J.B. Carlton v. Marshall County Gas DistrictJ.B. Carlton v. Marshall County Gas District
MARSHALL COUNTY BOARD OF EDUCATION, Plaintiff,
J.B. Carlton; Edward Nesmith, Customers of The Marshall
County Gas District who bring this action on their own
behalf and on behalf of all other customers of the Marshall
County Gas District similarly situated; J. Rayford
Brothers, Plaintiffs-Appellants,
v.
MARSHALL COUNTY GAS DISTRICT, a public corporation; Arthur
Baugh, individually and in his official capacities as a
member of the Board of Directors of the Marshall County Gas
District and as Mayor of the City of Albertville, Alabama;
Johnny Hart, individually and in his official capacities as
a member of the Board of Directors of the Marshall County
Gas District and as Mayor of the City of Arab, Alabama;
Robert Kelly, in his official capacities as a member of the
Board of Directors of the Marshall County Gas District and
as Mayor of the City of Guntersville, Alabama; City of
Albertville, a municipal corporation; City of Arab, a
municipal corporation; City of Guntersville, a municipal
corporation, Defendants-Appellees.
No. 92-6471.
United States Court of Appeals,
Eleventh Circuit.
June 8, 1993.
Lawrence B. Clark, Morris Wade Richardson, Lange, Simpson, Robinson & Somerville, Birmingham, AL, for plaintiffs-appellants.
Charles R. Hare, Jr. Gullahorn & Hare, P.C., Albertville, AL, for Carlton, Nesmith and Rayford Bros.
R. Stan Morris, Lawrence T. King, Harris, Evans, Berg, Morris & Rogers, P.C., Birmingham, AL, Dave Beuoy, Burke & Beuoy, Arab, AL, for City of Arab, AL.
James C. Huckaby, Jr., William Slaughter, Haskell, Slaughter, Young & Johnston, P.C., Birmingham, AL, for Marshall Co. Gas Dist.
W. Lee Thuston, Mac B. Greaves, Sadler, Sullivan, Herring & Sharp, P.C., Birmingham, AL, for Baugh, Hart and Kelley.
Randy Beard, Guntersville, AL, for City of Guntersville.
Appeal from the United States District Court for the Northern District of Alabama.
Before FAY, Circuit Judge, JOHNSON, Senior Circuit Judge, and MERHIGE*, Senior District Judge.
FAY, Circuit Judge:
The plaintiffs, customers of the Marshall County Gas District, allege claims pursuant to
FACTUAL AND PROCEDURAL BACKGROUND
The Marshall County Gas District [the District] is a public corporation organized pursuant to and under the authority of the Alabama Code by the Cities of Albertville, Arab, and Guntersville [the Member Municipalities]. Although it is an instrumentality or agency of the state, control of the District is vested in a Board of Directors composed of individuals who represent the Member Municipalities.1 The District transports, distributes and sells gas and gas services to substantially all of Marshall County except for the City of Boaz, which has its own municipal system. The District is not subject to regulation and Board decisions are not reviewable by any state regulatory agency, including the Alabama Public Service Commission. The Board is free to set rates and charges for gas and gas services furnished by the District without the approval of any local, state, or federal regulatory agency.
The District is statutorily authorized to borrow money and to issue bonds payable solely out of the revenues from operation of its natural gas transmission and distribution system.2 The District, through its Board of Directors, authorized the sale and issuance of Gas Revenue Bonds, Series 1989 [Series 1989 Bonds] in the principal amount of $7,015,000. The bonds were issued on September 12, 1989, under a Trust Indenture from the District to Southtrust Bank in Birmingham, Alabama. The District received approximately $6,609,032 from Southtrust for the Series 1989 Bonds, of which $609,032 was deposited in the District's debt service reserve fund and $6,000,000 was distributed in equal shares of $2,000,000 to the Member Municipalities. The principal and interest payment due on the $7,015,000 debt are payable solely out of the revenues collected by the District. The Member Municipalities are in no way responsible for the debt of the District.3
Alabama law defines and authorizes the District to distribute "net income" to the Member Municipalities.4 The District's stated purpose for the Series 1989 Bonds was three-fold: to reimburse the District for capital improvements to the gas distribution system made in past years with internally generated funds, to reimburse the District for depreciation of certain assets, and to establish certain reserve funds. According to the District, "net income" could have been paid to the Member Municipalities in prior years if not for these expenditures. Thus, the District viewed the $2,000,000 distributions to the Member Municipalities as "net income" that would have been available for distribution during past years had it not been for the monies expended for capital improvements and reserve funds.
