No. 94-2135 In the Supreme Court of the United States OCTOBER TERM, 1995 CITY OF MORGAN CITY, PETITIONER v. SOUTH LOUISIANA ELECTRIC COOPERATIVE ASSOCIATION, ET AL. ON PETITION FOR A WRIT OF CETIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT BRIEF FOR THE UNITED STATES IN OPPOSITION DREW S. DAYS, III Solicitor General FRANK W. HUNGER Assistant Attorney General MARK B. STERN THOMAS M. BONDY Attorneys Department of Justice Washington, D.C. 20530 (202)514-2217 ---------------------------------------- Page Break ---------------------------------------- QUESTION PRESENTED Whether the court of appeals erred in holding that petitioner's attempted expropriation of property be- longing to a federally financed rural electric coopera- tive was preempted by the Rural Electrification Act, 7 U.S.C. 901 et seq. (I) ---------------------------------------- Page Break ---------------------------------------- TABLE OF CONTENTS Page Opinions below . . . . 1 Jurisdiction . . . . 2 Statement . . . . 2 Argument . . . . 6 Conclusion . . . . 13 TABLE OF AUTHORITIES Cases: Arkansas Elec. Coop. Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375 (1983) . . . . 5, 8 Boyle v. United Technologies Corp., 487 U.S. 500 (1988) . . . . 12 City of Madison v. Bear Creek Water Ass'n, 816 F.2d 1057 (5th Cir. 1987) . . . . 5 City of Rochester v. Peoples Coop. Power Ass'n, 505 N.W.2d 621 (Minn. Ct. App. 1993) . . . . 10 Decatur County Rural Elec. Membership Corp. v. Public Serv. Co., 301 N.E.2d 191 (Ind. 1973) . . . . 10 Fidelity Federal Savings & Loan Ass'n v. De La Cuesta, 458 Us. 141 (1982) . . . . 9 Free v. Bland, 369 U.S. 663 (1962) . . . . 9 Freightliner Corp. V. Myrick, 115 S. Ct. 1483 (1995) . . . . 11 Gade v. National Solid Wastes Management Ass'n, 505 U.S. 88 (1992) . . . . 9, 11 Hines v. Davidowitz, 312 U.S. 52 (1941) . . . . 4, 11 Jones v. Rath Packing Co., 430 U.S. 519 (1977) . . . . 11 Michigan Canners & Freezers Ass'n v. Agricultural Marketing & Bargaining Board, 467 U.S. 461 (1984) . . . . 11 Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Development Comm'n, 461 U.S. 190 (1983) . . . . 11 Public Util. Dist. No. 1 of Franklin County v. Big Bend Elec. Coop., Inc., 618 F.2d 601 (9th Cir. 1980) . . . . 5, 9 (III) ---------------------------------------- Page Break ---------------------------------------- IV Cases-Continued: Public Util. Dist. No. 1 of Penal Oreille County v. United States, 417 F.2d 200 (9th Cir. 1969) . . . . 5, 10 Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468 (1989) . . . . 11 Statutes: Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994, Pub. L. No. 103-364, Tit. II, 232, 108 Stat. 3219 (codified at 7 U.S.C. 6942) . . . . 2-3 Rural Electrification Act, 7 U.S.C. 901 et seq. . . . 2 7 U.S.C.. 907 . . . . 3 ---------------------------------------- Page Break ---------------------------------------- In the Supreme Court of the United States OCTOBER TERM, 1995 No. 94-2135 CITY OF MORGAN CITY, PETITIONER v. SOUTH LOUISIANA ELECTRIC COOPERATIVE ASSOCIATION, ET AL. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT BRIEF FOR THE UNITED STATES IN OPPOSITION OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a- 11a) is reported at 31 F.3d 319. The supplemental opinion of the court of appeals denying rehearing (Pet. App. 24a-27a) and the opinion dissenting from the denial of rehearing en bane (Pet. App. 28a-34a) are reported at 49 F.3d 1074. The opinion of the district court (Pet. App. 12a-23a) is reported at 837 F. Supp. 194. (1) ---------------------------------------- Page Break ---------------------------------------- 2 JURISDICTION The judgment of the court of appeals was entered on September 12, 1994. A petition for rehearing was denied on April 3, 1995. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATEMENT 1. Petitioned is a municipality in Louisiana. In 1985, it annexed an adjacent area containing electric facilities belonging to and customers served by re- spondent South Louisiana Electric Cooperative Asso- ciation (SLECA). SLECA is a rural power coopera- tive financed by the federal government under the Rural Electrification Act, 7 U.S.C. 901 et seq. After the annexation, petitioner, which operates its own municipal utility, offered to purchase all of SLECA's property in the annexed area, including facilities and the exclusive right to provide power. When SLECA refused the offer, petitioner brought this expropria- tion action in state court, seeking to condemn the property rights at issue. Respondent Cajun Electric Power Cooperative, Inc. (Cajun)-SLECA's whole- sale power supplier and also a federally financed rural electric cooperative-intervened. The United States, which holds a security interest in SLECA's and Cajun's assets, was joined as a third-party defendant and