Wheatland Electric Cooperative, Inc. v. City of Garden City
123061
| Kan. Ct. App. | Dec 3, 2021Background:
- Wheatland Electric Cooperative held a Commission-certified exclusive retail electric service territory surrounding Garden City since 1977.
- In 2004–2005 Wheatland's GM and Garden City’s city manager made an oral/handshake agreement (never approved by the Corporation Commission) allowing Garden City to serve an ethanol plant and later three other customers just outside city limits; Garden City built infrastructure and served those customers beginning in 2007.
- Wheatland earned revenues by wholesaling power to Garden City; in 2015 a new Wheatland manager repudiated any prior acquiescence and in 2017 filed a complaint with the Commission; Garden City then annexed the parcels and designated itself as supplier, mooting the Commission complaint.
- Wheatland sued in district court under K.S.A. 2017 Supp. 66-1,176 seeking statutory compensation (if parties cannot agree, two times the gross revenues for the 12 months) totaling $7,196,026.54; the district court granted summary judgment to Garden City, finding an implied contract and equitable defenses barred Wheatland’s claim.
- On appeal the court held Commission approval under K.S.A. 66-1,175 is mandatory (not directory), equitable doctrines cannot validate a contract void under the regulatory statute, and Wheatland’s service rights were terminated by annexation entitling it to compensation under K.S.A. 2017 Supp. 66-1,176(c).
- The appellate court reversed the district court, directed entry of summary judgment for Wheatland in the uncontroverted amount of $7,196,026.54, and remanded with directions.
Issues:
| Issue | Plaintiff's Argument (Wheatland) | Defendant's Argument (Garden City) | Held |
|---|---|---|---|
| Whether an oral agreement transferring service territory without Corporation Commission approval is enforceable | Agreement is void without Commission approval; Wheatland retained rights | The Commission approval requirement is directory; the handshake and conduct transferred rights | "Shall" is mandatory; agreement without Commission approval is invalid; Wheatland never transferred its service rights |
| Whether equitable doctrines (laches, estoppel, waiver) can validate a contract void under the Act | Equitable doctrines cannot override a statutory regulatory scheme; void contracts cannot be enforced by equity | Laches/estoppel/waiver preclude Wheatland from repudiating the long-standing practice | Equitable doctrines do not apply to validate agreements that violate the statutory scheme; defenses rejected |
| Whether Wheatland is entitled to compensation under K.S.A. 2017 Supp. 66-1,176 when it had not been serving customers in the annexed area | Statute compensates termination of service rights (not just loss of actual customers); Wheatland entitled to statutory formula, i.e., two times gross revenues | No actual customers = no transfer/compensation; statute intended for suppliers actually serving customers | Compensation attaches to termination of service rights by annexation; Wheatland entitled to compensation under (c)(3); amount uncontroverted: $7,196,026.54 |
| Whether Garden City was required to exhaust administrative remedies before litigating compensation in district court | District court action under K.S.A. 2017 Supp. 66-1,176(d) is proper; no final agency action to review | Garden City should have sought Commission determination first | Judicial Review Act exhaustion not required here; statute permits district court resolution when parties cannot agree |
Key Cases Cited
- State v. Raschke, 289 Kan. 911 (2009) (framework for determining when statutory "shall" is mandatory versus directory)
- State v. Alvarez, 309 Kan. 203 (2019) (use of statutory context in construction)
- Double M Constr., Inc. v. Kansas Corporation Comm'n, 288 Kan. 268 (2009) (equitable principles cannot override a statutory scheme)
- Unified Sch. Dist. No. 207 v. Northland Nat. Bank, 20 Kan. App. 2d 321 (1994) (contracts void for statutory noncompliance cannot be validated by estoppel)
- Rambo v. Bank, 88 Kan. 257 (1912) (historical statement that courts cannot validate transactions declared void by statute)
- GFTLenexa, LLC v. City of Lenexa, 310 Kan. 976 (2019) (appellate standard of review for summary judgment)