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Case: 18-60365 Document: 00514600051 Page: 1 Date Filed: 08/14/2018

Case No. 18-60365


__________________________________________________________________

IN THE UNITED STATES COURT OF APPEALS


FOR THE FIFTH CIRCUIT
__________________________________________________________________
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
_______________________________
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
__________________________________________________________________

BRIEF FOR APPELLEES


__________________________________________________________________
Counsel listed on inside cover
Case: 18-60365 Document: 00514600051 Page: 2 Date Filed: 08/14/2018

WALKER W. JONES, III


BRANNON L. BERRY
JUSTIN R. GLENN
COSMICH SIMMONS & BROWN, PLLC
100 Vision Drive, Suite 200
Jackson, Mississippi 39211
Telephone: (601) 863-2100
Facsimile: (601) 863-0078

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

Attorney of Record for Appellee Lakesha Butler


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CERTIFICATE OF INTERESTED PERSONS

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

Court may evaluate possible disqualification or recusal.

Appellants Appellees

Coast Electric Power Association Lakesha Butler


Dixie Electric Power Association William Willis, III
Southern Pine Electric Cooperative Kimberly Harper

Counsel for Appellants Counsel for Appellees

Christina M. Schwing Walker W. Jones, III


Laura B. Renstrom Brannon L. Berry
HOLLAND & KNIGHT LLP Justin R. Glenn
50 N. Laura Street, Suite 3900 COSMICH SIMMONS &
Jacksonville, Florida 32202 BROWN, PLLC
100 Vision Drive, Suite 200
Peter C. Abide Jackson, Mississippi 39211
CURRIE JOHNSON & MYERS, P.A.
925 Tommy Munro Dr., Suite H Timothy C. Holleman
Biloxi, Mississippi 39532 BOYCE HOLLEMAN &
ASSOCIATES
Norman Gene Hortman, Jr. 1720 23rd Avenue
HORTMAN HARLOW BASSI Boyce Holleman Boulevard
ROBINSON & MCDANIEL, PLLC Gulfport, Mississippi 39501
414 W. Oak Street
Laurel, Mississippi 39440

S. Wayne Easterling
Attorney at Law
P.O. Box 1471
Hattiesburg, Mississippi 39403
/s/ Brannon L. Berry
Attorney of Record for Appellees

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STATEMENT REGARDING ORAL ARGUMENT

Appellees maintain that oral argument is not needed. While this Court may

have described electric cooperatives as “instrumentalities of the United States,” it

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

issue on appeal is whether Appellants have a colorable federal defense of conflict

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

process of this Court would not be significantly aided by oral argument.

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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

I. 28 U.S.C. § 1442(a)(1) Is Inapplicable Because Appellants Lack a


Colorable Federal Defense………………………………………………….6
A. Appellants Do Not Have a Colorable Federal Defense of
Conflict Preemption………………………………………..……..….7
B. It Is Not “Physically Impossible” for Appellants to Comply
with Both Mississippi and Federal Law……………………….……..7
II. Compliance with Miss. Code. Ann. § 77-5-235 Does Not Frustrate
Objectives of Congress……………………….………………………….….9
III. Obligations That Arise From RUS Loan Documents Do Not Create
Federal Law……………………..……………………………...……….....12
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…………………………………...………..13
V. Plausibility Does Not Exist in Perpetuity……………………………….....16
CONCLUSION………………………………………………………………..…17
CERTFICATE OF SERVICE………………………………………………...….19
CERTIFICATE OF COMPLIANCE………………………………………...…...20
CERTIFICATE OF ELECTRONIC COMPLIANCE…………………………....21

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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

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STATEMENT OF ISSUES PRESENTED FOR REVIEW

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
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STATEMENT OF THE CASE

“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-

op due to their dual role as customer/owner.” ROA 18-60365.182-183; ROA 18-

60372.314-315; ROA 18-60383.240-241. Notably, “[e]lectric co-ops . . . control

$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

of capital in America.” Id. (emphasis added).

Appellees, each of whom is a member-owner of his or her respective electric

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

the thirty-percent (30%) asset-to-equity ratio (“safe-harbor”) prescribed by the Rural

Utilities Service (“RUS”)—a federal “lending agency” 3 who “lend[s] funds to rural

electric and telephone systems directly at below-market interest rates.” 4 Each

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).

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Complaint makes this abundantly clear. See, e.g., ROA 18-60383.592 (“Indeed,

Plaintiffs plainly drafted the Complaint to avoid entanglement with federal

regulations.”); see also ROA 18-60365.25, 35 ¶¶ 5-6, 60-62; ROA 18-60383.39-40,

¶¶ 63-65; ROA 18-60372.35-36, ¶¶ 61-63.

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

they had “a colorable defense of preemption.” ROA 18-60365.16-17, ¶ 31; ROA

18-60383.18, ¶ 31; ROA 18-60372.17-18, ¶ 31. Specifically, Appellants alleged that

(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

remand their respective cases. ROA 18-60365.170-181; ROA 18-60383.228-239;

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

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distributions of capital as long as [Appellants] maintain a 30% asset-to-equity ratio,”

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

regulation of electric cooperatives” and that “[t]he enabling statute’s ‘legislative

history . . . makes abundantly clear . . . that, although the [RUS] was expected to

play a role in assisting the fledging rural power cooperatives . . . it would do so

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.

v. Arkansas Pub. Serv. Comm’n, 461 U.S. 375, 385-86 (1983)).

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.

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SUMMARY OF THE ARGUMENT

First, Appellants’ attempt to use their federal loan requirements and/or

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

Congress, as long as Appellants maintain an asset-to-equity ratio of 30% or greater.

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.

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ARGUMENT

I. 28 U.S.C. § 1442(a)(1) Is Inapplicable Because Appellants Lack a


Colorable Federal Defense.

Appellants argue that removal is warranted pursuant to the federal officer

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

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have raised a colorable federal defense of conflict preemption. As demonstrated

below, Appellants have not. Therefore, removal is not proper under 28 U.S.C. §

1442(a)(1).

II. Appellants Do Not Have a Colorable Federal Defense of Conflict


Preemption.

Appellants argue that they have a colorable federal defense of conflict

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

state regulations is a physical impossibility, or when a state law stands as an obstacle

to the accomplishment and execution of the full purposes and objectives of

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

of Congress, as long as Appellants maintain an asset-to-equity ratio of 30% or

greater. See ROA 18-60365.358-359; ROA 18-60372.1006-1007; ROA 18-

60383.593-594.

A. It Is Not “Physically Impossible” for Appellants to Comply with


Both Mississippi and Federal Law.

Miss. Code Ann. § 77-5-235 (1936) (amended July 1, 2016) requires electric

cooperatives to return to their members all revenues and receipts in excess of

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operating and maintenance expenses and reasonable reserves. According to

Appellants, this mandate “directly conflicts” with the discretion purportedly

afforded to the Board of Directors by 7 C.F.R. §§ 1710.114(d)(1) and 1717.617,

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

while also returning even the minimum floor of capital).

Notably, however, the federal regulations do not, in any way, prohibit electric

cooperatives from returning excess revenues,5 as long as Appellants maintain an

asset-to-equity ratio of 30% or greater. For example, the RUS regulations cited by

Appellants provide, in pertinent part:

Borrowers 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) (emphasis added).

If a distribution or power supply borrower is required by its loan


documents to obtain prior approval from RUS before . . . paying or
determining to pay any patronage refunds, or retiring any patronage
capital, or making any other cash distributions, such approval is
hereby given if the following conditions are met:

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.

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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.

7 C.F.R. § 1717.617 (emphasis added). Hence, the relevant federal regulations on

which Appellants rely to support conflict preemption actually create a “safe-harbor”

for distributions of excess revenues, as long as Appellants maintain a 30% asset-to-

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

will be greater than or equal to 30 percent of its total assets.”

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. §

1717.617—one of the very regulations that Appellants contend is in conflict with

Miss. Code Ann. § 77-5-235. As noted by Judge Starrett, “[Appellees] plainly

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drafted their Complaint to avoid entanglement with federal regulations. Although,

[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.

B. Compliance with Miss. Code. Ann. § 77-5-235 Does Not Frustrate


the Objectives of Congress.

Whether a state law imposes “a significant obstacle to give rise to conflict

preemption is a matter of judgment, to be informed by 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). For the reasons advanced above, as well those

immediately set forth below, compliance with Miss. Code Ann. § 77-5-235 does not

frustrate the objectives of Congress or the RUS.

7 C.F.R. §§ 1717.304 and 1717.306 explicitly contemplate state regulation of

electric cooperatives. However, as previously acknowledged by this Court, “[t]he

RE Act 6 plainly does not expressly empower or authorize the Secretary to pre-empt

the jurisdiction of a state regulatory agency . . . .” Matter of Cajun Elec. Power

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”).

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[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

explained by the Mississippi Supreme Court in 2002:

[T]he Miss. Elec. Act specifically governs the formation and


operation of rural electric power associations in Mississippi.

***

Nothing in the federal Rural Electrification Act expressly preempts


state rate regulation of power cooperatives financed by the [RUS]. In
explaining that the [RE Act] established a lending agency and not a
regulatory body, the Supreme Court stated:

the legislative history . . . makes abundantly clear . . . that,


although the [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.

Furthermore, the language of 7 U.S.C. § 904, which authorizes the


Secretary of Agriculture to provide loans under the [Rural
Electrification Act] provides, in part:

The Secretary is authorized and empowered . . . to make


loans for rural electrification to persons, corporations,
States, Territories, and subdivisions and agencies thereof
. . . organized under the laws of any State or Territory of
the United States, for the purpose of financing the
construction and operation of generating plants, electric
transmission and distribution lines or systems for the
furnishing and improving of electric service to persons in
rural areas. . . . Such loans shall be on such terms and
conditions . . . as the Secretary shall determine . . . except
that no loan . . . shall be made unless the consent of the

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State authority having jurisdiction in the premises is first


obtained.

This language acknowledges that the creation and organization of


rural electric associations is left to the states and that the state must
give its consent in order for loans to be received.

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

appointment of a trustee, is sorely misplaced, as it is well-settled that a provision in

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

that effect. The Supreme Court’s longstanding interpretation of the Supremacy

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.

ROA 18-60383.594-595; ROA 18-60365.360; ROA 18-60372.1008. Further, and

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as noted by the district court, these are not bankruptcy cases. Id. Even if they were,

Appellants have failed to demonstrate how an “event of default” would be triggered

by the appointment of a trustee. Id.

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.

***

Specifically, REA argues that Plaintiffs’ claims are preempted to the


extent they would force REA to refund patronage capital to a point
where its equity would fall below 30%. Such an application of state
law is preempted, REA posits, because it would conflict with the federal
Rural Electrification Act and related regulations, and would force REA
to violate its contract with the United States. In support of this
argument, REA points to its loan contract with the Rural Utilities
Service—the federal agency tasked with administering the Act—and 7
C.F.R. § 1717.617.

