926 F.3d 190
5th Cir.2019Background
- Three Mississippi rural electric cooperatives (RUS borrowers) received long‑term federal loans subject to detailed RUS loan agreements and regulations governing member distributions and reserves.
- RUS regulation 7 C.F.R. § 1717.617 (mirrored in loan documents) grants automatic approval for member distributions if, after distribution, borrower equity ≥ 30% of total assets.
- Members sued in state chancery court under Miss. Code § 77‑5‑235(5) and related state claims, seeking return of patronage capital in excess of what is needed for expenses/reserves and asking for appointment of a trustee/receiver to oversee repayments.
- Cooperatives removed to federal court under federal‑officer removal, 28 U.S.C. § 1442, asserting a colorable federal preemption defense based on the RUS loan agreements/regulations and arguing receivership would trigger loan default.
- District court remanded; the Fifth Circuit reviewed de novo and held the cooperatives satisfied § 1442 removal requirements because their federal preemption defense was colorable and other § 1442 elements were met.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mississippi § 77‑5‑235(5) refund claim is preempted by federal law (Rural Electrification Act, RUS regs, loan agreements) | Plaintiffs: state refund duty applies; they limited relief to amounts above the 30% equity "safe harbor," avoiding federal entanglement | Cooperatives: federal law/regulations and loan terms reflect federal interest in required reserves; state‑mandated refunds would conflict with federal scheme and impede loan repayment | Court: Cooperatives’ preemption defense is colorable for § 1442 removal purposes; removal proper (but no merits decision) |
| Whether appointment of a trustee/receiver in state court is preempted or would cause default under RUS loan agreements | Plaintiffs: receivership relief is a state‑law remedy available under chancery practice | Cooperatives: receivership would usurp federal interests, interfere with rate/reserve discretion, and may trigger an event of default under loan terms | Court: Cooperatives’ argument that receivership could conflict with loan terms/regulations is colorable; supports federal removal |
| Whether cooperatives may remove under 28 U.S.C. § 1442 (federal‑officer removal) | Plaintiffs: removal not proper because claims limited to amounts within RUS safe harbor and preemption defense insubstantial | Cooperatives: are "persons" acting under RUS direction; asserted colorable federal defenses; causal nexus exists between federal direction and plaintiffs’ claims | Court: All § 1442 elements satisfied (person, acted under federal officer, colorable federal defense, causal nexus); remand reversed |
Key Cases Cited
- Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm’n, 461 U.S. 375 (Supreme Court) (discusses interplay of REA/RUS lending/regulation and state regulation; leaves open that federal lending rules may preempt state law when federal interests are seriously compromised)
- City of Morgan City v. S. La. Elec. Co-op. Ass’n, 31 F.3d 319 (5th Cir.) (held Rural Electrification Act preempted state expropriation where state action would frustrate federal loan‑repayment and viability objectives)
- In re Cajun Elec. Power Coop., Inc., 109 F.3d 248 (5th Cir.) (rejected RUS preemption of state rate order where regulations exceeded Secretary’s authority; illustrates limits on preemption)
- Zeringue v. Crane Co., 846 F.3d 785 (5th Cir.) (articulates the elements for § 1442 federal‑officer removal and treatment of colorable federal defenses)
- Jefferson Cty. v. Acker, 527 U.S. 423 (Supreme Court) (explains that defendants need not win on the merits to remove under § 1442; only a colorable federal defense is required)