 501(c)(2) status, the IRS is
• They keep adequate records of each member’s rights and interest in the assets
of the organization;
• They return any savings to members in proportion to the amount of business done
with them; and
• They cannot retain more funds than they need to meet current losses and
expenses.
A. Mississippi Electric Cooperatives Are Organized and Operated for the Benefit of
Their Member Ratepayers and Not for Accumulating Profit.
29. In 1936, the State of Mississippi enacted the Electric Power Association Law,
which authorizes the formation and creation of electric cooperatives. Under the Electric Power
Association Law, cooperatives must be nonprofit. Miss. Code Ann. § 77-5-205 (1936).
30. The basic principles governing electric cooperatives’ treatment of excess revenues
apply in Mississippi as well. Any net margins belong to member-owners and must be returned to
31. Miss. Code Ann. § 77-5-235 (1936) specifically provides two methods for the
6
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 7 of 22
32. Pursuant to Miss. Code Ann. § 77-5-235 (1936), the revenues and receipts of a
Revenues and receipts not needed for these purposes shall be returned to the members.
II. Electric Cooperatives Require Very Little Member Equity and Very Little Cash to
Operate Effectively.
33. Electric cooperatives such as Coast Electric Power Association are not only
utilities, with a stable and secure income stream, but also are eligible for federal loans at incredibly
low rates. Therefore, they can fund expenses, debt payments and reasonable reserves without
holding significant amounts of excess revenues or cash equivalents. Instead, they retain excess
revenues and invest it in related associations and unlawfully earn interest that lawfully belongs to
the member-owners.
34. Electric cooperatives are eligible for federal loans and loan guaranties from the
Rural Utilities Service (“RUS”), a division of the United States Department of Agriculture. RUS
loans are made available at interest rates that are based on the federal Treasury Department’s cost
of borrowing, plus 1/8 of one percent. The cost to an electric cooperative for a 30-year loan
provided or guaranteed by the RUS in May 2015 was approximately three percent per year.
35. In 1996, cooperatives joined together to create the National Rural Utilities
Cooperative Finance Corporation (“CFC”). The CFC also makes guaranteed loans available to
7
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 8 of 22
36. Because electric cooperatives have access to federal loan guaranties at very low
interest rates, they can function with a very low ratio of equity to debt.
37. Electric cooperatives also may maintain lower levels of equity/margins because
they operate a business that provides a safe, guaranteed return. Electric cooperatives operate
utilities. As is the case in Mississippi, the state prohibits competition for the distribution of
electricity. Frequently, as also is the case in Mississippi, electric cooperatives may set their own
38. As a result, there is almost no risk that an electric cooperative will be unable to
39. RUS also makes hardship loans available to electric cooperatives if they have
suffered a severe unavoidable hardship, such as a natural disaster. Thus, even when an electric
cooperative faces circumstances that in other industries might require resort to tapping in to
reserves, the federal government makes sure that loans are available instead. The availability of
40. Lenders in the private sector often will require that borrowers provide a minimum
amount of equity before they will finance a loan. In contrast, the RUS and CFC have eliminated
any minimum equity requirement for the loans they issue or guarantee further lessening the need
41. According to RUS and CFC it is clear that a thirty-percent asset-to-equity level is
42. The RUS regulations address a situation in which an electric cooperative distributor
is required by its loan documents to obtain RUS approval before retiring member equity/excess
revenues. 7 C.F.R. 1717.617. The regulations provide for automatic approval when an electric
8
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 9 of 22
cooperative’s equity will be greater than or equal to 30% of total assets, so long as the cooperative
is current on its payments, not in default, and has a 1:1 current ratio. Id.
43. On information and belief, the CFC authorizes the retirement of member equity so
44. Similarly, certain provisions of the RUS standard mortgage and loan contract
require the RUS to approve of certain investments, loans, and guarantees by electric cooperatives.