The Supremacy Clause of the United States Constitution provides that


the laws of the United States “shall be the supreme Law of the Land

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. . . any Thing in the Constitution or Laws of any State to the Contrary


notwithstanding.” Stated simply, the result of the Supremacy Clause is
that “[w]here state and federal laws conflict, the state law is ‘without
effect.’” The question is thus whether a given state law and a given
federal law actually conflict; if they do, the state law is preempted by
the federal law.
Federal preemption of state law can occur in three ways: (1) express
preemption, (2) field preemption, and (3) conflict preemption. Express
preemption occurs when Congress explicitly, through statutory
language, states its intent to displace state law. Field preemption occurs
when “Congress has legislated comprehensively to occupy an entire
field of regulation, leaving no room for the States to supplement federal
law.” As for conflict preemption, that occurs in two ways: if “it is
impossible for a private party to comply with both state and federal law,
[or if] under the circumstances of a particular case, the challenged state
law stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.”

***

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.

As an initial matter, this case does not implicate express or field


preemption. As noted by the Supreme Court, “[n]othing in the Rural
Electrification Act expressly pre-empts state rate regulation of power
cooperatives financed by the [Rural Utilities Service].”

This leaves conflict preemption. REA states that “Plaintiffs’ claims


create an obstacle to and frustrate the purpose of the Rural
Electrification Act” but does not elaborate on this point or explain what
purpose would be frustrated—or how. As discussed, the Act is
primarily a vehicle for providing federal loans for the purpose of
establishing and improving electric service in rural areas. It is

14
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conceivable that a hypothetical state law “may so seriously compromise


important federal interests, including the ability of the [cooperative] to
repay its loans, as to be implicitly pre-empted by the [Act].” But §
7330 is not that hypothetical law. . . . Section 7330(a)(1) instructs
cooperatives to set their rates so that the cooperative is able to “pay all
operating and maintenance expenses necessary or desirable for the
prudent conduct of its business and the principal of and interest on the
obligations issued or assumed by the corporation in the performance of
the purpose for which it was organized.” And § 7330(b) gives
cooperatives broad discretion to designate what revenues are required
for improvements, new construction, depreciation, and contingencies—
and which revenues are therefore exempt from § 7330(c)’s refund
requirement. See § 7330(b) (“such reserves for . . . contingencies as the
board may, from time to time, prescribe”).

REA’s strongest conflict-preemption argument is that if §


7330(c) requires REA to reduce its equity below 30% then it would be
impossible for REA to comply with both § 7330(c) and § 1717.617 and
REA would have to violate its loan contract with the Service. There
are two problems with that argument. First, § 1717.617 does not
actually impose any legal obligations on REA; it merely provides
criteria under which the Service automatically approves a
cooperative’s patronage-capital refund if the Service’s approval is
required by the cooperative’s loan documents. Thus, §
1717.617 itself does not mandate that REA’s equity has to stay above
30%. REA is just not granted automatic approval through §
1717.617 to issue a patronage refund if its equity would fall below
30% as a result.

Because § 1717.617 does not impose any legal obligations on REA,


the source for any such obligations that would give rise to a conflict
must be found elsewhere—such as in REA’s loan agreement with the
Service. That brings us to the second problem with REA’s preemption
argument. Even if REA’s loan agreement imposed obligations that
interfered with REA complying with state law, it is not clear that this
would make a difference here. It is “federal law which preempts
contrary state law; nothing short of federal law can have that effect.”
A provision in a loan agreement is not federal law, even if one party
is a federal agency. Although actions by federal agencies can
preempt state law, federal law capable of preempting state law is not

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created every time an agency makes a statement or takes an action


within the agency’s jurisdiction. In determining whether agency
action should be afforded preemptive effect, the Third Circuit has
“decline[d] to afford preemptive effect to less formal measures lacking
the ‘fairness and deliberation’ which would suggest that Congress
intended the agency’s action to be a binding and exclusive application
of federal law.”

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).

V. Plausibility Does Not Exist in Perpetuity.

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.

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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

Western District of Pennsylvania has since proficiently and skillfully demonstrated

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

jurisdiction is improper under 28 U.S.C. § 1442(a)(1).

Respectfully submitted,

/s/ Brannon L. Berry


BRANNON L. BERRY
MS Bar No. 104811
brannon.berry@cs-law.com
WALKER W. JONES, III
MS Bar No. 3303
bill.jones@cs-law.com
JUSTIN R. GLENN
MS Bar No. 105400

9
The relevant statutes in “Mississippi [and] Pennsylvania . . . are identical.” ROA 18-
60372.357; ROA 18-60383.283; ROA 18-60365.225.

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jglenn@cs-law.com
COSMICH SIMMONS & BROWN,
PLLC
100 Vision Drive, Suite 200
Jackson, Mississippi 39211
Telephone: (601) 519-0328
Facsimile: (601) 863-0078

Attorneys of Record for Appellees Lakesha


Butler, William Willis, III, and Kimberly
Harper

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

Attorney of Record for Appellee Lakesha


Butler

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 14th day of August, 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

service will be accomplished by the Appellate CM/ECF system.

/s/ Brannon L. Berry


BRANNON L. BERRY

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Case: 18-60365 Document: 00514600051 Page: 26 Date Filed: 08/14/2018

CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of Federal Rule

of Appellate Procedure 32(a)(7)(B) because it contains 4,287 words, as determined

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.

2. This brief complies with the typeface requirements of Federal Rule of

Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of

Appellate Procedure 32(a)(6) because it has been prepared in a proportionally spaced

typeface using Microsoft Word 2013 in 14-point Times New Roman font.

/s/ Brannon L. Berry


BRANNON L. BERRY

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CERTIFICATE OF ELECTRONIC COMPLIANCE

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.

/s/ Brannon L. Berry


BRANNON L. BERRY

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Case No. 18-60365


________________________________________

IN THE UNITED STATES COURT OF APPEALS


FOR THE FIFTH CIRCUIT
_______________________
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
_____________________________________________________
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
_____________________________________________________

BRIEF FOR APPELLANTS


_____________________________________________________

Counsel listed on inside cover

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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

Attorney of Record for Appellant Coast Electric Power Association, Dixie


Electric Power Association, and Southern Pine Electric Cooperative

PETER C. ABIDE
CURRIE JOHNSON & MYERS, P.A.
925 Tommy Munro Dr., Ste. H
Biloxi, MS 39532

Attorney of Record for Coast Electric Power Association

NORMAN GENE HORTMAN, JR.


HORTMAN HARLOW BASSI ROBINSON & MCDANIEL, PLLC
414 W. Oak Street
Laurel, MS 39440
Telephone: (601) 649-8611

Attorney of Record for Dixie Electric Power Association

S. WAYNE EASTERLING
P.O. Box 1471
Hattiesburg, MS 39403

Attorney of Record for Southern Pine Electric Cooperative

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CERTIFICATE OF INTERESTED PERSONS


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 Court may evaluate possible disqualification or recusal.

Appellants Appellees

Dixie Electric Power Association William Willis, III


Coast Electric Power Association Lakesha Butler
Southern Pine Electric Cooperative Kimberly Harper

Counsel for Appellants Counsel for Appellees

Christina M. Schwing Walker W. Jones, III


Laura B. Renstrom Justin R. Glenn
HOLLAND & KNIGHT LLP Brannon Lee Berry
50 N. Laura Street, Suite 3900 COSMICH SIMMONS & BROWN, PLLC
Jacksonville, Florida 32202 100 Vision Drive, Suite 200
Jackson, MS 39211
Peter C. Abide
CURRIE JOHNSON & MYERS, P.A. Timothy Charles Holleman
925 Tommy Munro Dr., Ste. H BOYCE HOLLEMAN & ASSOCIATES
Biloxi, MS 39532 1720 23rd Avenue
Boyce Holleman Boulevard
Norman Gene Hortman, Jr. Gulfport, MS 39501
HORTMAN HARLOW BASSI ROBINSON
& MCDANIEL, PLLC
414 W. Oak Street
Laurel, MS 39440

S. Wayne Easterling
P.O. Box 1471
Hattiesburg, MS 39403
/s/ Christina Schwing
i Attorney of Record for Appellants

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STATEMENT REGARDING ORAL ARGUMENT


Appellants Coast Electric Power Association (“Coast”), Dixie Electric

Power Association (“Dixie”), and Southern Pine Electric Cooperative (“Southern

Pine”) (collectively, the “Cooperatives”) respectfully request oral argument as this

consolidated appeal involves an important question of jurisdiction under the

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

officer removal jurisdiction must be liberally construed in favor of removal.

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

Fifth Circuit’s express pronouncement that rural electric cooperatives are

“instrumentalities of the United States,” federal officer removal jurisdiction is

proper. Oral argument is likely to assist the Court in resolving this important

jurisdictional issue.

ii

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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 

III.  BACKGROUND: THE COOPERATIVES HAVE AN UNUSUALLY CLOSE


AND DETAILED REGULATORY AND CONTRACTUAL RELATIONSHIP
WITH RUS. ................................................................................................... 16 

IV.  THE COOPERATIVES MEET ALL ELEMENTS OF FEDERAL OFFICER


JURISDICTION. .............................................................................................. 20 
A.  The Cooperatives are a “Person” Within the Meaning of 28
U.S.C. § 1442(a). ................................................................................. 20 
B.  The Cooperatives are “Acting Under” the RUS by Working
Hand-in-Hand with RUS to Achieve Low-Cost Electricity for
Mississippi Residents. ......................................................................... 21 
C.  A Clear Causal Nexus Exists Between Plaintiffs’ Claims and
RUS’s Regulatory and Contractual Requirements.............................. 26 
D.  The Cooperatives Have Colorable Federal Defenses to
Plaintiffs’ Claims................................................................................. 32 
V.  COURTS ACROSS THE COUNTRY HAVE REJECTED REMAND EFFORTS
IN SIMILAR CASES. ....................................................................................... 41 

VI.  THE DISTRICT COURT ERRED IN REMANDING THE CASE. ............................. 46 
CONCLUSION ........................................................................................................ 52 
CERTIFICATE OF SERVICE ................................................................................ 54 
iii

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CERTIFICATE OF COMPLIANCE ....................................................................... 55 


CERTIFICATE OF ELECTRONIC COMPLIANCE ............................................. 56 

iv

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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

Bell v. Thornburg, 743 F.3d 84 (5th Cir. 2014) ....................................................... 15

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987)................................................... 36

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

Caver v. Cent. Ala. Elec. Coop., No. 15-0129-WS-C, 2015 WL


4742490 (S.D. Ala. Aug. 11, 2015) .................................................................... 33