removed the matter to federal court. Pet. App. 2a- 3a. 2. The Administrator of the Rural Electrification Administration (REA) 1. subsequently filed into the ___________________(footnotes) 1 Subsequent to the events in this case, the REA was redes- ignated as the Rural Utilities Service. See Federal Crop In- surance Reform and Department of Agriculture Reorganiza- tion Act of 1994, Pub. L. No. 103-364, Tit. II, 232, 108 Stat. ---------------------------------------- Page Break ---------------------------------------- 3 record a signed declaration objecting to petitioner's state-law expropriation on the ground that it would cause substantial harm to the federal rural electri- fication program. The Administrator explained that the threatened expropriation would frustrate the federal program for three reasons. First, the annexed area is the most heavily populated part of SLECA's service territory and thus is the area SLECA is able to serve most economically and efficiently. Accord- ingly, loss of that area's customer load would increase the cost of power for SLECA's remaining customers. Second, this expropriation is not an isolated occur- rence; it is part of a larger pattern of expropriations of SLECA service territory, the effects of which must be considered cumulatively. Third, the impact of the expropriation is not limited to SLECA; expro- priations targeting SLECA affect SLECA's power supplier, Cajun, as well as the entire, interconnected chain of REA-financed cooperatives of which SLECA is but one part. Pet. App. 3a-4a. Based on those concerns, the United States, joined by SLECA and Cajun, filed a motion to dismiss or in the alternative for summary judgment, arguing that the proposed expropriation was preempted by the Rural Electrification Act. The district court granted summary judgment. In the district court's view, the Administrator of the REA was authorized by 7 U.S.C. 907 to withhold approval of the expropriation, and the Administrator's assessment that the expropriation would be contrary to the federal rural electrification ___________________(footnotes) 3219 (codified at 7 U.S.C. 6942). Consistent with the decisions below, this brief will refer to the agency as the REA. ---------------------------------------- Page Break ---------------------------------------- 4 program was not arbitrary and capricious. Pet. App. 12a-23a. 3. A unanimous panel of the court of appeals affirmed. The court "save[d] for another day the issue of whether 7 U.S.C. 907 by its terms confers author- it y on the Administrator to withhold approval of an involuntary disposition, and instead considered] only whether a conflict [between state and federal law] exists because the proposed state-law expropriation would frustrate a federal purpose." Pet. App. 5a. See also id. at 8a ("Our primary function is to determine whether, under the circumstances of th[e] particular case, [state] law stands as an obstacle to the accom- plishment and execution of the full purposes and objectives of Congress.") (quoting Hines v. David- witz, 312 U.S. 52, 67 (1941)). Examining the record compiled in the instant case, the court of appeals held that petitioner's attempted state-law expropriation was preempted because it would frustrate the purposes of the rural electrification program. The court explained: Even if fair value is paid for the lost facilities, [the expropriation] would inevitably have an adverse effect on the remaining customers * * * in the form of lost economies of scale and resulting higher per-user costs. To allow expanding mu- nicipalities to "skim the cream" by annexing and condemning those parts of a [rural power coopera- tive] with the highest population density (and thus the lowest per-user cost) would undermine Con- gress's purpose of facilitating inexpensive [power] supplies for farmers and other rural residents and protecting [cooperatives'] ability to repay their [REA] debts. ---------------------------------------- Page Break ---------------------------------------- 5 Pet. App. 9a (quoting City of Madison v. Bear Creek Water Ass'n, 816 F.2d 1057,1060 (5th Cir. 1987)). The court of appeals also placed substantial re- liance on two decisions of the Ninth Circuit. Pet. App. 8a-10a (citing Public Util. Dist. No. 1 of Franklin County v. Big Bend Elec. Coop., Inc., 618 F.2d 601 (1980); Public Util. Dist. No. 1 of Penal Oreille County v. United States, 417 F.2d 200 (1969)). In each of those cases, the Ninth Circuit had held a municipal condemnation of rural electric cooperative property preempted on the ground that it would fustrate the purposes of the rural electrification program. See Big Bend, 618 F.2d at 603 (holding that "under the Supremacy Clause of the Constitution a state municipal public utility could not condemn property