Electric cooperatives are exempt from this requirement if they meet certain financial criteria,
including maintaining equity that is equal to at least 27% of total assets. 7 C.F.R. § 1717.656.
concerns was that electric cooperatives were holding excess amounts of excess revenues/member
equity. Congressman Cooper specifically analyzed the amount of member equity/excess revenues
that electric cooperatives should maintain. He concluded that cooperatives with equity levels far
46. For many of the same reasons that electric cooperatives can operate at low levels
of equity, they also can operate with a low ratio of current assets to current liabilities.
47. Electric cooperatives are utilities that operate monopolies. They have a regular and
predictable cash flow. If the need arises, they can obtain hardship loans from the RUS.
3
Coast Electric Power Association is currently holding excess revneus in the amount of $88,306,000 million above
the 20% authorized by the CFC.
9
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 10 of 22
A. Cooperatives Such as Coast Electric Power Association Are at Risk of Being Co-opted
by Insiders.
49. Electric cooperatives were highly successful in achieving their mission of bringing
50. Over time, however, the novelty of electricity has worn off.
51. At the same time, flaws inherent in the non-capitalist structure of these entities
presented significant challenges to the very values of fairness that electric cooperatives were
designed to affect.
52. In the absence of oversight, and without the disciplinary forces of the market, many
electric cooperatives began to operate for the benefit of insiders, without regard to the best interests
of their member-owners.
53. These flaws were highlighted in a widely-cited article written by Congressman Jim
Cooper (D., Tennessee). See Representative Jim Cooper, Electric Cooperatives: From New Deal
55. He also explained: “Electric coops are not genuine cooperatives because they
are not voluntary associations of people with specific expertise in the cooperative venture.
Coop membership may have been voluntary during the Depression when electricity was an
exciting novelty, but today it is a daily necessity. Customers do not freely choose to join an
10
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 11 of 22
electric coop; they buy from the monopoly because they have no choice.”
56. In addition, he observed, “few if any coop customers are knowledgeable about the
electricity business. Coop customers have other jobs and will sign almost anything to get
electricity.”
57. As a result, Congressman Cooper lamented, “Coop managers and employees too
58. He concluded that “coop managers have often failed to serve their member-owners’
interests.”
59. Dating back for many years, Coast Electric Power Association has retained excess
revenues that it earned. There was no reasonable basis for its retaining those excess revenues,
since it already had sufficient cash and member equity to fund any reasonable expenses, debt
60. Coast Electric Power Association also holds an enormous amount of excess
revenues as “Patronage Capital.” At the close of fiscal year 2016, it held more than $158,000,000
61. This amount is well in excess of the 30% that might be necessary and that lenders
consider a safe harbor for refunding member-owners proportionate share of excess revenues of the
cooperative.
11
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 12 of 22
62. If Coast Electric Power Association were to reduce its member equity to the 30%
safe harbor, it could, as of the close of fiscal year 2016, return approximately $53,000,000 million
to its member-ratepayers.
2. Coast Electric Power Association Does Not Return Enough Excess Revenues to
Member-Ratepayers.
63. Despite its substantial amounts of excess revenues, Coast Electric Power
Association regularly returns only a small portion of its excess revenues to its member-owners.
The rest is retained by Coast Electric Power Association as “Patronage Capital,” even though it is
not necessary to fund expenses, debt service or reserves and easily could be returned to the
64. Coast Electric Power Association touts the fact that it allocates the excess revenues
it earns each year as “capital credits” (i.e., IOUs) to capital accounts held in the name of its
members and that it returns capital to members and former members in an amount determined by
65. Yet even if it returns some funds, it accumulates more all the while it is generating
investment income from the excess revenues that it has invested rather than returned to the
66. Coast Electric Power Association is not returning excess revenues in accordance
with legal requirements. Instead, it is improperly overcharging members and holding on to the
overcharges.