Cessna v. REA Energy Coop., Inc., No. 3:16-42, 2016 WL 3963217


(W.D. Penn. July 21, 2016) ........................................... 15, 21, 22, 26, 35, 42, 43

Cessna v. REA Energy Coop., Inc., 258 F. Supp. 3d 566 (W.D. Pa.
2017) ................................................................................................................... 43

City of Cookeville v. Upper Cumberland Elec. Mbrshp. Corp., 484


F.3d 380 (6th Cir. 2007) ..................................................................................... 34

City of Stilwell v. Ozarks’ Rural Elec. Coop. Corp., 79 F.3d 1038


(10th Cir. 1996)................................................................................................... 34

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

Davis v. Cent. Ala. Elec. Coop., Case No. 15-0131-WS-C, 2015 WL


4742496 (S.D. Ala. Aug. 11, 2015) .................................................................... 45

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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

In re Commonwealth’s Motion to Appoint Counsel Against or


Directed to Defender Ass’n of Phila., 790 F.3d 457 (3d Cir. 2015) ............ 15, 27

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

Kritner v. Arab Elec. Coop., No. 4:15-cv-341-VEH, 2015 WL


2354414 (N.D. Ala. May 14, 2015) ..................................................25, 27, 45, 50

Lake v. Marshall-DeKalb Elec. Coop., No. 4:15-cv-339-VEH, 2015


WL 2354384 (N.D. Ala. May 14, 2015)............................................................. 45

Lemaire v. Louisiana, 480 F.3d 383 (5th Cir. 2007) ............................................... 14

Magnin v. Teledyine Continental Motors, 91 F.3d 1424 (11th Cir.


1996) .............................................................................................................33, 34

Martin v. Fidelity Nat’l Title Ins. Co., 537 F. App’x 597 (5th Cir.
2013) ................................................................................................................... 13

Mesa v. California, 489 U.S. 121 (1989)................................................................. 14

Morgan v. Bill Vann Co., No. 11-0535-WS-B, 2011 WL 6056083


(S.D. Ala. Dec. 6, 2011) ...............................................................................27, 33

Pub. Util. Dist. No. 1 of Pend Oreille Cty. v. United States, 417 F.2d
200 (9th Cir. 1969).............................................................................................. 16
vi

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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

Simmons v. W. Fla. Elec. Coop. Ass’n, Inc., No. 5:15CV321-RH/GRJ,


2016 WL 7408852 (N.D. Fla. Dec. 22, 2016) ........................................20, 41, 42

Sparks v. Cullman Elec. Coop., No. 4:15-CV-339, 2016 WL 927032


(N.D. Ala. Mar. 11, 2016)................................................................................... 45

State v. Kleinert, 855 F.3d 305 (5th Cir. 2017) ....................................................... 33

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

7 C.F.R. § 1710.100 ................................................................................................. 18

7 C.F.R. § 1710.114(d)(1) ......................................................................32, 36, 38, 48

7 C.F.R. § 1710.250 ................................................................................................. 48

7 C.F.R. § 1717.600 et. seq. .................................................................................5, 20

7 C.F.R. § 1717.609 ................................................................................................. 40

7 C.F.R. § 1717.617 .......................................................... 5, 9, 23, 24, 30, 31, 37, 38

7 C.F.R. § 1724 ..............................................................................................5, 20, 35

7 C.F.R. § 1726 ..............................................................................................5, 20, 35

vii

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7 C.F.R. § 1737 ..............................................................................................5, 20, 35

28 U.S.C. § 1291 ........................................................................................................ 2

28 U.S.C. § 1442 ...............................................................................................passim

28 U.S.C. § 1447(d) ................................................................................................... 2

Miss. Code § 77-5-235 ........................................................................................... 6, 7

OTHER AUTHORITIES
Richard P. Kreck, Reevaluating the Rural Electricifation
Administration: A New Deal for the Taxpayer, 16 ENVT’L L. 39,
45046 (1985) ....................................................................................................... 17

HARRY SLATTERY, RURAL AMERICA LIGHTS UP 38-48, 12-23


(Sherman F. Mittell, ed., Nat’l Home Library Found. 1940) ............................. 18

RURAL DEV., U.S. DEP’T. AGRIC., INFORMATION 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

U.S. DEP’T. OF AGRIC. RURAL DEV., RURAL UTILITIES SERVICE,


http://www.rd.usda.gov/about-rd/agencies/rural-utilities-service
(last visited July 10, 2018) .................................................................................. 17

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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.

ROA.18-60383.1. On March 12, 2018, Coast filed a timely Notice of Removal.

ROA.18-60365.1. All three Cooperatives sought removal based on 28 U.S.C.

§ 1442 (the federal officer removal statute), and the Notices of Removal raised

identical arguments in support thereof.

In each case, the plaintiffs (collectively, “Plaintiffs”) filed Motions to

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

exercise jurisdiction pursuant to the federal officer removal statute. ROA.18-

60365.353; ROA.18-60372.1001; ROA.18-60383.588.

The Cooperatives now appeal from the Court’s Memorandum Opinion and

Order. The rulings were entered by the Honorable Keith Starrett in the United

States District Court for the Southern District of Mississippi.

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

May 21, 2018. ROA.18-60383.598.

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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).

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STATEMENT OF ISSUES PRESENTED FOR REVIEW


1. Did the district court err in declining to exercise jurisdiction under the

federal officer removal statute, 28 U.S.C. § 1442(a)(1), where the Cooperatives,

who have an extensive interrelationship with an arm of the federal government,

demonstrated they have a colorable federal defense to Plaintiffs’ claims?

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STATEMENT OF THE CASE


Coast, Dixie, and Southern Pine (collectively, the “Cooperatives”) are non-

profit, member-owned rural electric power associations organized and subject to

Mississippi’s Electric Power Association Law, Miss. Code § 77-5-201, et seq.

Collectively, the Cooperatives serve members in 21 counties in South Mississippi.

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

managed by a Board of Directors that is comprised of members and elected by the

members pursuant to Mississippi law and each Cooperatives’ Bylaws.

Mississippi’s electric cooperatives were formed after Congress passed the

Rural Electrification Act (“RE Act”), and the Mississippi Legislature passed

legislation enacting electric cooperatives in 1936. Pursuant to the RE Act, the

Cooperatives have each applied for and received contracts from the United States

Department of Agriculture Rural Utilities Service1 (“RUS”) for financial assistance

consistent with the purposes of the Act. ROA.18-60383.68-158; ROA.18-

60372.66-142; ROA.18-60365.46-105. Coast, Dixie, and Southern Pine have been

borrowers since the late 1930’s. ROA.18-60383.6; ROA.18-60372.6; ROA.18-

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

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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

is dated August 1, 2002. ROA.18-60383.68.

Due to the unique symbiotic relationship between RUS and electric

cooperatives, RUS loan contracts are required by federal regulation to contain

certain provisions RUS has deemed appropriate to further the purposes of the RE

Act. For instance, RUS imposes significant levels of control on electric

cooperatives that touch on nearly every facet of a cooperative’s operations. See,

e.g., 7 C.F.R. §§ 1700–1794. Electric cooperatives are subject to close oversight

and regulation relating to their operations, including with respect to electrical

engineering and architectural controls, construction contract requirements, and

regular RUS auditing of the use of loan funds (7 C.F.R. §§ 1724, 1726 & 1737,

respectively). RUS must approve many of a cooperative’s contracts and, under

some circumstances, its selection of a general manager, board compensation,

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

cooperative, provides limitations on distributions made by the cooperative to its

members. Therefore, although RUS provides discretion to cooperatives with

respect to the rates charged, it likewise imposes significant control over the

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operations of the cooperative, including with respect to limitations placed on

distributions to cooperative members.

Electric cooperatives are owned by their members. Indeed, members help to

finance the production and delivery of electrical service to their communities by

paying their electric bills. Pursuant to their Bylaws, each year when the

Cooperatives close their books, revenue from operations that exceeds the costs of

providing electrical service is invested back into the Cooperatives as capital,

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

financially impairing its ability to deliver electricity to its members.

Under Mississippi law, each Cooperative must also return excess revenues to

members, calculated pursuant to Miss. Code § 77-5-235. The statute provides:

A corporation's rates for energy furnished or offered by the


corporation shall be sufficient at all times to pay all operating and
maintenance expenses necessary or desirable for the prudent conduct
and operation of its business and to pay the principal of and interest
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on such obligations as the corporation may have issued and/or


assumed in the performance of the purpose for which it was formed.
The revenues and receipts of a corporation shall first be devoted to
such operating and maintenance expenses and to the payment of such
principal and interest and thereafter to such reserves for improvement,
new construction, depreciation and contingencies as the board may
from time to time prescribe. Revenues and receipts not needed for
these purposes shall be returned to the members by such means as the
board may decide, including through the reimbursement of
membership fees, the implementation of general rate reductions, the
limitation or avoidance of future rate increases, or such other means
as the board may determine.2

Miss. Code § 77-5-235(5) (2017) (emphasis added).

Plaintiffs initially filed these actions in chancery court, alleging causes of

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)

conversion; and (6) constructive trust.3

In each Complaint, Plaintiffs assert that the Cooperatives are required by law

to refund capital to members each year. ROA.18-60383.28-29, ¶¶ 4-5; ROA.18-

60372.24-25, ¶¶ 4-5; ROA.18-60365.24-25, ¶¶ 4-5. According to Plaintiffs,

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

excess member capital” held by the Cooperatives. ROA.18-60383.46, ¶ 102;

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.
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ROA.18-60372.42, ¶ 102; ROA.18-60365.41, ¶ 101. Plaintiffs contend that “at

least” the amount of capital in excess of 30% should be refunded to the members.

ROA.18-60372.39-41, ¶¶ 87, 91, 95; ROA.18-60365.39-41, ¶¶ 86, 90, 94; accord

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-

60372.42, Prayer for Relief ¶ 1; ROA.18-60365.42, Prayer For Relief ¶ 1; accord

ROA.18-60383.47, Prayer for Relief ¶ 1 (“such greater amount deemed equitable

by this Court”).

As a result of the close relationship between the Cooperatives and RUS,

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

to make distributions to members, and the Cooperatives’ alleged failure to make

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

regulations. ROA.18-60383.9; ROA.18-60372.9; ROA.18-60365.8.

Thereafter, Plaintiffs filed Motions to Remand (ROA.18-60383.225;

ROA.18-60372.299; ROA.18-60365.167), in which Plaintiffs challenged only one

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element of federal officer removal – the assertion of a colorable federal defense.

ROA.18-60383.225; ROA.18-60372.299; ROA.18-60365.167.

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.