owned by a federally subsidized public utility where the condemnation would interfere with the federal purpose of the Rural Electrification Act"); see also Penal Oreille, 417 F.2d at 201 ("This is not an ordinary case because what is sought to be taken here is part of a system and even if the part taken is paid for * * * a question remains as to the capacity of the remaining portions of the system to function."). The court of appeals stated in the instant case that it "f[ou]nd the Ninth Circuit's [decisions] helpful and persuasive." Pet. App. 8a. 4. Petitioner sought rehearing and rehearing en bane in the court of appeals. The panel issued a supplemental opinion explaining its denial of the petition for rehearing. Pet. App. 24a-27a. In parti- cular, the panel rejected petitioner's reliance on Arkansas Elec. Coop. Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375 (1983). Arkansas Electric, the panel explained, involved "a facial challenge to a ---------------------------------------- Page Break ---------------------------------------- 6 state's right to regulate a rural cooperative's whole- sale electric rates." Pet. App. 25a. Here, by contrast, SLECA does not assert a facial challenge to a state's power to regulate or expropriate a rural cooperative's service area and equipment. Rather, SLECA challenges actual expropriations of its specific property and service rights. [Petition- er's] characterization of our decision as creating a "per se" rule of preemption is therefore mis- taken. The panel's preemption analysis focused on the actual effect of these specific expropria- tions, not whether the REAct facially preempts all attempts by states to expropriate the property of a rural cooperative. Ibid. Three judges dissented from the denial of rehearing en bane (id. at 28a-34a), expressing the view that Arkansas Electric "is fatal to the panel's decision." Pet. App. 29a. ARGUMENT The decision of the court of appeals is correct and is not in conflict with any decision of this Court or of another court of appeals. Further review is not warranted. 1. The court of appeals correctly concluded that petitioner's proposed state-law expropriation would undermine the Rural Electrification Act's core pur- pose of providing reliable, low-cost electricity to rural America. See Pet. App. 6a, 8a, ha. SLECA's power system was constructed and developed with long- term, low-interest federal loans, the sole purpose of which was to foster rural electrification. Yet peti- tioner seeks to divert SLECA's facilities for its own, local purposes that are not concerned with rural ---------------------------------------- Page Break ---------------------------------------- 7 electrification. Moreover, the expropriation targets a particularly dense portion of the SLECA system, whose removal from the rest of the system would increase the cost of power for SLECA's remaining customers, who are the intended beneficiaries of the statute. See id. at 3a. In addition, SLECA does not exist in isolation; it is part of a substantial, inter- connected network of rural cooperatives that provide power throughout rural Louisiana. Even if each individual expropriation is small in scope, a pattern of expropriations like the one in this case could have a significant cumulative effect on the well-being of the system as a whole. See id. at 3a-4a. The proposed expropriation would therefore "stand as an obstacle to the repayment of federal loans, to the financial viability of federally financed electricity cooperatives, and ultimately, to the maintenance of electricity service to rural areas." Id. at 10a (internal quotation marks omitted). As the court of appeals noted, petitioner's selective expropriation of a designated portion of SLECA's electric system would "skim the cream" (Pet. App. 9a) from that system, thereby inflicting increased costs on rural consumers of electricity. Moreover, in combination with other, similar expropriations, petitioner's action threatens to effect a "piecemeal erosion" (id. at 10a; see id. at 27a) of the integrated rural power network to which SLECA belongs-a network that has been built and developed over a period of many years with massive federal funding. Id. at 2a n.2, 6a. 2. Under those circumstances, the ___________________(footnotes) 2 Cajun, which provides power in bulk to SLECA and twelve other REA-financed rural distribution cooperatives ---------------------------------------- Page Break ---------------------------------------- 8 court of appeals correctly held that the expropriation would be antithetical to the interests of the rural electrification program. 2. a. Petitioner places substantial reliance (see Pet. 21) on Arkansas Elec. Coop. Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375 (1983). Three judges on the court of appeals, dissenting from the court's denial of rehearing en bane, also regarded Arkansas Electric as "fatal to the panel's decision." Pet. App. 29a. In fact, Arkansas Electric is fully con- sistent with the court of appeals' resolution of the instant case. The Court in Arkansas Electric rejected the contention that the Rural Electrification Act pre- empts all state regulation of rates charged by co- operatives financed by the REA. The Court explained that a particular rate set by the Arkansas [Public Service Commission] may so seriously com- promise important federal interests, including the ability of [a cooperative] to repay its loans, as to be implicitly pre-empted by the Rural Electrification Act. We will not, however, in this facial challenge to the [Public Service Commission's] mere asser- tion of jurisdiction, assume that such a hypotheti- cal event is so likely to occur as to preclude the setting of any rates at all. 461 U.S. at 389 (citations omitted). In the instant case, by contrast, "[t]he panel's preemption analysis focused on the actual effect of these specific expro- priations, not whether the REACT facially preempts ___________________(footnotes) throughout Louisiana, has obtained approximately $3 billion in REA loans and loan guaranties. See Pet. App. 2a n.2. ---------------------------------------- Page Break ---------------------------------------- 9 all attempts by states to expropriate the property of a rural cooperative." Pet. App. 25a. Arkansas Electric did not hold or suggest that the Rural Electrification Act could never preempt state utility regulatory to the contrary, it expressly recognized the possibility that the deleterious effects of state regulation on the functioning of federally financed cooperatives could constitute an appropriate basis for finding such regulation to be preempted. 3. b. Petitioner concedes that there is no conflict among the circuits on the question presented here. Indeed, other than the Fifth Circuit's decision in this case, only the Ninth Circuit has addressed questions concerning preemption of municipal condemnation of rural electric cooperative property. As the court of appeals noted in the instant case (Pet. App. 8a-10a), the Ninth Circuit has twice held such a condemnation preempted, based on a determination in each case that the condemnation at issue would frustrate the pur- poses of the federal rural electrification program. Pub, Util. Dist. No. 1 of Franklin County v. Big Bend Else. Coop., Inc., 618 F.2d 601 (9th Cir. 1980); ___________________(footnotes) 3. As Arkansas Electric demonstrates as well, the fact that this case involves utilities, a subject assertedly of heightened state and local concern, also does not foreclose preemption. Cf. Pet. 18. It is well established that otherwise applicable pre- emption principles are not rendered "inapplicable * * * sim- ply because [the matter] is [said to be] of special concern to the States: ` The relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail.'" Fidelity Federal Savings & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 153 (1982) (quoting Free V. Bland, 369 U.S. 663, 666 (1962)). See also Gads v. National Solid Wastes Management Ass'n, 505 U.S. 88, 108 (1992). ---------------------------------------- Page Break ---------------------------------------- 10 Publ. Util. Diet. No. 1 of Penal Oreille County v. United States, 417 F.2d 200 (9th Cir. 1969). The court of appeals in the instant case expressly relied upon the rationale of those Ninth Circuit precedents. See Pet. App. 8a ('We find the Ninth Circuit's [decisions] helpful and persuasive in answering the question before us."). c. Finally, the state-court cases upon which peti- tioner relies are not in conflict with the decision below. See Pet. 14-15 (citing Decatur County Rural Elec. Membership Corp. v. Pub. Serv. Co., 301 N.E.2d 191 (Ind. 1973); City of Rochester v. Peoples Coop. Power Ass'n, 505 N.W.2d 621 (Minn. Ct. App. 1993)). In Decatur, the United States did not participate in the litigation and did not object to the condemnation on preemption or any other grounds. In the instant case, by contrast, the court of appeals placed substantial reliance on the REA's conclusions regarding the potential deleterious effects of the proposed expropriation, in conjunction with other planned con- demnations, on respondent SLECA's operations and on the implementation of the federal scheme. See Pet. App. 26a-27a. In City of Rochester as well, the parties had not proffered a showing that the condemnation at issue, if consummated, would frustrate the purposes of the rural electrification program. The court in City of Rochester expressly acknowledged that a con- demnation that would seriously compromise federal interests under the Rural Electrification Act would be subject to preemption. City of Rochester, 505 N.W.2d at 626. 