67. Then, it later takes credit for having refunded member equity/excess revenues it
12
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 13 of 22
68. Member equity is a form of coerced borrowing that occurs when electric
cooperatives charge its member-owners more than its services actually cost. This coerced
69. While electric cooperatives can borrow money at what is effectively the Treasury
rate, its individual member-owners typically cannot. Instead, when a member-owner borrows
money to finance a tractor, or a home repair, or college tuition, he or she must pay significantly
higher interest rates than those available to the electric cooperative. In some cases, member-owners
may be forced to forego critical expenditures, or to carry credit-card debt with high monthly rates,
all while his or her proportionate share of excess revenues/member equity lies dormant with the
electric cooperative or is used to generate investment income, it is generated for the cooperative
70. When an electric cooperative maintains excess revenues in excess of its needs, it is
converting its member-owners’ funds to its own use without legitimate purpose, and to the
71. Cooperatives sometimes argue that maintaining excess capital has the overall effect
of reducing rates. This argument really means only that cooperatives can keep their rates
artificially low by coercing their members to provide them with interest-free loans. In other words,
the cooperative appropriates the time value of its member-owners’ money and claims credit for
72. In 2005, the National Rural Electric Cooperative Association and the electric
cooperative lending organization, the CFC, published the Capital Credits Task Force Report: A
Distribution Cooperative’s Guide to Making Capital Credits Decisions. The Report’s authoring
13
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 14 of 22
bodies were an electric cooperative trade association and lending organization that had a strong
interest in protecting the interests of their members/borrowers. Nevertheless, the Report concluded
that “lower equity is likely to result in a lower overall cost to the member.”
73. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through 72
74. Under Miss. Code Ann. § 77-5-235, prior to July 1, 2016, revenues and receipts
that are not needed for the co-operative’s specific purpose must be returned to the members.
75. Coast Electric Power Association has historically either returned an insufficient
76. Coast Electric Power Association, as of the close of fiscal year 2016, held
approximately $158,181,000 million in excess revenues. This amount exceeds what is reasonably
opined that all that a co-operative need maintain is 30% of its assets.
78. The complete absence of refunds or the inadequacy of the refunds have resulted in
79. Plaintiff, and other members similarly situated, are entitled to payment of excess
80. Each member is also entitled to attorneys’ fees and costs for their efforts to have
money held in trust for the benefit of the constructive or statutory trust beneficiaries.
4
Members are deprived of the money and the investment opportunities that come with it.
14
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 15 of 22
81. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through
82. Coast Electric Power Association paid excess revenues to its member-owners that
were insufficient but led customers to believe they were receiving what they were entitled to
receive.
83. In paying out funds in amounts less than what was actually owed to its member-
owners, Coast Electric Power Association intentionally hid from its members sums of money they
84. A member, even with due diligence, would be unable to uncover Coast Electric
Power Association’s concealment of the amount actually to be paid because of the complexity
involved with calculating excess revenues, particularly when disguised as “Patronage Capital.”
85. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through
86. As an electric cooperative, Coast Electric Power Association owed a fiduciary duty
to its member-owners to return excess revenues to its members in accordance with the patronage
paid by respective members, to the extent its revenues exceeded necessary operating and
87. Coast Electric Power Association’s revenues have exceeded the amount necessary
to pay expenses, debt service and reasonable reserves, but Coast Electric Power Association did
not return such excess revenues s to its members as it was required to do based upon the fiduciary
15
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 16 of 22
duty owed to its members. Plaintiff, and other members similarly situated, are entitled to payment
88. Each member is also entitled to attorneys’ fees and costs for their efforts to have
money held in trust for the benefit of the constructive or statutory trust beneficiaries.
89. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through
90. Plaintiff, and other members similarly situated, unknowingly conferred on Coast
Electric Power Association a benefit in the form of rate payments in excess of the amounts
91. Coast Electric Power Association has accepted and retained the benefit, and under
the circumstances, it would be inequitable for it to retain the benefit without paying for it. Plaintiff,
and other members similarly situated, are entitled to payment of excess revenues in the amount of
92. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through 91
93. Coast Electric Power Association has a duty to return excess revenues to its
members in accordance with the patronage paid by respective members, to the extent its revenues
94. Coast Electric Power Association’s revenues have exceeded the amount necessary
to pay expenses, debt service and reserves, but Coast Electric Power Association did not return
16
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 17 of 22
their right to the member equity with the intent to deprive them of their right to such member
equity. Plaintiff and other members similarly situated are entitled to payment of excess member
96. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through 95
97. Plaintiff, and other members similarly situated, paid their rates based on an express
98. Plaintiff, and other members similarly situated, made their payments to Coast
Electric Power Association in reliance upon the express or implied promise that they would be
99. With respect to excess revenues that Coast Electric Power Association was
required to refund to its member-owners, Coast Electric Power Association held a fiduciary
relationship and a confidential relationship of trust with Plaintiff and other members similarly
situated
100. Coast Electric Power Association has been unjustly enriched by retaining
possession of the excess revenues it was required to return to Plaintiff and other members similarly
situated
101. It is against equity that Coast Electric Power Association should retain such excess
revenues.