ROA.18-60365.353; ROA.18-60372.1001; ROA.18-60383.588. In light of the fact

that Plaintiffs only challenged one element of federal jurisdiction, the court only

considered one element – whether the Cooperatives had a colorable federal

defense. ROA.18-60365.355; ROA.18-60372.1003; ROA.18-60383.590. The

court held that federal regulations (specifically, 7 C.F.R. § 1717.617) and the

Cooperatives’ loan documents created a “safe harbor” for distributions of capital as

long as the Cooperative maintained at least a 30% asset-to-equity ratio. ROA.18-

60365.358; ROA.18-60372.1006; ROA.18-60383.593. The court then held it was

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

the RUS 30% safe harbor. ROA.18-60365.358-59; ROA.18-60372.1006-07;

ROA.18-60383.593-94. The court concluded that state intrusion upon the

discretion of the Cooperatives’ Board of Directors did not create a conflict with

federal law because the RUS regulations explicitly contemplate state regulation of

cooperatives. ROA.18-60365.359; ROA.18-60372.1007; ROA.18-60383.594.

Further, the court rejected the Cooperatives’ contention that the appointment of a

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receiver as requested by the Plaintiffs would trigger a default under the loan

agreement and thereby create a conflict with federal law. ROA.18-60365.359-60;

ROA.18-60372.1007-08; ROA.18-60383.594-95.

The Cooperatives have now filed individual appeals from the court’s April

27, 2018 Memorandum Opinion and Order granting Plaintiffs’ Motions to

Remand. ROA.18-60365.363; ROA.18-60372.1011; ROA.18-60383.598. On July

12, 2018, the Fifth Circuit consolidated the appeals.

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SUMMARY OF THE ARGUMENT

This Court should find the district court erred by failing to exercise federal

officer jurisdiction under 28 U.S.C. § 1442(a)(1). The Cooperatives demonstrated

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

RUS) was created to implement the well-recognized federal goal of rural

electrification and has worked hand in hand with rural electric cooperatives since

the Great Depression. Indeed, this Court has called rural electric cooperatives like

Coast, Dixie, and Southern Pine “instrumentalities” of the federal government.

The relationship between the Cooperatives and RUS in furtherance of this

federal goal goes far beyond that of a typical creditor and debtor. The regulations

at issue allow RUS to set construction limitations, set strict accounting

requirements, make contract approvals, impose environmental and energy

efficiency plans, choose banks, and remove directors in certain instances. Most

importantly, the relevant regulations and the RUS loan contract require that the

Cooperatives maintain at a minimum 30% member equity when making

distributions to members. This regulatory and contractual restriction on member

distributions conflicts, and certainly at least “plausibly conflicts” with Plaintiffs’

interpretation of Mississippi law, pursuant to which the Cooperatives would be

required to return “all excess member capital” held by the Cooperatives.

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Critically, at the district court, Plaintiffs only challenged one element of

federal officer jurisdiction – whether the Cooperative asserted a colorable federal

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.

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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

brought under 28 U.S.C. § 1442(a)(1), the requirements of federal officer removal

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

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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

for the first time on appeal.”).

II. 28 U.S.C. § 1442(a)(1) Must Be Liberally Construed in Favor of


Removal.

Under 28 U.S.C. § 1442(a)(1), “an action ‘against or directed to . . . any

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

F.3d 563, 569 (5th Cir. 2017) (quoting 28 U.S.C. § 1442(a)(1)).

Removal is proper under 28 U.S.C. § 1442(a) where a defendant can show:

(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.

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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.’”).

Thus, the requirements of federal officer removal are to be “liberally

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,

431 (1999) (rejecting a “narrow” interpretation of the statute); Cessna v. REA

Energy Coop., Inc., No. 3:16-42, 2016 WL 3963217, at *3 (W.D. Penn. July 21,

2016) (recognizing that “the federal officer removal statute is to be ‘broadly

construed’ in favor of a federal forum”) (quoting In re Commonwealth’s Motion to

Appoint Counsel Against or Directed to Defender Ass’n of Phila., 790 F.3d 457,

467 (3d Cir. 2015)).

Indeed, when a defendant removes a case pursuant to 28 U.S.C. § 1442, the

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.”

Willingham, 395 U.S. at 406-07 (internal quotation omitted). This is because

“[o]ne of the primary purposes of the [federal officer] removal statute – as its

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history clearly demonstrates – was to have [colorable federal] defenses litigated in

federal courts.” Id. at 407. Under this standard, the Cooperatives easily meet each

of these requirements.

III. Background: The Cooperatives Have an Unusually Close and Detailed


Regulatory and Contractual Relationship with RUS.

In 1936, at the depth of the Great Depression, Congress adopted the Rural

Electrification Act (“RE Act”) to serve an important national goal: to “bring

electric power to parts of the country not adequately served by commercial

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

use of non-profit cooperatives owned by consumer members “who have been

unable to obtain electricity from any other source”).

When the RE Act was passed in 1936, “Congress determined that the

national interest would be served by subsidizing the rural user of electricity. . . .

[S]o long as the United States is interested in keeping the electric lamps lit on the

farms, it is of necessity interested in the vehicles distributing the electricity which

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

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formation of electric cooperatives was lending funds to rural electric cooperatives

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).

The RE Act offered loans to private corporations and not-for-profit

cooperatives. But, shortly after its passage, it became apparent to the Rural

Electrification Administration (the “REA”) – the predecessor to the United States

Department of Agriculture Rural Utilities Service (the “RUS”) – that private

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,

Reevaluating the Rural Electrification Administration: A New Deal for the

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

to create, maintain, expand, upgrade, and modernize their rural electric

infrastructure. See U.S. DEP’T. OF AGRIC. RURAL DEV., RURAL UTILS. SERV.,

http://www.rd.usda.gov/about-rd/agencies/rural-utilities-service (last visited July

10, 2018).

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The purpose of the RUS loan program was and is “to finance the

construction of electric distribution, transmission and generation facilities,

including system improvements and replacements required to furnish and improve

electric service in rural areas[.]” 7 C.F.R. § 1710.100; Greensboro Lumber Co. v.

Ga. Power Co., 643 F. Supp. 1345, 1358-59 (N.D. Ga. 1986) (“[The electric

cooperative] owes its existence to the Rural Electrification Administration

(“REA”) in that it is principally financed by loans and loan guarantees of 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

sparsely-settled areas in which investor-owned utilities had not found it profitable

to provide service.” (citations omitted)), aff’d, 844 F.2d 1538 (11th Cir. 1988).

To further encourage the creation of electric cooperatives, the REA

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

SLATTERY, RURAL AMERICA LIGHTS UP 38-48, 122-23 (Sherman F. Mittell, ed.,

Nat’l Home Library Found. 1940) (recognizing that the uniform act “contains

comprehensive provisions under which cooperatives may be organized, managed

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).
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and extended.”). Mississippi adopted its Electric Power Association Law, codified

at Chapter 5 of Title 77, in 1936.

Mississippi and the REA have enjoyed a historically-close relationship,

which led this Court to reject an investor-owned utility’s attempt to halt a REA

loan to a power generation cooperative, stating:

We agree with the recent decision of the Federal Power


Commission…that rural electric cooperatives are something more
than public utilities; they are instrumentalities of the United States.
‘They were chosen by Congress for the purpose of 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)

(emphasis added, citations omitted).

Therefore, rural electric cooperatives exist to provide a necessary public

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

would otherwise have to undertake to provide itself.

By entering into loan agreements with RUS, Cooperatives must agree to

abide by a detailed framework of regulatory and contractual provisions. RUS

imposes significant operational controls on cooperatives that accept RUS loans.

Thus, the relationship between RUS and the Cooperatives is much more than a

contractual lender-borrower relationship. The RUS regulations subject the

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Cooperatives to RUS’s considerable supervision, direction, and control touching

on nearly every facet of the Cooperatives’ operations. See 7 C.F.R. §§ 1700–1794.

The Cooperatives are subjected to close oversight relating to its operations,

including its electrical engineering, architectural controls, and construction

contract requirements. See 7 C.F.R. §§ 1724, 1726. The Cooperatives are

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

circumstances, its selection of a general manager, board compensation,

expenditures, and even its bank. See 7 C.F.R. § 1717.600 et seq.

IV. The Cooperatives Meet All Elements of Federal Officer Jurisdiction.

A. The Cooperatives are a “Person” Within the Meaning of 28


U.S.C. § 1442(a).
Plaintiffs did not challenge this element before the district court and are

therefore now barred from challenging it on appeal. ROA.18-60365.355; ROA.18-

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

officer removal jurisdiction, as the Cooperatives are a “person” for purposes of 28

U.S.C. § 1442(a). See Simmons v. W. Fla. Elec. Coop. Ass’n, Inc., No.

5:15CV321-RH/GRJ, 2016 WL 7408852, at *2 (N.D. Fla. Dec. 22, 2016)

(recognizing that the electric cooperative is “a ‘person’ who can invoke the

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federal-officer removal statute in appropriate circumstances”); Cessna v. REA

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

presume that the term ‘person’ includes corporations….”); Hagen v. Benjamin

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

such non-government entities may seek removal under Section 1442(a)(1).”).

B. The Cooperatives are “Acting Under” the RUS by Working


Hand-in-Hand with RUS to Achieve Low-Cost Electricity for
Mississippi Residents.
Plaintiffs did not challenge this element before the district court and are

therefore now barred from challenging it on appeal. ROA.18-60365.355; ROA.18-

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.

A removing defendant satisfies the “acting under” requirement when it is

involved in assisting or carrying out the duties or tasks of a federal superior.

Watson v. Philip Morris Cos., 551 U.S. 142, 152 (2007). “Cases in which the

Supreme Court has approved removal involve defendants working hand-in-hand

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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.

Watson, 551 U.S. at 147.

The Cooperatives are unquestionably acting under a federal officer for

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,”

working with the government to achieve a federal objective in providing rural

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

electrification, providing services that otherwise RUS would have to perform in

order to fulfill that objective.” Cessna v. REA Energy Cooperative, Inc., Case No.

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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

construction of 28 U.S.C. § 1442(a)(1)’” the Cooperatives are clearly acting under

a federal office sufficient for invoking federal jurisdiction. Id.

As discussed herein, RUS has established significant operational controls

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

Board of Directors to determine whether patronage capital refunds should be

issued, stating:

If a distribution or power supply borrower is required by its loan


documents to obtain prior approval from RUS before declaring or
paying any dividends, paying or determining to pay any patronage
refunds, or retiring any patronage capital, or making any other cash
distributions, such approval is hereby given if the following
conditions are met:

(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

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(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

all distributions and mirror the pertinent regulation:

Section 6.8: Limitation on Distributions

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.

