Pamela Caver v. Central Alabama Electric Cooperative , 845 F.3d 1135 ( 2017 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-15207
________________________
D.C. Docket No. 2:15-cv-00129-WS-C
PAMELA CAVER,
CHRISTINE GRANDISON,
DEXTER GRANDISON,
Plaintiffs - Appellants,
versus
CENTRAL ALABAMA ELECTRIC COOPERATIVE,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Alabama
________________________
(January 12, 2017)
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Before TJOFLAT and HULL, Circuit Judges, and MENDOZA, * District Judge.
HULL, Circuit Judge:
Plaintiff Pamela Caver and others, on behalf of members of Defendant
Central Alabama Electric Cooperative (“CAEC”), brought a putative class action
against CAEC, alleging that CAEC wrongfully had refused to pay out “excess
revenues” in cash to its members. CAEC supplies electricity to rural communities
in Alabama. The federal government loans substantial capital to CAEC and highly
regulates CAEC’s operations and provision of government-subsidized electricity to
rural customers.
Defendant CAEC removed this case to federal court under the federal officer
removal statute, 28 U.S.C. § 1442(a)(1). The district court denied Plaintiff Caver’s
motion to remand the case back to state court.
Subsequently, the district court granted CAEC’s motion to dismiss the
complaint. The district court pointed out that when CAEC’s revenues exceed its
operating costs and other expenses, CAEC does credit each members’ capital
account with the cooperative. The district court held that CAEC’s distribution of
excess revenues to its members by making credits to their capital accounts, as
opposed to making cash payments, complied with Alabama state law. After
*
Honorable Carlos Eduardo Mendoza, United States District Judge for the Middle District
of Florida, sitting by designation.
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thorough review and with the benefit of oral argument, we affirm the district
court’s ruling on both issues.
I. JURISDICTION BACKGROUND
As background to the jurisdiction issue, we review the extensive
interrelationship between the federal government and Defendant CAEC.
A. History of Rural Electrification
In 1935, during the Great Depression, President Franklin D. Roosevelt,
through an executive order, created the Rural Electrification Administration
(“REA”) “[t]o initiate, formulate, administer, and supervise a program of approved
projects with respect to the generation, transmission, and distribution of electric
energy in rural areas.” Exec. Order No. 7037. The following year, Congress
passed the Rural Electrification Act of 1936 (the “RE Act”). 7 U.S.C. § 901. By
passing the RE Act, Congress affirmed the creation of the REA and authorized the
REA to make loans “for rural electrification and the furnishing of electric energy to
persons in rural areas.” Pub. L. No. 74-605, 49 Stat. 1363; accord 7 U.S.C.
§ 902(a).
The federal government thus initiated this program of rural electrification.
Specifically, the program was formulated and supervised by the REA, and all
projects required REA approval. The President and Congress’s objective in
creating the REA “was to provide electricity to those sparsely settled areas which
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the investor-owned utilities had not found it profitable to service. To this end REA
makes long-term low-interest loans to approved non-profit cooperatives.” Salt
River Project Agric. Improvement & Power Dist. v. Fed. Power Comm’n, 391 F.2d
470, 473 (D.C. Cir. 1968); see also City of Stilwell v. Ozarks Rural Elec. Coop.
Corp., 79 F.3d 1038, 1041 (10th Cir. 1996) (explaining that the REA “was created
by the [RE Act] to provide financing to power suppliers as an inducement to
provide economical electric power to rural America.”).
“In response to the RE Act and its precursor Executive Branch order,
cooperative electrical systems were formed to seek government subsidized loans
and deliver electricity to rural consumers.” In re Cajun Elec. Power Coop., Inc.,
109 F.3d 248, 252 (5th Cir. 1997). In 1939, Alabama passed the Electric
Cooperative Act, which provides for the creation of cooperative, nonprofit
membership corporations “for the purpose of supplying electric energy and
promoting and extending the use thereof.” Ala. Code § 37-6-2. Other states
approved similar legislation, and by 1968 there were “nearly 1,000 rural electric
cooperatives which own and operate electric systems financed by the United
States, acting through REA, pursuant to the Rural Electrification Act of 1936.”
Salt River Project, 391 F.2d at 472.
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B. Federal Loans and Regulation
Defendant CAEC, like other rural electric cooperatives, receives substantial
loans from the federal government, specifically the United States Department of
Agriculture Rural Utilities Services (“RUS”). The RUS is the successor to the
REA.