17
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 18 of 22
102. Plaintiff, and other members similarly situated, are entitled to the return of all
excess member capital held by Coast Electric Power Association Electric, in the amount of
103. Plaintiff, and other members similarly situated, are entitled to attorneys’ fees for
their efforts to have money held in trust and ultimately returned to the trust beneficiaries.
104. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through
105. Coast Electric Power Association has been unjustly enriched by retaining
possession of the excess revenues it was required to return to Plaintiff and other members
similarly situated.
106. Plaintiff avers that this Court should establish a trust pursuant to Miss. Code Ann.
§ 91-8-101. The Trust would hold excess revenues, disguised as “Patronage Capital,” due to the
member-owners of Coast Electric Power Association in an amount, not less than, $53,000,000,
with said amount to be paid by Coast Electric Power Association. Furthermore, pursuant to Miss.
Code Ann. § 91-8-402, the trust can be for the benefit of Coast Electric Power Association’s
beneficiaries known, such as your Plaintiff herein, and beneficiaries that are currently unknown.
107. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through
108. Coast Electric Power Association holds excess revenues which rightfully belong
to the Plaintiff and other members similarly situated and acknowledges the same.
18
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 19 of 22
109. In equity and good conscience, such excess revenues must be returned to the
110. Under the circumstances as alleged herein, it would be inequitable to retain excess
revenues without returning same to the members as prescribed by 77-5-235 (1936) of the Miss.
Code.
111. Plaintiff repeats and re-allege the allegations contained in paragraphs 1 through
112. At all pertinent times, Coast Electric Power Association violated Miss. Code Ann.
§ 77-5-235 (1936) (amended 2016), of which Plaintiff, and other members similarly situated, are
113. As a direct and proximate cause of the aforementioned violation of Miss. Code
Ann. § 77-5-235 (1936), Plaintiff, and other members similarly situated, are entitled to payment
PUNITIVE DAMAGES
Plaintiff reserves her right to amend the complaint to seek punitive damages to the extent
Complaint be received and filed; and that upon a final hearing hereon, the Court will grant unto
amount equal to $53,000,000 million or any other such amount as determined by the Court;
19
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 20 of 22
any other such amount as determined by this Court, to hold all excess revenues (i.e., “member
equity, “patronage capital,” “capital credits,” “net margins,” or any other terms used by Coast
Electric Power Association to mask revenues and receipts in excess of expenses and reasonable
ascertained now or in the future pursuant to this Court’s equitable powers granted in Miss. Code
Ann. § 91-8-401(4), in an amount of $53,000,000 million, or any other such amount as determined
by this Court, to hold all excess revenues (i.e., “member equity, “patronage capital,” “capital
credits,” “net margins,” or any other terms used by Coast Electric Power Association to mask
revenues and receipts in excess of expenses and reasonable reserves) that must be refunded to its
member-owners, allowing the remaining member-owners to send in claim forms as they are
appointing an independent trustee or receiver to oversee and protect the vested interests of the
member-owners in their proportionate share of excess revenues and receipts until repaid;
6. An Order awarding unto Plaintiff reasonable attorneys’ fees and all reasonable costs
8. Any and all such other and general relief Plaintiff may be entitled to and which this
20
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 21 of 22
Court deems just and proper and in equity and good conscience.
21
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 22 of 22
CERTIFICATE OF SERVICE
I hereby certify that I served by electronic filing the foregoing Second Amended Complaint
using the MEC system which sent notification of such filing to all counsel of record
22