Provided however, that in no event shall the Borrower make any


Distributions if there is unpaid when due any installment of principal
of (premium, if any) or interest on its Notes, if the Borrower is
otherwise in default hereunder or if, after giving effect to any such
Distribution, the Borrower's current and accrued assets would be less
than its current and accrued liabilities.

ROA.18-60365.61; ROA.18-60383.84; ROA.18-60372.81-82. “Distributions” is

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”).
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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….

ROA.18-60365.47; ROA.18-60383.69; ROA.18-60372.67. As explained further

below, this contractual and regulatory framework provides the Cooperatives with a

plausible or colorable federal defense in this case.

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

their discretion as well as obligated to retain excess revenue or patronage capital

that Plaintiffs claim should have been distributed to the members so that the

Cooperatives could comply with RUS’s requirement that the Cooperative maintain

equity above 30%.

Notably, the 30% threshold is a minimum threshold established by RUS that

allows an electric cooperative to make patronage capital disbursements without

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.,

No. 4:15-cv-341-VEH, 2015 WL 2354414, at *4 (N.D. Ala. May 14, 2015)

(concluding that an electric cooperative acted under a federal officer when it acted
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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

electric cooperative] owes its existence to the Rural Electrification Administration

(“REA”) in that it is principally financed by loans and loan guarantees of 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

sparsely-settled areas in which investor-owned utilities had not found it profitable

to provide service.” (citations omitted)), aff'd, 844 F.2d 1538 (11th Cir. 1988).

C. A Clear Causal Nexus Exists Between Plaintiffs’ Claims and


RUS’s Regulatory and Contractual Requirements.

Plaintiffs did not challenge this element before the district court and are

therefore now barred from challenging it on appeal. ROA.18-60365.355; ROA.18-

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

been construed as “broad and requir[ing] only a connection or association between

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).
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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.

2015)) (internal quotations omitted). “The hurdle erected by th[e causal

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

broad interpretation); Morgan v. Bill Vann Co., No. 11-0535-WS-B, 2011 WL

6056083, at *8 (“[T]he causal nexus requirement does not establish a stringent

standard.” (citations and internal quotation marks omitted)); Kritner, 2015 WL

2354414 at *4.

The Cooperatives easily satisfy this relaxed requirement because the

Cooperatives are being sued “for or relating to any act under color of such office”

as such phrase is used in 28 U.S.C. § 1442(a)(1). In addition to the statutory and

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

controls on the operation of the Cooperatives, including the distribution of

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patronage capital. For example, the following provisions are implicated by the

relief requested by Plaintiffs in the present action:

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.

ROA.18-60365.55; ROA.18-60383.77; ROA.18-60372.75.

Section 6.8. Limitation on Distributions.

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.

Provided however, that in no event shall the Borrower make any


Distributions if there is unpaid when due any installment of principal
of (premium, if any) or interest on any of its payment obligations
secured by the Mortgage, if the Borrower is otherwise in default
hereunder or if, after giving effect to any such Distribution, the
Borrower's current and accrued assets would be less than its current
and accrued liabilities.
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ROA.18-60365.61; ROA.18-60383.84; ROA.18-60372.81-82.

Section 7.1 Events of Default

The following shall be Events of Default under this Agreement: …

(g) Bankruptcy. A court having jurisdiction in the premises shall


enter a decree or order for relief in respect of… appointing a receiver,
liquidator, assignee, trustee, sequestrator, or similar official….

ROA.18-60365.64; ROA.18-60383.87; ROA.18-60372.84-85.

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

Cooperatives. Plaintiffs allege that the Cooperatives have overcharged members

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

by the Cooperatives (see, e.g., ROA.18-60383.46, ¶ 102; ROA.18-60372.42, ¶ 102;

ROA.18-60365.41, ¶ 101) certainly violates the limitation on distributions

provision contained in Section 6.8.

Although the lower court concluded that the Plaintiffs were merely seeking

the appointment of a “temporary receiver,” see, e.g., ROA.18-60365.360,

Plaintiffs’ request in the Complaint is not limited to appointment of a temporary

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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

. . . .” ROA.18-60383.48, Prayer for Relief ¶ 4; ROA.18-60372.42, Prayer for

Relief ¶ 4; ROA.18-60365.42, Prayer for Relief ¶ 4. But the appointment of a

receiver or trustee is an express event of default under the Cooperatives’ loan

agreements with RUS. ROA.18-60365.64; ROA.18-60383.86; ROA.18-60372.84-

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

members. See 7 C.F.R. § 1717.617 (setting forth limitations on distributions if a

borrower is otherwise in default under its loan documents); see also ROA.18-

60365.61, at § 6.8; ROA.18-60383.84, § 6.8; ROA.18-60372.81-82, § 6.8

(“Provided however, that in no event shall the Borrower make any Distributions

[of patronage capital] if the Borrower is otherwise in default hereunder….”).

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

control exerted by RUS over the Cooperatives’ distribution of patronage capital

through loan documents, it is undeniable that there is a causal nexus between the

Cooperatives’ actions, Plaintiffs’ claims, and RUS’s regulatory and contractual

requirements. Plaintiffs’ requested relief, which would cause the Cooperatives to

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be in default under their loan contracts with RUS, further exemplify the

interconnectedness between the Cooperatives and RUS with respect to the conduct

alleged in the Complaint.

Plaintiffs allege that the Cooperatives violated Mississippi law by not

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

C.F.R. § 1717.617, the Cooperatives will still be in violation of the RUS

regulations by reducing assets to such a level because this would effectively

remove the Board of Directors’ discretion in retaining and distributing patronage

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.,

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Inc., 394 F.2d 672, 677 (5th Cir. 1968). Indeed, the relief sought by Plaintiffs in

their lawsuits, which ironically exemplify members suing themselves, 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.

Plaintiffs’ relief is in conflict with the federal scheme of requiring Cooperatives to

offer low cost electric energy to rural America.

RUS’s express command – that the Cooperatives must “design and

implement rates … to provide and maintain reasonable working capital” –

conclusively establishes the Cooperatives’ and the Board of Directors’ discretion

with respect to amounts of patronage capital to retain. 7 C.F.R. § 1710.114(d)(1).

To the extent Plaintiffs seek to eliminate that discretion by mandating certain

amounts of patronage capital to be refunded, this certainly demonstrates a clear

causal nexus between Plaintiffs’ claims and the Cooperatives’ compliance with

detailed RUS regulations.

D. The Cooperatives Have Colorable Federal Defenses to Plaintiffs’


Claims.
The only prong contested by Plaintiffs for federal officer removal is whether

the Cooperatives have raised a colorable federal defense. Courts give this portion

of § 1442(a)(1) a “broad reading so as to encompass ‘all cases where federal

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

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Willingham v. Morgan, 395 U.S. 402, 406-07 (1969)). To that end, federal officer

removal is an exception to the well-pleaded complaint rule, as “the federal-

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

be plausible; its ultimate validity is not to be determined at the time of removal.”

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

colorable federal defense must be merely “plausible, not clearly sustainable”);

Willingham, 395 U.S. at 407 (concluding that defendants asserted a colorable

federal defense even though the defense was ultimately rejected).

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

order for removal to be proper under § 1442(a)(1); rather, defendant’s burden is

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

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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

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).

Conflict preemption is a type of implied preemption that arises when either:

(1) compliance with both federal and state law is impossible; or (2) application of

state law impedes, or otherwise stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress. In re Cajun Elec.

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

colorable federal defense of preemption); City of Stilwell v. Ozarks’ Rural Elec.

Coop. Corp., 79 F.3d 1038 (10th Cir. 1996).

Here, the Cooperatives have colorable federal defenses to Plaintiffs’ claims

as application of the Mississippi law stands as an obstacle to the accomplishment

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

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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

quotation marks omitted). Thus, the well-established role of electric cooperatives

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

electrification, providing services that otherwise RUS would have to perform in

order to fulfill that objective.” Cessna v. REA Energy Coop., Inc., Case No. 3:16-

42, 2016 WL 3963217, at *4-5 (W.D. Penn. Jul. 21, 2016).

With this express objective in mind, Plaintiffs’ interpretation of state law –

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

REA and its intention for electric cooperatives. Plaintiffs’ interpretation of

Mississippi law would effectively prohibit the Cooperatives from ever fulfilling

their objective of providing low rate electric services to rural areas by eliminating

their ability to retain any semblance of patronage capital or lowering it to such a

level that requires them to raise rates due to the added debt and interest charges

they would be forced to incur. Plaintiffs’ interpretation of Mississippi law also

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.

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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

plaintiff’s state court pleadings at the time of removal); Caterpillar Inc. v.

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

jurisdiction cannot be based on “facts not alleged in the complaint.”). Critically, in

the Complaint, Plaintiffs in no way limited their requested relief to only amounts in

excess of 30% of the Cooperatives’ total assets – to the contrary, Plaintiffs

repeatedly refer to this amount as the floor amount they are seeking. See, e.g.,

ROA.18-60383.46, ¶ 102; ROA.18-60372.42, ¶ 102; ROA.18-60365.41, ¶ 101.

Plaintiffs would have Miss. Code Ann. § 77-5-235 read to prohibit the

Cooperatives’ retention of all patronage capital, but at a minimum patronage

capital in excess of 30% of the Cooperatives’ total assets. However, this would

effectively remove the Board of Directors’ discretion in retaining and distributing

patronage capital. This is in direct conflict with the intention of the REA and RUS.

For example, 7 C.F.R. § 1710.114(d)(1) states:

(d) Requirements for maintenance of coverage ratios—(1)


Prospective requirement. Borrowers must design and implement rates
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for utility service to provide sufficient revenue (along with other


revenue available to the borrower in the case of TIER and DSC) 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 paragraph (b) of this section.

(emphasis added). RUS’s express command – that the Cooperatives must use

business judgment and discretion to set rates that provide and maintain

reasonable working capital – conclusively establishes the Cooperatives’ and the

Board of Directors’ discretion with respect to amounts of patronage capital to

retain. Plaintiffs seek to eliminate that discretion by mandating certain amounts of

patronage capital to be refunded, creating a direct conflict subject to the

Cooperatives’ colorable federal defense of conflict preemption.

Moreover, 7 C.F.R. 1717.617 implicitly grants authority to the Board of

Directors to determine whether patronage capital refunds should be issued, stating:

If a distribution or power supply borrower is required by its loan


documents to obtain prior approval from RUS before declaring or
paying any dividends, paying or determining to pay any patronage
refunds, or retiring any patronage capital, or making any other cash
distributions, such approval is hereby given if the following
conditions are met:

(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

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(d) After giving effect to the distribution, the borrower's current and
accrued assets will be not less than its current and accrued liabilities.