The latest loan agreement between CAEC and RUS is dated February 2,
2009. The loan agreement limits CAEC’s discretion to make “Distributions” to its
members. The loan agreement defines “Distributions” to mean to “declare or pay
any dividends, or pay or determine to pay any patronage refunds, or retire any
patronage capital or make any other Cash Distributions, to its members,
stockholders or consumers.” Loan Agreement Art. 1.
Under the loan agreement, CAEC cannot pay patronage refunds, or retire
any patronage capital, or make any cash distributions to its members if doing so
would cause its equity to fall below 30% of its total assets, as follows:
Limitation on Distributions.
Without the prior written approval of RUS, [CAEC] 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 [CAEC] shall be greater than or
equal to 30% of its Total Assets; or
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(b) Equity above 20%. If, after giving effect to any such
Distribution, the Equity of [CAEC] 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 [CAEC] 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 [CAEC] is otherwise in default hereunder
or if, after giving effect to any such Distribution, [CAEC’s] current
and accrued assets would be less than its current and accrued
liabilities.
Loan Agreement § 6.8.
A loan agreement with RUS, such as CAEC’s, “imposes certain restrictions
and controls on the borrowers and gives RUS . . . the right to approve or
disapprove certain actions contemplated by the borrowers.” 7 C.F.R.
§ 1717.600(a).1 RUS’s regulations contain the same restriction on distributions as
the loan agreement. 7 C.F.R. § 1717.617. Among other things, the loan agreement
and regulations allow RUS, at certain times: (1) to set standards for property
maintenance; (2) to set accounting standards; (3) to inspect the utility system, the
books, and documents of every kind; (4) to regulate power requirement studies;
(5) to regulate long-range engineering and construction plans, as well as design and
1
The record contains only limited excerpts of CAEC’s loan agreement with RUS. Caver,
however, cites to the model loan agreement contained in the federal regulations as reflecting the
terms of CAEC’s contract with RUS. The model loan agreement generally contains the
restrictions discussed herein and requires compliance with all relevant laws and regulations. See
7 C.F.R. § 1718, app. A.
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construction standards; (6) to approve plans and specifications for construction;
and (7) to set contract bidding requirements. See generally 7 C.F.R. § 1717.600, et
seq.; 7 C.F.R. § 1718, app. A. The loan agreement and the regulations also require
CAEC, in certain situations, to seek RUS approval: (1) to extend its electric
system; (2) to hire a general manager; (3) to enter into certain contracts; (4) to
merge or sell portions of its business or assets; (5) to make distributions to its
members; or (6) to take on additional debt. See generally § 1717.600, et seq.;
§ 1718, app. A. In addition to these federal regulations and restrictions, Alabama
law also regulates CAEC’s operations as discussed below.
C. Alabama Code § 37-6-1, et seq.
Alabama state law authorizes the creation of rural electric distribution
cooperatives, such as Defendant CAEC, and regulates them. 2 Ala. Code § 37-6-1,
et seq. As a cooperative, Defendant CAEC is prohibited from making a profit on
business conducted with the members. Ala. Code §§ 37-6-2, 37-6-20.
The difference between CAEC’s revenues and operating costs and other
expenses is considered “margins” or “excess revenues” that belong to its members
as “patronage capital.” Loan Agreement § 6.8; CAEC Bylaws § 8.02; Ala. Code
§ 37-6-20. Defendant CAEC must account for the patronage capital that belongs
2
When considering a motion to dismiss, infra Part III, we take the complaint’s factual
allegations as true and construe them in the light most favorable to the plaintiffs. Rivell v.
Private Health Care Sys., Inc., 520 F.3d 1308, 1309 (11th Cir. 2008). For this reason, we rely on
Caver’s operative complaint for the facts of this case.
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to its members. CAEC Bylaws § 8.02. CAEC’s members each have an account in
his or her name that reflects a credit or debit for each year the member was or
continues to be a CAEC member.
The particular Alabama statue at issue in this case is § 37-6-20 of the
Alabama Code, which provides for the “Disposition of excess revenues” by an
electric cooperative such as CAEC. Specifically, § 37-6-20 provides that the
“excess revenues”3 of CAEC should be distributed, “as, and in the manner,
provided in the bylaws,” either by “patronage refunds” or “rate reductions,” as
follows:
[“Excess revenues”] shall be distributed by the cooperative to its
members as, and in the manner, provided in the bylaws, either as
patronage refunds prorated in accordance with the patronage of the
cooperative by the respective members paid for during such fiscal
year or by way of general rate reductions, or by combination of such
methods. Nothing contained in this article shall be construed to
prohibit the payment by a cooperative of all or any part of its
indebtedness prior to the date when the same shall become due.