3. Petitioner chides the court of appeals for giving "a literal reading" (Pet. 16) to this Court's holding that state law is preempted where it "stands as an ---------------------------------------- Page Break ---------------------------------------- 11 obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941). It is well estab- lished, however, that state law that interferes with the operation of a federal statute is preempted, and that this result "is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose." Gade v. National Solid Wastes Management Ass'n, 505 U.S. 88,98,105-107 (1992). Indeed, this Court has continued to employ the Hines formulation, with no indication that other than a "literal" application of that standard is appropriate. See, e.g., Freightliner Corp. v. Myrick, 115 S. Ct. 1483,1487 (1995); Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 477 (1989); Michigan Canners & Freezers Ass'n v. Agri- cultural Marketing & Bargaining Board, 467 U.S. 461, 469 (1984); Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Development Comm'n, 461 U.S. 190, 203-204 (1983); Jones v. Ruth Packing Co., 430 U.S. 519,526 (1977). As petitioner observes (see Pet. 22), this Court's more recent decisions treat the Hines formulation as a species of "conflict" preemption rather than as a separate preemption category. See, e.g., Freight- liner, 115 S. Ct. at 1487 ('We have found implied con- flict pre-emption where it is impossible for a private party to comply with both state and federal require- ments, or where state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'") (quoting Hines, 312 U.S. at 67; additional citation and internal quotation marks omitted). The crucial point, however-and one repeatedly reaffirmed by this Court-is that state law ---------------------------------------- Page Break ---------------------------------------- 12 may conflict with (and therefore be preempted by) a federal statute even where that statute contains no express preemption provision, and even where the State has not rendered compliance with federal law impossible. 4. Contrary to petitioner's suggestion (see Pet. 22-23), the court of appeals did not treat "frustra- tion" as a category of preemption doctrine separate and distinct from "conflict" preemption. Rather, it framed the inquiry as "whether a conflict [between state and federal law] exists because the proposed state-law expropriation would frustrate a federal purpose." Pet. App. 5a. That mode of analysis is fully consistent with this Court's precedents. 4. Finally, there are no extraordinary circum- stances warranting this Court's review in the ab- sence of a conflict in authority. The infrequency of appellate litigation concerning this issue suggests that the question presented is not one of pressing im- portance. There is, in particular, no basis for peti- tioner's contention that the decision below "effec- tively creates a constitutional barrier to municipal expropriation of cooperative property." Pet. 13. To ___________________(footnotes) 4 See also Boyle v. United Technologies Corp., 487 U.S. 600, 607 (1988) (in areas of "uniquely federal interest," "[t]he con- flict with federal policy need not be as sharp as that which must exist for ordinary pre-emption"). The Court in Boyle held that application of state tort law to a product liability suit between private parties was preempted because the predictable effect of such suite was to raise the cost to the government of military equipment procured from private contractors. Id. at 611-612. The government's interest in obtaining repayment of REA loans likewise qualifies as a "uniquely federal interest," and a persuasive showing that state expropriations threaten that interest furnishes an entirely appropriate basis for preemption. ---------------------------------------- Page Break ---------------------------------------- 13 the contrary, the court of appeals made clear that its "preemption analysis focused on the actual effect of these specific expropriations, not whether the REACT facially preempts all attempts by states to expropri- ate the property of a rural cooperative." Pet. App. 25a. To the extent that petitioner characterizes the court of appeals' decision as establishing a per se rule of preemption, petitioner is therefore in error. Insofar as petitioner takes issue with the court of appeals' application of the governing standard to the record in this case, that fact-bound claim does not warrant this Court's review. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. DREW S. DAYS, III Solicitor General FRANK W. HUNGER Assistant Attorney General MARK B. STERN THOMAS M. BONDY Attorneys AUGUST 1995