7 C.F.R. § 1717.617 operates as both a grant of authority to the Board of Directors

and as a regulatory floor for the amount of patronage capital a cooperative must

have on hand to receive authorization for a disbursement. The grant of authority is

inherent in that a Board of Directors is not obligated by the REA or RUS to make

patronage capital disbursements in excess of 30% of total assets – rather, it grants

the Board approval for such a disbursement if such a disbursement is authorized

by the Board.

There is also an express grant of authority from RUS to the Cooperatives

through their loan contracts. See, e.g., ROA.18-60365.55, at § 5.4; ROA.18-

60383.77, at § 5.4; ROA.18-60372.75, at § 5.4.7 Similar to the requirements of 7

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

desired levels of patronage capital. As such, there is clearly a direct conflict

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).
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between federal law and the relief sought by Plaintiffs allegedly pursuant to

Mississippi law because the Cooperatives cannot both exercise their RUS- and

REA-granted authority to set rates and manage patronage capital disbursements

while also compulsively returning all patronage capital (or the minimum floor) to

its members.

Plaintiffs also seek a permanent receiver or trustee to be appointed that

would eliminate all authority from the Board of Directors to determine appropriate

levels of patronage capital for the Cooperatives to retain. ROA.18-60383.48,

Prayer for Relief ¶ 4; ROA.18-60372.42, Prayer for Relief ¶ 4; ROA.18-60365.42,

Prayer for Relief ¶ 4. Not only would appointment of a receiver or trustee usurp the

role of the Cooperatives as a federal officer, but the appointment of a trustee or

receiver is an event of default under the loan contract between RUS and the

Cooperatives. The loan contract itself provides as follows:

The following shall be Events of Default under this


Agreement: …

(g) Bankruptcy. A court having jurisdiction in the


premises shall enter a decree or order for relief in respect
of the Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver . . .

ROA.18-60365.64, at § 7.1(g); ROA.18-60383.86-87, at § 7.1(g); ROA.18-

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
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circumstance where a court enters a decree or order in respect of the Borrower

“appointing a receiver.” Thus, the appointment of a receiver triggers a default.

Because of the complex regulatory scheme instituted by RUS, a default

would have significant consequences on the Cooperatives’ ability to manage their

operations. This would significantly frustrate the REA’s purpose in establishing

cooperatives. See, e.g., 7 C.F.R. § 1717.609 (“If a borrower is in default with

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

Cooperatives’ federal defense of conflict preemption is substantially more than

“plausible” and does form the basis of federal officer removal.

V. Courts Across the Country Have Rejected Remand Efforts in Similar


Cases.

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

affirmed removal in nearly-identical cases involving electric cooperatives. In

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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]

actions.” Id. According to the cooperative, federal regulations do not allow

distribution of excess revenues if doing so would result in 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.

Additionally, in Simmons, the court concluded that federal officer removal

was proper under 28 U.S.C. §1442(a)(1). Simmons v. W. Fla. Elec. Coop. Ass’n,

Inc., No. 5:15CV321-RH/GRJ, 2016 WL 7408852, at *2 (N.D. Fla. Dec. 22,

2016). In Simmons, the court considered a nearly-identical case brought by a class

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of plaintiffs against an electric cooperative in Florida. The plaintiffs asserted

claims against the cooperative and contended that Florida law required the

cooperative to make certain patronage refunds to members. Id. at *1. 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

unique setting – involving cooperatives set up as part of Congress’s plan to provide

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

asserted numerous causes of action related to an electric cooperative’s retention of

patronage capital. Id. at *1-3. The electric cooperative sought to remove the

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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

were performed pursuant to RUS’s direct orders or comprehensive and detailed

regulations.” Id. at *6. The court, without determining whether preemption

applied, concluded that “Defendant’s preemption defense is ‘plausible’ and

satisfies the requirements for removal.” Id.

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

the court to conclusively determine whether conflict preemption actually served to

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

electric cooperative on other grounds. Id. at 596.

At the lower court, Plaintiffs argued that Cessna II stands for the proposition

that conflict preemption is no longer a plausible federal defense for electric

cooperatives. But such a proposition is incorrect and misguided. As noted above,

at the removal stage of the proceedings, the Cooperatives must only present a

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“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

whether the provisions in the cooperative’s loan contract should be afforded

preemptive weight.

Further, Plaintiffs’ argument that Cessna II expressly precludes any

argument that conflict preemption is a colorable federal defense grossly overstates

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

preemption is no longer a proper, and at least plausible, defense in the case. On a

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

the Cooperatives must meet here for purposes of removal.

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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

Authority Act, a Tennessee-equivalent of the REA and RUS regulations, could be

used to support a colorable federal defense of preemption as to similar causes of

action); Lake v. Marshall-DeKalb Elec. Coop., No. 4:15-cv-339-VEH, 2015 WL

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

“the electric cooperatives established a plausible case of preemption”).

The Cooperatives do not have to prove their federal defenses will be

ultimately successful in order to show the existence of jurisdiction under

§ 1442(a)(1). And as the above demonstrates, the Cooperatives’ federal defenses

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.

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VI. The District Court Erred in Remanding the Case.

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

therefore application of state law as asserted by Plaintiffs certainly impedes or

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

harbor” provided by the RUS regulations. ROA.18-60365.358-59; ROA.18-

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

of excess revenues in excess of the 30% asset-to-equity ratio, Plaintiffs’ requested

relief does not implicate federal law. ROA.18-60365.358; ROA.18-60372.1006;

ROA.18-60383.593.

However, the relief requested by Plaintiffs in the Complaint is not so

limited. Plaintiffs seek the return of “all excess member capital” held by the

Cooperatives. ROA.18-60383.46, ¶ 102; ROA.18-60372.42, ¶ 102; ROA.18-

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60365.41, ¶ 101. Plaintiffs contend that “at least” the amount of capital in excess of

30% should be refunded to the members. ROA.18-60372.39-41, ¶¶ 87, 91, 95;

ROA.18-60365.39-41, ¶¶ 86, 90, 94; accord 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.18-60372.42, Prayer for Relief ¶ 1; ROA.18-

60365.42, Prayer For Relief ¶ 1; accord ROA.18-60383.47, Prayer for Relief ¶ 1

(“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 federal regulations.

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

the regulatory threshold distributed to Defendant’s members.” ROA.18-

60365.357-58, n.1; ROA.18-60372.1005-06, n.1; ROA.18-60383.593, n.1. But in

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reaching this conclusion, the district court disregarded the express relief sought by

Plaintiffs and further failed to properly apply the standard that federal officer

removal must be “liberally construed” in favor of removal. Indeed, 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 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.

Further, as discussed above, even if Plaintiffs’ requested relief were limited

to only the amount over and above the 30% threshold, such a request still

implicates the RUS regulations. It would effectively remove the Board of

Directors’ discretion in retaining and distributing patronage capital and

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

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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

would be unable to get construction work plans approved.

Likewise, the lower court erred in concluding that the Plaintiffs were merely

seeking the appointment of a “temporary receiver.” See, e.g., ROA.18-60365.360.

Plaintiffs’ request in the Complaint is not limited to appointment of a temporary

receiver. Instead, Plaintiffs clearly seek appointment of a permanent receiver. See

ROA.18-60383.48, Prayer for Relief ¶ 4; ROA.18-60372.42, Prayer for Relief ¶ 4;

ROA.18-60365.42, Prayer for Relief ¶ 4.

Moreover, Plaintiffs’ relief and application of state law “impedes, or

otherwise stands as an obstacle to the accomplishment and execution of the full

purposes and objectives of Congress” of creating Cooperatives to provide low cost

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

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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,

thereby resulting in increased rates, contrary to the federal purpose, as recognized

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

officer jurisdiction is proper at the removal stage, only a colorable or plausible

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-

341-VEH, 2015 WL 2354414, at *3 (N.D. Ala. 2015) (finding TVA electric

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

concluded. Indeed, at this stage, the Cooperatives have established a colorable

federal defense.

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The district court next asserts that the RUS regulations explicitly

contemplate state regulation of electric cooperatives. ROA.18-60365.359;

ROA.18-60372.1007; ROA.18-60383.594. But the district court failed to recognize

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

assert federal officer jurisdiction, the Cooperatives have asserted a colorable

federal defense of conflict preemption. As the Cooperatives have explained, the

application of Miss. Code § 77-5-235 and its dictate for the Cooperatives to return

all excess revenues to the Cooperatives’ members certainly impedes or frustrates

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

preemption defense. Instead, it is sufficient for the Cooperatives to assert a

plausible defense of conflict preemption, which the Cooperatives have done.

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).

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Respectfully submitted,

/s/ Christina Schwing


CHRISTINA M. SCHWING
Fla. Bar No. 11420
christina.schwing@hklaw.com
LAURA B. RENSTROM
Fla. Bar No. 108019
laura.renstrom@hklaw.com
HOLLAND & KNIGHT LLP
50 N. Laura Street, Suite 3900
Jacksonville, Florida 32202
Telephone: (904) 798-7222
Facsimile: (904) 358-1872

Attorney of Record for Appellant Coast


Electric Power Association, Dixie Electric
Power Association, and Southern Pine
Electric Cooperative

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

Attorney of Record for Coast Electric


Power Association

NORMAN GENE HORTMAN, JR.


Miss. State Bar No. 2664
ghortman@hortmanharlow.com
HORTMAN HARLOW BASSI
ROBINSON & MCDANIEL, PLLC
414 W. Oak Street
Laurel, MS 39440
Telephone: (601) 649-8611

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Attorney of Record for Dixie Electric


Power Association

S. WAYNE EASTERLING
Miss. State Bar No. 5290
easterlinglaw@aol.com
P.O. Box 1471
Hattiesburg, MS 39403
Telephone: (601) 544-8900

Attorney of Record for Southern Pine


Electric Cooperative

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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

service will be accomplished by the Appellate CM/ECF system.

/s/ Christina Schwing

54

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CERTIFICATE OF COMPLIANCE

1. This brief complies with the type-volume limitation of Federal Rule of

Appellate Procedure 32(a)(7)(B) because it contains 11,767 words, as determined

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.

2. This brief complies with the typeface requirements of Federal Rule of

Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of

Appellate Procedure 32(a)(6) because it has been prepared in a proportionally

spaced typeface using Microsoft Word 2013 in 14-point Times New Roman font.

/s/ Christina Schwing

55

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CERTIFICATE OF ELECTRONIC COMPLIANCE

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.

/s/ Christina Schwing

56

66 of 74
Case: 18-60365 Document: 00514561854 Page: 1 Date Filed: 07/17/2018

United States Court of Appeals


FIFTH CIRCUIT
OFFICE OF THE CLERK
LYLE W. CAYCE TEL. 504-310-7700
CLERK 600 S. MAESTRI PLACE
NEW ORLEANS, LA 70130

July 19, 2018

Mr. Peter Charles Abide


Currie, Johnson & Myers, P.A.
925 Tommy Munro Drive
Suite H
Biloxi, MS 39532

Mr. Sherrill Wayne Easterling


P.O. Box 1471
Hattiesburg, MS 39403

Mr. Norman Gene Hortman Jr.