Ala. Code § 37-6-20 (emphasis added).
3
Section 37-6-20 defines “excess revenues” as those revenues for any fiscal year in
excess of the amount necessary to (1) “defray expenses of the cooperative and of the operation
and maintenance of its facilities during such fiscal year”; (2) “pay interest and principal
obligations of the cooperative coming due in such fiscal year”; (3) “finance or to provide a
reserve for the financing of, the construction or acquisition by the cooperative of additional
facilities to the extent determined by the board of trustees”; (4) “provide a reasonable reserve for
working capital”; (5) “provide a reserve for the payment of indebtedness of the cooperative
maturing more than one year after the date of the incurrence of such indebtedness in an amount
not less than the total of the interest and principal payments in respect thereof required to be
made during the next following fiscal year”; and (6) “provide a fund for education in cooperation
and for the dissemination of information concerning the effective use of electric energy and other
services made available by the cooperative.” Ala. Code § 37-6-20.
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CAEC’s bylaws provide that (1) CAEC shall account, on a patronage basis,
for all revenue amounts received in excess of operating costs and expenses
chargeable against the furnishing of electricity and (2) CAEC shall pay by credits
to a capital account for each patron all such amounts in excess of operating costs
and expenses, as follows:
Patronage Capital in Connection with Furnishing Electric
Energy. . . . In order to induce patronage and to assure that the
Cooperative will operate on a not-for-profit basis the Cooperative is
obligated to account on a patronage basis to all its patrons, members
and non-members alike, for all amounts received and receivable from
the furnishing of electric energy in excess of operating costs and
expenses properly chargeable against the furnishing of electric energy.
All such amounts in excess of operating costs and expenses at the
moment of receipt by the Cooperative are received with the
understanding that they are furnished by the patrons, members and
non-members alike, as capital. The Cooperative is obligated to pay by
credits to a capital account for each patron all such amounts in excess
of operating costs and expenses.
CAEC Bylaws § 8.02. 4 In addition, the bylaws explain that these capital account
credits should be treated as though they had been paid in cash: “All such amounts
credited to the capital account of any patron shall have the same status as though
they had been paid to the patron in cash in pursuance of a legal obligation to do so
and the patron had then furnished the Cooperative corresponding amounts for
4
The bylaws are only quoted in CAEC’s Motion to Dismiss, but the district court
properly considered them without converting the motion to dismiss into a motion for summary
judgment because the document is central to Caver’s claim, and the authenticity of that portion
of the bylaws is undisputed. Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005).
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capital.” Id. The bylaws also provide that the bylaws themselves constitute a
contract between CAEC and each member. Id.
Pursuant to its bylaws, Defendant CAEC accounts for and distributes the
patronage refund owed by crediting each member’s individual capital account for
the member’s portion of the excess revenues. Although it distributes the patronage
refund to the members’ capital accounts, CAEC does not actually pay out that
money in cash for years. Sometimes those payouts come as late as thirty years
after the credits are earned and when the members to whom they are owed can no
longer be found. According to Caver, CAEC had accrued a total amount of
patronage capital exceeding $24 million as of 2013.
Plaintiff Caver alleges that Defendant CAEC violated Alabama Code
§ 37-6-20, as well its own bylaws, by not paying out its excess revenues in cash to
its members annually. Based on CAEC’s alleged violation of Alabama law and its
bylaws, Caver’s complaint seeks a declaratory judgment and injunctive relief
(Count 1) and alleges a claim for breach of contract (Count 2). The merits issues
on appeal revolve around the interplay between Alabama state law, CAEC’s
bylaws, and CAEC’s federal loan agreement with RUS. However, as a threshold
matter, we first must address whether the district court had jurisdiction to decide
this case.
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II. JURISDICTION ANALYSIS
Defendant CAEC removed this case to federal court pursuant to the federal
officer removal statute, 28 U.S.C. § 1442(a)(1). That statute allows removal of any
civil action against any officer of the United States, or “any person acting under
that officer,” “for or relating to any act under color of such office,” as follows:
(a) A civil action or criminal prosecution that is commenced in a State
court and that is against or directed to any of the following may be
removed by them to the district court of the United States for the
district and division embracing the place wherein it is pending:
(1) The United States or any agency thereof or 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 or on account of
any right, title or authority claimed under any Act of Congress
for the apprehension or punishment of criminals or the
collection of the revenue.