Hortman, Harlow, Bassi, Robinson & McDaniel, P.L.L.C.
414 W. Oak Street
Laurel, MS 39440

Mrs. Laura Beard Renstrom


Ms. Christina M. Schwing
Holland & Knight, L.L.P.
50 N. Laura Street
Suite 3900
Jacksonville, FL 32202-0000

No. 18-60365 Lakesha Butler v. Coast Electric Power Assn


USDC No. 1:18-CV-79
USDC No. 2:18-CV-30
USDC No. 2:18-CV-31

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

cc: Mr. Brannon Lee Berry


Mr. Justin Glenn
Mr. Timothy Charles Holleman
Mr. Walker W. Jones III

68 of 74
Case: 18-60365 Document: 00514561854 Page: 3 Date Filed: 07/17/2018

Case No. 18-60365

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

United States Court of Appeals


FIFTH CIRCUIT
OFFICE OF THE CLERK
LYLE W. CAYCE TEL. 504-310-7700
CLERK 600 S. MAESTRI PLACE
NEW ORLEANS, LA 70130

CORRECTED
July 19, 2018

Mr. Peter Charles Abide


Currie, Johnson & Myers, P.A.
925 Tommy Munro Drive
Suite H
Biloxi, MS 39532

Mr. Sherrill Wayne Easterling


P.O. Box 1471
Hattiesburg, MS 39403

Mr. Norman Gene Hortman Jr.


Hortman, Harlow, Bassi, Robinson & McDaniel, P.L.L.C.
414 W. Oak Street
Laurel, MS 39440

Mrs. Laura Beard Renstrom


Ms. Christina M. Schwing
Holland & Knight, L.L.P.
50 N. Laura Street
Suite 3900
Jacksonville, FL 32202-0000

No. 18-60365 Lakesha Butler v. Coast Electric Power Assn


USDC No. 1:18-CV-79
USDC No. 2:18-CV-30
USDC No. 2:18-CV-31

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

cc: Mr. Brannon Lee Berry


Mr. Justin Glenn
Mr. Timothy Charles Holleman
Mr. Walker W. Jones III

P.S. This letter is corrected to edit the first paragraph to add


date of filing.

71 of 74
Case: 18-60365 Document: 00514561883 Page: 3 Date Filed: 07/17/2018

Case No. 18-60365

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

United States Court of Appeals


FIFTH CIRCUIT
OFFICE OF THE CLERK
LYLE W. CAYCE TEL. 504-310-7700
CLERK 600 S. MAESTRI PLACE
NEW ORLEANS, LA 70130

July 19, 2018

Mr. Peter Charles Abide


Currie, Johnson & Myers, P.A.
925 Tommy Munro Drive
Suite H
Biloxi, MS 39532

Mr. Sherrill Wayne Easterling


P.O. Box 1471
Hattiesburg, MS 39403

Mr. Norman Gene Hortman Jr.


Hortman, Harlow, Bassi, Robinson & McDaniel, P.L.L.C.
414 W. Oak Street
Laurel, MS 39440

Mrs. Laura Beard Renstrom


Ms. Christina M. Schwing
Holland & Knight, L.L.P.
50 N. Laura Street
Suite 3900
Jacksonville, FL 32202-0000

No. 18-60365 Lakesha Butler v. Coast Electric Power Assn


USDC No. 1:18-CV-79
USDC No. 2:18-CV-30
USDC No. 2:18-CV-31

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

that it will contain the proper filing header. Alternatively, you


may print the sufficient brief/record excerpts directly from your
original file without any header.
Failure to timely provide the appropriate number of copies 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

cc: Mr. Brannon Lee Berry


Mr. Justin Glenn
Mr. Timothy Charles Holleman
Mr. Walker W. Jones III

74 of 74
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 1 of 8

IN THE UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION

LAKESHA BUTLER, et al., PLAINTIFFS

v. CIVIL ACTION NO. 1:18-CV-79-KS-JCG

COAST ELECTRIC POWER ASSOCIATION DEFENDANT

MEMORANDUM OPINION AND ORDER

For the reasons provided below, the Court grants Plaintiffs’ Motion to Remand

[2] this case to the Chancery Court of Harrison County, Mississippi.

I. BACKGROUND

The Rural Utilities Service (“RUS”) “makes loans and loan guarantees to finance

the construction of electric distribution, transmission and generation facilities,

including system improvements and replacements required to furnish and improve

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

legislation prompted formation of electrical cooperatives in rural areas. Id.

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).

Defendant is a non-profit electric cooperative formed under Mississippi law that


Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 2 of 8

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,

approximately $53,000,000.00. Id. at 5.

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

v. Crane Co., 846 F.3d 785, 789 (5th Cir. 2017)).

“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

Chem. Co., 149 F.3d 387, 397 (5th Cir. 1998)).

Plaintiffs do not dispute that Defendant is a “person” within the meaning of 28

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

colorable federal defense of conflict preemption. Specifically, Defendant contends that

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

purpose of obtaining jurisdiction’ or is ‘wholly insubstantial and frivolous.’” Id. (quoting

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).

Defendant asserted the defense of conflict preemption. “Conflict preemption

occurs when compliance with both federal and state regulations is a physical

impossibility, or when a state law stands as an obstacle to the accomplishment and

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

obstacle to give rise to conflict preemption is a matter of judgment, to be informed by

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).

Plaintiffs argue that the following provision of Mississippi law requires

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

The revenues and receipts of a corporation shall first be devoted to such


operating and maintenance expenses and to the payment of such
principal and interest and thereafter to such reserves for improvement,
new construction, depreciation and contingencies as the board may from
time to time prescribe. Revenues and receipts not needed for these
purposes shall be returned to the members by such means as the board
may decide . . . .

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

same language. Exhibit 2 to Notice of Removal [1-2], at 11. Therefore, Defendant

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

patronage capital as long as it maintains an asset-to-equity ratio of 30% or greater.

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

patronage capital above the 30% threshold.1

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

document create a “safe harbor” for distributions of capital as long as Defendant

maintains a 30% asset-to-equity ratio. The regulations provide:

If a distribution or power supply borrower is required by its loan


documents to obtain prior approval from RUS before declaring or paying
any dividends, paying or determining to pay any patronage refunds, or
retiring any patronage capital, or making any other cash distributions,
such approval is hereby given if the following conditions are met:

(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.

28 C.F.R. § 1717.617. Likewise, Defendant’s loan document provides:

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

Mississippi statute as Plaintiffs demanded would not frustrate the objectives of

Congress, as long as Defendant stays within the 30% safe harbor.

Defendant apparently contends that any state intrusion upon the discretion of

its Board of Directors creates a conflict with federal law. But RUS regulations

explicitly contemplate state regulation of electric cooperatives, see, e.g. 7 C.F.R.§§

1717.304, 1717.306, and “[t]he RE Act plainly does not expressly empower or authorize

the Secretary to pre-empt the jurisdiction of a state regulatory agency . . . .” Cajun

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

enabling statute’s “legislative history . . . makes abundantly clear . . . that, although

the [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. 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.

Defendant contends that the loan documents make establishment of a receivership an

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:

The following shall be Events of Default under this Agreement:

7
Case 1:18-cv-00079-KS-JCG Document 10 Filed 04/27/18 Page 8 of 8

***

(g) Bankruptcy. A court having jurisdiction in the premises shall


enter a decree or order for relief in respect of the Borrower in an
involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
receiver . . . , or ordering the winding up or liquidation of its
affairs, and such decree or order shall remain unstayed and in
effect for a period of (90) consecutive days or the Borrower shall
commence a voluntary cases under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or under
any such law, or consent to the appointment or taking possession
by a receiver, liquidator, assignee, custodian or trustee, of a
substantial part of its property . . . .

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

establishment of a temporary receiver here. Moreover, Defendant has not

demonstrated to the Court’s satisfaction that the terms of a loan from the RUS

constitute “federal law” for purposes of a conflict preemption analysis.

III. CONCLUSION

For these reasons, the Court grants Plaintiffs’ Motion to Remand [2]. This case

shall immediately be remanded to the Chancery Court of Harrison County, Mississippi

SO ORDERED AND ADJUDGED this 27th day of April, 2018.

/s/ Keith Starrett


KEITH STARRETT
UNITED STATES DISTRICT JUDGE

8
Case: 24CH1:17-cv-02569-JS Document #: 32 Filed: 08/13/2018 Page 1 of 3

IN THE CHANCERY COURT OF HARRISON COUNTY, MISSISSIPPI


FIRST JUDICIAL DISTRICT

LAKESHA BUTLER PLAINTIFF

v. CIVIL CAUSE NO. 17-2569(3)

COAST ELECTRIC POWER


ASSOCIATION DEFENDANT

COAST ELECTRIC POWER ASSOCIATION’S RESPONSE TO PLAINTIFF’S


SECOND AMENDED COMPLAINT

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:

1. On August 3, 2018, Plaintiff filed a Second Amended Complaint (hereinafter the

“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

Motion to Compel Arbitration.

4. In Coast’s Motion to Compel Arbitration, Coast requested that all proceedings

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

(answer or otherwise) and discovery, in prospective cases involving an arbitration agreement

shall be suspended upon the timely filing and notice of a ‘Motion to Compel Arbitration and

Stay Proceedings Pending Arbitration.’”) (emphasis added).

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

any other filings and deadlines.

WHEREFORE, Defendant, Coast Electric Power Association, respectfully requests this

Court enter an Order staying these proceedings pending the outcome of Coast’s appeal to the

Fifth Circuit or granting Coast’s Motion to Compel Arbitration.

Respectfully submitted, this the 13th day of August, 2018

CURRIE JOHNSON & MYERS, P.A.


Counsel for Defendant Coast Electric Power Assoc.

By: /s/ Peter C. Abide_______________


PETER C. ABIDE, MSB 1026
NICOLE W. SULLIVAN, MSB 105498
925 Tommy Munro Drive, Suite H
Biloxi, MS 39532
Telephone: (228) 385-1010
Email: pabide@curriejohnson.com

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:

This the 13th day of August, 2018.