28 U.S.C. § 1442(a)(1) (emphasis added).5 Because CAEC is not a federal officer
or agency itself, CAEC must satisfy a three-pronged test to determine whether it
may effect removal. First, CAEC must show that it is a person within the meaning
of the statute who acted under a federal officer. § 1442(a)(1). Second, CAEC
must show that it performed the actions for which it is being sued under color of
federal office. Magnin v. Teledyne Cont’l Motors, 91 F.3d 1424, 1427 (11th Cir.
1996); Florida v. Cohen, 887 F.2d 1451, 1453 (11th Cir. 1989). Stated another
5
“[W]e review de novo a district court’s denial of a motion to remand a state-court action
because it implicates subject-matter jurisdiction.” Escobar v. Celebration Cruise Operator, Inc.,
805 F.3d 1279, 1283 (11th Cir. 2015), cert. denied, 136 S. Ct. 1158 (2016).
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way, CAEC must show “a causal connection between what the officer has done
under asserted official authority and the action against him.” Magnin, 91 F.3d at
1427 (quotation marks omitted). Third, CAEC must raise a colorable federal
defense. Id.; Cohen, 887 F.2d at 1453–54.6
This “statute’s ‘basic’ purpose is to protect the Federal Government from
[state] interference with its ‘operations.’” Watson v. Philip Morris Cos., 551 U.S.
142, 150, 127 S. Ct. 2301, 2306 (2007). “This statute is an incident of federal
supremacy and is designed to provide federal officials with a federal forum in
which to raise defenses arising from their official duties.” Cohen, 887 F.2d at
1453.
A. “Acting Under”
The first question for federal officer removal is whether CAEC was a person
“acting under” a federal officer when it took the actions complained of in this case.
The parties do not debate that CAEC is a person within the meaning of the statute.
Rather, they dispute whether CAEC was fulfilling a basic governmental task, or
assisting the government in doing so, and thus “acting under” an officer of the
United States.
6
Magnin and Cohen did not address the first prong because there was no debate in those
cases that the relevant parties were officers of the United States for purposes of § 1442(a)(1).
See Magnin, 91 F.3d at 1428 (involving a Federal Aviation Authority designated manufacturing
inspection representative); Cohen, 887 F.2d at 1454 (involving a Deputy Marshal and other
federal agents). Magnin and Cohen therefore addressed only the two “prerequisites” of a causal
connection and a colorable federal defense. See Magnin, 91 F.3d at 1427; Cohen, 887 F.2d at
1453-54.
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The phrase “acting under” is broad and thus we “liberally construe” this
portion of § 1442(a)(1). Watson, 551 U.S. at 147, 127 S. Ct. at 2304-05. The
Supreme Court in Watson held that a private tobacco company, although highly
regulated, was not “acting under” a federal officer. Id. at 153, 157, 127 S. Ct. at
2308, 2310. The Supreme Court explained that a “private person’s ‘acting under’
must involve an effort to assist, or to help carry out, the duties or tasks of the
federal superior.” Id. at 152, 127 S. Ct. at 2307. In other words, the private person
must help federal officers fulfill a basic governmental task that the government
otherwise would have had to perform. Id. at 153-54, 127 S. Ct. at 2308.
In Watson, the tobacco company was using the government’s required
method to test its cigarettes before it sold the cigarettes to the public for its own
profit. Id. at 146, 127 S. Ct. at 2304. By using that testing method, the tobacco
company was “simply complying” with federal law, which does “not” bring a
private person within the scope of § 1442(a)(1). Id. at 152, 127 S. Ct. at 2307.
Similarly, the mere fact that the federal government regulates a private entity does
not satisfy the statutory basis for removal under § 1442(a)(1). Id. at 153, 127 S. Ct.
at 2308. Instead, the relationship between the private person and the federal officer
must be one of “subjection, guidance, or control.” Id. at 151, 127 S. Ct. at 2307
(quotation marks omitted).
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As recounted above, rural electric cooperatives, such as CAEC, are highly
regulated by the federal government. Salt River Project, 391 F.2d at 473.
“Through its lending authority REA exercises extensive supervision over the
planning, construction and operation of the facilities it finances.” Id. REA,
however, is not a “classic public utility regulatory body” but instead is a “lending
agency” that regulates. Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm’n, 461
U.S. 375, 386, 103 S. Ct. 1905, 1913 (1983) (discussing the scope of REA’s
regulations). Any loans made by RUS must conform to the agency’s regulations
and the RE Act. 7 C.F.R. § 1710.100.
Although these federal regulations alone are not enough to satisfy the federal
officer removal statute, they do demonstrate the close and extensive relationship
between CAEC and RUS, as well as RUS’s significant level of control over
CAEC’s operations. In addition to their obligation to comply with extensive
federal regulations, rural cooperatives such as CAEC must also assist RUS with
accomplishing its duties or tasks in order to utilize the federal officer removal
statute.
Consistent with the historical background discussed earlier, “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.
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Coop., Inc., 394 F.2d 672, 677 (5th Cir. 1968) (internal quotation marks omitted). 7
Although Alabama Power Co. involved a power company seeking judicial review
of a loan to rural electric cooperatives, its recognition of the role and purpose of
rural cooperatives in the federal system is instructive.
Quite simply the REA was designed to guide and control the process of
bringing electricity to sparsely populated rural areas that would not otherwise
receive electricity. Congress and the President designed a system by which the
REA would accomplish these goals by loaning money to state entities, which
would carry out these objectives under the REA’s close supervision. The federal
government, using low-interest loans, funds its objective of providing rural
electricity through these cooperatives such as CAEC. These rural electric
cooperatives exist to provide a public function conceived of and directed by the
federal government.
CAEC therefore helps assist or carry out the duties of RUS and works
closely with RUS to fulfill the congressional objective of bringing electricity to
rural areas that would otherwise go unserved. In other words, CAEC assists the
RUS by “perform[ing] a job that, in the absence of a contract with a private firm,
the Government itself would have had to perform.” Watson, 551 U.S. at 154, 127
S. Ct. at 2308; see also Ruppel v. CBS Corp., 701 F.3d 1176, 1181 (7th Cir. 2012)
7
This Court adopted as binding precedent all Fifth Circuit decisions prior to October 1,
1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).
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(“‘Acting under’ covers situations . . . where the federal government uses a private
corporation to achieve an end it would have otherwise used its own agents to
complete.”); Bennett v. MIS Corp., 607 F.3d 1076, 1088 (6th Cir. 2010)
(concluding that company satisfied the “acting under” requirement when “in the
absence of a contract with” the company, the government “itself would have had to
perform” the task). In this sense, CAEC, a non-profit entity funded in part by
federal loans, is closer in kind to a federal contractor performing work on behalf of
the government than a private business working for its own ends. See Ruppel, 701
F.3d at 1179, 1181 (concluding that a corporation that supplied the Navy with
turbines satisfied the “acting under” requirement); Bennett, 607 F.3d at 1086-88
(holding that a private mold remediation firm, removing mold from an airport,
“act[ed] under” a federal officer).
Others courts, in addition to the district court in this case, have concluded,
for the same reasons as those discussed here, that rural electric cooperatives are
“acting under” a federal officer. See, e.g., Cessna v. Rea Energy Coop., Inc., No.
3:16-42, 2016 WL 3963217, at *5 (W.D. Pa. July 21, 2016) (“In light of the
unusually close and detailed regulatory and contractual relationship between [Rea
Energy Cooperative] and RUS, and in accordance with the liberal construction of
28 U.S.C. § 1442(a)(1), the Court finds that [Rea Energy Cooperative] was acting
under a federal office.”) (internal quotation marks omitted). We find the reasoning
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of Cessna persuasive and agree that CAEC is “acting under” a federal officer for
purposes of § 1442(a)(1) based on the long history of RUS’s control over CAEC
and direction of the federal government’s rural electrification program dating back
to the Great Depression.
B. Causal Connection
The second question for federal officer removal is whether there is a causal
connection between Plaintiff Caver’s claims and an act of Defendant CAEC that
forms the basis of those claims. Magnin, 91 F.3d at 1427; Cohen, 887 F.2d at
1453-54. In other words, we must determine whether that act was taken under
color of law. Magnin, 91 F.3d at 1427; Cohen, 887 F.2d at 1453-54. Section
1442(a)(1) provides that removable claims must be “for or relating to any act”
under color of federal office. 28 U.S.C. § 1442(a)(1). The phrase “relating to” is
broad and requires only “a ‘connection’ or ‘association’ between the act in
question and the federal office.” 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). 8 “The hurdle erected by this requirement is quite low . . . .” Isaacson v.