/s/ Peter C Abide


PETER C. ABIDE

PETER C. ABIDE, ESQUIRE


Mississippi Bar Number 1026
CURRIE JOHNSON & MYERS, P.A.
925 Tommy Munro Drive, Suite H
Biloxi, MS 39532
Telephone: (228) 385-1010
Facsimile: (228) 385-1011
Email: pabide@curriejohnson.com

3
Case: 24CH1:17-cv-02569-JS Document #: 30 Filed: 08/03/2018 Page 1 of 22

IN THE CHANCERY COURT OF HARRISON COUNTY MISSISSIPPI

LAKESHA BUTLER PLAINTIFF

v. CIVIL CAUSE NO.: 17-2569(3)

COAST ELECTRIC POWER


ASSOCIATION DEFENDANT

SECOND AMENDED COMPLAINT

Plaintiff Lakesha Butler, et al., alleges the following against Defendant Coast Electric

Power Association:

ALLEGATIONS COMMON TO ALL CLAIMS

Nature of the Action

1. Defendant Coast Electric Power Association is an electric utility company. It

provides services to more than 79,000 members, and its service area stretches into 3 Mississippi

counties.

2. Coast Electric Power Association is a not-for-profit electric cooperative organized

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

for the benefit of its rate-paying customers.

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).

4. To effectuate this requirement, Mississippi law provides that an electric cooperative

must refund any excess revenues to its members (the “Refund Requirement”). See id.

5. Despite the Refund Requirement, Coast Electric Power Association has

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

time,” reasonable reserves. See id.

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

equity and short-term assets.

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

the repayment of the member-owners’ own money back to them.

11. Coast Electric Power Association’s retention of excess revenues subverts the very

purpose of the cooperative form, as it accumulates capital at member-owners’ expense. Member-

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.

12. Coast Electric Power Association’s retention of these massive amounts of

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

with Coast Electric Power Association.

1
Congressman Cooper is a graduate from the University of Oxford as well as Harvard Law School.

3
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13. Plaintiff, therefore seeks to have Coast Electric Power Association return the

excess revenues it has accumulated to its member-owners in proportion to their patronage, as

required under Miss. Code Ann. § 77-5-235 (1936).

Parties

14. Lakesha Butler is a resident of Mississippi and a member-ratepayer of Coast

Electric Power Association.

15. Members 2-79,000 are member-ratepayers of Coast Electric Power Association

who will be joined under Miss. R. Civ. P. 19(a)(2).

16. Coast Electric Power Association is a member-owned, not-for-profit 2 rural electric

power association formed under the Electric Power Association Law. It has the power to sue and

be sued under Miss. Code Ann. § 77-5-23(a).

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

proper amounts to its members—the owners.

18. This Court has jurisdiction over the subject matter of this action pursuant to Miss.

Const. Ann. Art. 6, § 159 of the Constitution of the State of Mississippi.

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.

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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

business in Harrison County, Mississippi.

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

in America’s capitalist system.

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.

23. In contrast, electric cooperatives are organized in a “democratic” fashion, with

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

benefit of their members alone.

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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

supposed to require, among other things, that:

• 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

them. Miss. Code Ann. § 77-5-235 (1936).

31. Miss. Code Ann. § 77-5-235 (1936) specifically provides two methods for the

mandatory return of excess revenues.

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32. Pursuant to 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

• To such reserves for improvements, new construction, 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.

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.

A. Electric Cooperatives Typically Do Not Need to Retain Margins in Excess of Thirty


Percent of Their Total Assets.

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

electric cooperatives at the Treasury rate plus 1/8 of one percent.

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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

rates for services.

38. As a result, there is almost no risk that an electric cooperative will be unable to

repay its loans.

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

such programs makes debt financing even safer.

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

to retain member equity.

41. According to RUS and CFC it is clear that a thirty-percent asset-to-equity level is

conservative and highly safe.

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

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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

long as equity remains at or above 20% of assets. 3

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.

45. In his Harvard Journal Article on Legislation, one of Congressman Cooper’s

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

below 30% can issue refunds without risking under-capitalization.

B. Electric Cooperatives Typically Do Not Need to Retain Cash in Excess of Current


Liabilities.

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.

48. The RUS automatically approves distributions of excess revenues/member equity

if the current ratio is 1:1 or higher. 7 C.F.R. § 1717.617.

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.

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IV. Coast Electric Power Association Failed to Return Excess Revenues.

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

electricity to rural areas.

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

to Bad Deal?, 45 Harv. J. on Legis. 335, 341-42 (2008).

54. As Congressman Cooper explained:

[C]oops have [great] potential for mismanagement and self-dealing. Unclaimed


millions of dollars of coop equity can flood local banks, brokerages, and car
dealerships, particularly when controlled by overlapping boards of directors.
Employees can be paid while doing no work. Managers can easily become more
concerned with providing benefits to insiders than to ratepayers, especially if
ratepayers are not looking.

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

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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

often become the de facto owners of the coop.”

58. He concluded that “coop managers have often failed to serve their member-owners’

interests.”

B. Coast Electric Power Association Improperly Retains Massive Amounts of Excess


Revenues.

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

service and reserves.

1. In an Attempt to Circumvent Miss. Code Ann. § 77-5-235 (1936), and in Direct


Disregard Thereof, Coast Electric Power Association Holds Excess Revenues and Receipts
in An Account Designated as “Patronage Capital.”

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

million in excess revenues it intentionally termed “Patronage Capital” in an attempt to circumvent

Miss. Code Ann. § 77-5-235 (1936) and in direct violation/disregard thereof.

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.

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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

member-owners in the form of refunds.

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

the Board of Trustees each year.

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

member-owners as required per Miss. Code Ann. § 77-5-235 (1936).

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

never should have retained in the first place.

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V. Coast Electric Power Association’s Failure to Properly Return Member Equity


Imposes Significant Harm on Its Member-Ratepayers.

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

borrowing is a very bad deal for member-owners.

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

and not the member-owners themselves.

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

detriment of the member-owners.

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

having used that money for interest-free loans.

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

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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.”

First Cause of Action


Violation of Miss. Code Ann. § 77-5-235 Requirement to Refund Excess Member Equity
(Code Version Prior to July 1, 2016)

73. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through 72

above as if set forth fully herein.

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

amount or not returned an amount at all.

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

needed to cover operating and maintenance expenses and reasonable reserves.

77. Representative Cooper as published in the Harvard Journal of Legislation has

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

the cooperative holding money that rightfully belongs to the members. 4

79. Plaintiff, and other members similarly situated, are entitled to payment of excess

revenues and receipts in the amount of at least $53,000,000 million.

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.

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Second Cause of Action


Fraudulent Concealment

81. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through

80 above as if set forth fully herein.

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

were entitled to receive under Miss. Code Ann. § 77-5-235 (1936).

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.”

Third Cause of Action


Breach of Fiduciary Duty

85. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through

84 above as if set forth fully herein.

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

maintenance expenses and reasonable reserves.

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

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duty owed to its members. Plaintiff, and other members similarly situated, are entitled to payment

of excess revenues and receipts in the amount of at least $53,000,000 million.

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.

Fourth Cause of Action


Unjust Enrichment

89. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through

88 above as if set forth fully herein.

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

necessary to pay operating and maintenance expenses and reasonable reserves.

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

at least $53,000,000 million plus interest.

Fifth Cause of Action


Conversion

92. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through 91

above as if set forth fully herein.

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

exceeded necessary operating and maintenance expenses and reasonable reserves.

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

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patronage refunds to its members as required by law.

95. Coast Electric Power Association wrongfully deprived its member-shareholders of

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

capital of at least $53,000,000 million.

Sixth Cause of Action


Constructive Trust

96. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through 95

above as if set forth fully herein.

97. Plaintiff, and other members similarly situated, paid their rates based on an express

or implied promise that excess revenues would be returned to them.

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

refunded excess revenues.

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.

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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

approximately $53,000,000 million.

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.

Seventh Cause of Action


Statutory Trust

104. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through

102 above, as if set forth fully herein.

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.

Eighth Cause of Action


Restitution/Money had and Received

107. Plaintiff repeats and re-alleges the allegations contained in paragraphs 1 through

106 above as if set forth fully herein.

108. Coast Electric Power Association holds excess revenues which rightfully belong

to the Plaintiff and other members similarly situated and acknowledges the same.

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109. In equity and good conscience, such excess revenues must be returned to the

Plaintiff and other members similarly situated.

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.

Ninth Cause of Action


Negligence Per Se

111. Plaintiff repeats and re-allege the allegations contained in paragraphs 1 through

110 above as if set forth fully herein.

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

member-owners of the class sought to be protected, as were their damages.

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

of excess revenues in the amount of at least $53,000,000 million.

PUNITIVE DAMAGES

Plaintiff reserves her right to amend the complaint to seek punitive damages to the extent

that discovery supports a claim for such damages.

PRAYER FOR RELIEF

WHEREFORE, PREMISES CONSIDERED, Plaintiff prays that this Second Amended

Complaint be received and filed; and that upon a final hearing hereon, the Court will grant unto

Plaintiff the following relief:

1. A Judgment for compensatory damages, against Defendant, for its members in an

amount equal to $53,000,000 million or any other such amount as determined by the Court;

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2. An Order enjoining Coast Electric Power Association to remit to its member-

owners their proportionate share of excess revenues;

3. An Order establishing a constructive trust 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;

4. An Order establishing a statutory trust in the name a beneficiary that can be

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

notified of the return of their funds;

5. An Order enjoining Coast Electric Power Association from future violations by

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

of prosecuting this action;

7. An Order directing Defendant to provide an accounting of all accounts held by

current and former members, deceased or living, as required by law; and

8. Any and all such other and general relief Plaintiff may be entitled to and which this

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Court deems just and proper and in equity and good conscience.

RESPECTFULLY SUBMITTED this the 3rd day of August, 2018.

/s/ Brannon L. Berry


Brannon L. Berry (MSB No. 104811)
An Attorney for Plaintiff
OF COUNSEL:

Walker W. Jones III, MSB# 3303


Michael D. Simmons, MSB# 9828
Brannon L. Berry, MSB# 104811
Cosmich, Simmons & Brown, PLLC
One Eastover Center
100 Vision Drive, Suite 200 (39211)
P.O. Box 22626
Jackson, Mississippi 39225-2626
Main: 601.863.2100 Ext. 247
Direct: 601.519.0324
Facsimile: 601.863.0078
E: bill.jones@cs-law.com
E: mike@cs-law.com
E: jglenn@cs-law.com
E: brannon.berry@cs-law.com

Tim C. Holleman (MS Bar #2526)


Boyce Holleman & Associates, P.A.
1720 23rd Ave./Boyce Holleman Blvd.
Gulfport, Mississippi 39501
Office: 228-863-3142
Fax: 228-863-9829
Email: tim@boyceholleman.com

Henry T. Holifield, MSB# 2507


132 Summer Lake Drive
Ridgeland, MS 39157
E: henryholifield@gmail.com

Richard Grindstaff, MSB# 5036


120 D Southpointe Drive
Byram, MS 39272
grindstaff@yahoo.com

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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

This the 3rd day of August, 2018

/s/ Brannon L. Berry


Brannon L. Berry (MSB No. 104811)
An Attorney for Plaintiff

22

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