Dow Chem. Co., 517 F.3d 129, 137 (2d Cir. 2008).
8
In 2011, Congress amended § 1442(a)(1) to add the phrase “or relating to,” which was
intended to broaden the scope of acts that allow a federal officer to remove a case to federal
court. In re Commonwealth’s Motion, 790 F.3d at 471-72.
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The acts that Caver challenges relate to actions of CAEC in not making cash
distributions of patronage capital. In its Notice of Removal, CAEC claims: (1) that
the loan agreement with RUS prohibited it from making distributions of patronage
capital if doing so would cause its equity to fall below 30% of its total assets and
(2) that if CAEC made the distributions sought by Caver, doing so would reduce
CAEC’s equity on assets to zero percent, resulting in a breach of the loan
agreement. CAEC claims this accumulation of equity from patronage capital
contributions “directly resulted from CAEC’s compliance with express RUS
federal loan requirements to maintain equity at above 30% of assets before any
capital cash distributions to members.”
These allegations, if true, would establish that the acts for which CAEC is
being sued—failure to make distributions of patronage capital—occurred because
of CAEC’s performance of its duties and loan agreement with RUS. We therefore
conclude that there is a causal nexus between Caver’s claims and CAEC’s conduct.
See Isaacson, 517 F.3d at 138 (“According to their theory of the case, the
Government knew that Agent Orange contained dioxin, and the Government
controlled the method of formulation. The action that Plaintiffs challenge, the
production of dioxin, naturally would have occurred during the performance of
these government-specified duties.”); Cessna, 2016 WL 3963217, at *7 (finding
the causal nexus requirement satisfied when the rural electricity cooperative’s
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allegations in the notice of removal stated that RUS forbade the actions that the
plaintiffs sought); Sparks v. Cullman Elec. Coop., No. 3:15-CV-387-MHH, 2016
WL 927032, at *2 n.5 (N.D. Ala. Mar. 11, 2016) (“To establish a causal
connection between what the cooperatives have done based on federal authority
and the conduct that gives rise to this action, the electric cooperatives must show
that the plaintiffs’ claims arise from the electric cooperatives’ performance of the
cooperatives’ contracts with the [Tennessee Valley Authority].”).
C. Colorable Federal Defense
The third question for federal officer removal is whether Defendant CAEC
has raised a colorable federal defense. Magnin, 91 F.3d at 1427; Cohen, 887 F.2d
at 1453-54. Our Court gives 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.’” Cohen, 887 F.2d at 1454 n.4 (quoting
Willingham v. Morgan, 395 U.S. 402, 406–07, 89 S. Ct. 1813, 1816 (1969)).
Federal officer removal is thus an exception to the well-pleaded complaint rule, as
“the federal-question element is met if the defense depends on federal law.”
Jefferson Cty. v. Acker, 527 U.S. 423, 431, 119 S. Ct. 2069, 2075 (1999). The
colorable federal “defense need only be plausible; its ultimate validity is not to be
determined at the time of removal.” Magnin, 91 F.3d at 1427. The law does not
require that the removing defendant virtually win his case before it can be
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removed. Acker, 527 U.S. at 431, 119 S. Ct. at 2075. Indeed, a core purpose of
federal officer removal is to have the validity of the federal defense tried in federal
court. Id.
Here, CAEC has claimed that it performed the acts forming the basis of
Plaintiff Caver’s state action pursuant to the RUS loan agreement and federal
regulations. Before the district court, CAEC raised the defense of conflict
preemption based on the RUS loan agreement and federal regulations. Conflict
preemption occurs when state law actually conflicts with federal law because it is
impossible to comply with both the state and federal requirements or because the
state law “stands as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.” Wiersum v. U.S. Bank, N.A., 785 F.3d 483,
486 (11th Cir. 2015) (quoting English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S.
Ct. 2270, 2275 (1990)), cert. denied, 136 S. Ct. 1655 (2016).
CAEC has an unusually close and detailed regulatory and contractual
relationship with RUS dating back to 1939, and that relationship controls almost all
of CAEC’s actions. If Plaintiff Caver is correct that the Alabama statute requires
the $24 million in equity held in the capital accounts to be paid out in cash
annually to its members, CAEC asserts that the Alabama statute would then
conflict with RUS’s regulations and loan agreement provisions about equity
retention. For example, the federal regulations do not allow distribution of excess
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revenues if doing so would result in CAEC’s remaining equity being less than 30%
of its remaining assets. CAEC claims that it can prove such a financial barrier
exists under federal law, which would lead to a conflict between federal and state
law.
We therefore conclude that CAEC’s preemption defense is plausible and
satisfies the lenient colorable federal defense requirement for removal under
§ 1442(a)(1). See Tenn. ex rel. City of Cookeville v. Upper Cumberland Elec.
Membership Corp., 256 F. Supp. 2d 754, 758 (M.D. Tenn. 2003) (finding a
colorable federal defense of preemption by RUS sufficient under § 1142(a)(1)),
aff’d sub nom. City of Cookeville v. Upper Cumberland Elec. Membership Corp.,
484 F.3d 380 (6th Cir. 2007).
The Supreme Court’s decision in Arkansas Electric Cooperative expressly
left open the possibility that a valid rule of the REA affecting rural power
cooperatives could preempt state law or state regulation of those cooperatives, as
follows:
There may come a time when the REA changes its present policy, and
announces that state rate regulation of rural power cooperatives is
inconsistent with federal policy. If that were to happen, and if such a
rule was valid under the Rural Electrification Act, it would of course
pre-empt any further exercise of jurisdiction by the Arkansas PSC.
Similarly, as Arkansas already recognizes, the PSC can make no
regulation affecting rural power cooperatives which conflicts with
particular regulations promulgated by the REA. Moreover, even
without an explicit statement from the REA, a particular rate set by
the Arkansas PSC may so seriously compromise important federal
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interests, including the ability of the AECC to repay its loans, as to be
implicitly pre-empted by the Rural Electrification Act.
461 U.S. at 388–89, 103 S. Ct. at 1915 (citations omitted). While in Arkansas
Electric Cooperative the Supreme Court ruled that the REA’s published policy did
not preempt the state’s regulation of wholesale rates, the Supreme Court explicitly
stated that a valid REA regulation could preempt state law. Id. at 385-89, 103 S.
Ct. at 1913-15. In this case, CAEC has pointed to a RUS regulatory rule
concerning equity levels and distribution of patronage capital that it contends
preempts state law. We need not, and do not, determine the merits of that position
at this time, as we are confident that CAEC’s argument is at least colorable and
should be tried in federal court.
For the foregoing reasons, we conclude that CAEC properly removed this
case under the federal officer removal statute, § 1442(a)(1), and the district court
had subject matter jurisdiction to hear the case.
III. MOTION TO DISMISS: MERITS
Having concluded federal jurisdiction exists, we now address whether the
district court erred in dismissing Plaintiff Caver’s complaint.9 The district court
held that CAEC’s method of distributing excess revenues through patronage
capital accounts satisfies the requirements of Alabama Code § 37-6-20 and
9
We review the district court’s grant of a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6) de novo, using the same standard as the district court. Spain v. Brown &
Williamson Tobacco Corp., 363 F.3d 1183, 1187 (11th Cir. 2004).
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CAEC’s bylaws. That statute provides, in relevant part, that excess revenues “shall
be distributed by the cooperative to its members as, and in the manner, provided in
the bylaws, either as patronage refunds . . . or by way of general rate reductions, or
by combination of such methods.” Ala. Code § 37-6-20 (emphasis added).
On appeal, as she did in the district court, Caver argues that CAEC must
annually distribute “patronage refunds” in the form of an annual cash payment to
its members. Caver contends that CAEC’s allocation of “credits” to members’
capital accounts does not constitute a refund because CAEC’s members cannot
access the credits. Caver describes § 37-6-20 as having a “plain statutory
requirement that excess revenue be distributed through refund or rate reduction,
not ‘crediting’ and withholding.”
Section 37-6-20 does not speak with the clarity that Caver wishes, and
nowhere does that section require a cash payment, much less an annual one.
Indeed, the statute does not even define the term “patronage refund” or the word
“distributed.” Rather, the statute states plainly that the manner of distribution,
whether by patronage refund or rate reduction, “shall” be done “as, and in the
manner, provided in the bylaws.” CAEC’s bylaws provide such an express manner
for distribution. In the bylaws, CAEC treats its excess revenues as furnished by
the patrons to CAEC and credits each patron’s capital account for their
proportional share of the excess revenues. Those credits are later retired as
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directed by CAEC’s Board of Trustees. CAEC’s bylaws thus use capital account
credits as the manner for distributing patronage refunds.
Telling too, the relevant portion of the statute does not use the words “cash”
or “pay.” Nor does the statute expressly forbid CAEC from using methods other
than a cash payment to make the required distributions. Other clauses in § 37-6-20
indicate when CAEC must “pay” something rather than “finance” or “provide” for
a fund or a reserve. § 37-6-20. For patronage refunds, the statute only says that
the excess revenues shall be distributed “as, and in the manner, provided in the
bylaws.” Id. Nothing in the statute imposes the specific requirement that all
patronage refunds be made in a cash manner. Caver offers no persuasive
reasoning, such as a statutory, textual basis, for why a refund or distribution must
be in a cash payment as opposed to a capital account credit. Instead, the statute
allows each rural electric cooperative’s bylaws to specify the “manner” in which
the cooperative makes distributions through patronage refunds, in effect giving
each rural electric cooperative a measure of discretion in carrying out the statutory
directives.
The reasoning of at least two Alabama appellate decisions, though both are
tax cases and the reasoning is dicta, support a rejection of Caver’s reading of
§ 37-6-20. In the first case, the Alabama appellate court thoroughly reviewed
§ 37-6-20 and a rural electric cooperative’s system of making refunds to patrons
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through capital account credits and approved the use of those credits, which
created “an obligation to the member against the assets of the cooperative.” State
v. Pea River Elec. Coop., 434 So. 2d 785, 786 (Ala. Civ. App. 1983). In a
subsequent tax case decided over a decade later, the Alabama appellate court,
relying in large part on Pea River, again thoroughly examined § 37-6-20 and the
use of capital account credits for refunds and found that § 37-6-20 “mandates that a
cooperative return any excess advances to its members and allows those returns to
be made in the form of patronage credits.” State Dep’t of Revenue v. Mon-Cre
Tel. Coop., Inc., 702 So. 2d 179, 182 (Ala. Civ. App. 1997).10 While these cases
did not involve direct challenges to the use of capital account credits (as opposed
to cash payments), their reasoning lends credence to CAEC’s position in this
case.11 Both Alabama appellate decisions, dating back to 1983, approved the use
of capital account credits to distribute patronage refunds.
Based on the foregoing Alabama law, we must reject Caver’s claims that
CAEC must distribute patronage refunds only in the form of annual cash payments.
10
Caver directs our attention to several Alabama trial court decisions that have denied
motions to dismiss in allegedly similar cases. Only one of those decisions provides any
reasoning, which we find unpersuasive. Harkless v. Dixie Elec. Coop., No. CV 2012-900073
(Ala. Cir. Ct. Oct. 18, 2012). In that case, the defendant cooperative apparently argued that
§ 37-6-20 “does not require a refund of ‘excess revenues.’” Id. at 3. Instead of arguing that it
does not need to refund excess revenues at all, CAEC presents a stronger argument in this case—
that it is providing patronage refunds through patron capital credits, which is the manner of
distribution provided for in the bylaws.
11
We also find Caver’s reliance on a Tennessee statute similar to § 37-6-20 unpersuasive
for the reasons stated in the district court’s order.
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Caver’s argument assumes, without support, that a refund must be paid in cash.
Section 37-6-20 contains no such cash payout requirement.12 While § 37-6-20
requires that excess revenues be distributed, Caver’s claims ignore how § 37-6-20
provides that the manner of distribution of patronage refunds is determined by a
cooperative’s bylaws. To be clear, our narrow holding here is that § 37-6-20 does
not require CAEC to distribute patronage refunds only in a cash payment manner.
Caver’s complaint therefore fails to state a viable claim because cash payments are
not required by the statute, and therefore there is no statutory violation, no breach
of contract, and no basis for injunctive relief.
IV. CONCLUSION
For the reasons contained herein, we affirm the district court’s denial of
Plaintiff Caver’s motion to remand and grant of Defendant CAEC’s motion to
dismiss.
AFFIRMED.
12
In light of this conclusion, we need not address CAEC’s other defenses, including
whether the bylaws can waive a patron’s statutory right to receive a cash payment or whether
RUS regulations in fact preempt § 37-6-20.
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