The plaintiffs, customers who reside in the District but outside the three municipalities, filed this class action asserting claims pursuant to Title
Specifically, the plaintiffs assert a property right in the Series 1989 Bond proceeds distributed to the Member Municipalities and claim they are legally entitled to have the proceeds applied only for those purposes authorized by the Alabama Code. The plaintiffs take issue with the $6,000,000 distribution, claiming the District made an illegal transfer to the Member Municipalities because (a) the bond proceeds did not constitute distributable "net income" as defined by Alabama Code § 11-50-411, or (b) the distributions substantially exceeded the "net income" that could have been distributed at the time. As a result of the allegedly unlawful payment of $6,000,000 to the Member Municipalities, the plaintiffs claim the District increased the rates for gas and gas services to provide the additional revenues necessary to service the principal and interest on the Series 1989 Bonds. They argue that had the District retained the bond proceeds in interest-bearing obligations, or invested in new revenue-producing extensions, improvements or additions to the distribution system, the District's revenues would have increased and thus enabled the District to reduce, or at least not increase, its rates for gas and gas services. The plaintiffs reason that the distribution by the District, and the taking by the Member Municipalities, of the bond proceeds imposed an impermissible burden on them because ultimately the proceeds were spent by the Member Municipalities on projects beneficial to city residents, but of no benefit to the nonresident plaintiffs. They further reason their property has been wrongfully taken, in the form of higher rates for gas services, to service the debt from which they did not benefit.
During a hearing on discovery disputes, the magistrate judge sua sponte directed the parties to submit briefs on the issues of (1) subject matter jurisdiction, (2) the grounds for the constitutional rights allegedly violated, and (3) the applicability of the Johnson Act,
The trial court predicated the dismissal of all
STANDARD OF REVIEW
This court reviews de novo the trial court's order dismissing the complaint. Executive 100, Inc. v. Martin County,
DISCUSSION
In order to prevail in a civil rights action under
Bannum, Inc. v. City of Ft. Lauderdale,
The Supreme Court has enunciated the principles defining a property interest within the meaning of the Fourteenth Amendment:
To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined....
Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law--rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.
Board of Regents v. Roth,
Plaintiffs' counsel skillfully attempts to do just this by pointing to Article 12 of the Alabama Code governing the creation and delineating the authority of gas districts. Municipalities are "authorized ... to organize[ ] and incorporate[ ] a gas district as a public corporation with all the power and authority provided in [Article 12] for the purpose of securing ... a supply of ... gas and for the purpose of transporting gas and for the purpose of the local distribution and sale of gas and gas services...." ALA.CODE § 11-50-391 (1992). The District has the power "to borrow money for any corporate purpose and to issue in evidence of the borrowing interest-bearing bonds...." ALA.CODE § 11-50-396(6) (1992). Bonds can also be issued to refund bonds previously issued or "for the combined purpose of so refunding any outstanding bonds and of acquiring, constructing, providing, improving or extending any gas system or systems." ALA.CODE § 11-50-405 (1992). "All moneys derived from the sale of any bonds issued by any district ... shall be used solely for the purpose or purposes for which the same are authorized...." ALA.CODE § 11-50-406 (1992).
The plaintiffs read these statutes as empowering the District to issue bonds only for the corporate purposes "authorized" in § 11-50-391 and § 11-50-405. Because the stated purpose of the bond, to reimburse the Member Municipalities for net income not distributed in prior years, is not expressed in the statute it is purportedly unauthorized and unlawful. By virtue of being customers whose payments to the District provide the only source of funds available to service the "unauthorized" bond debt,8 the plaintiffs conclude they are legitimately entitled to demand the proceeds be returned to the District.
The plaintiffs' difficulty is they have not shown any law presently existing in Alabama vesting them with a property interest in the bond proceeds. There is no language in Article 12 plainly and affirmatively securing for them such an interest. We have not been cited to any court opinion interpreting Article 12, or any other binding state decisional law, that bestows a benefit to the plaintiffs in the form of an interest in the bond proceeds. Cf. Memphis Light, Gas & Water Div. v. Craft,
We now turn to the plaintiffs' purported property interest in that portion of their utility payments used to pay the debt created by the Series 1989 bonds. The plaintiffs clearly have a property interest in the money they own. We assume they correctly allege the District increased rates in direct proportion to the cost of debt service on the bonds, demonstrating a direct taking of the plaintiffs' money to pay the bond debt. From here the plaintiffs argue "[t]his rate tax violates [their] right not to have their property taken without just compensation, their right to due process of law, and their right to the equal protection of the law." Appellants' Reply Brief at 4.
Their argument ignores the fact that the plaintiffs have purchased gas services in exchange for their money. They have paid a fixed rate, whether it was a reasonable or unreasonable one, for the services provided by the District, but in either case they fail to state a legal claim. "[A] reasonable user fee is not a taking if it is imposed for the reimbursement of the cost of government services. 'A governmental body has an obvious interest in making those who specifically benefit from its services pay the cost....' " United States v. Sperry Corp.,
Alternatively, if a portion of the rate charged by the District in reality bears no relation to the value of the gas services provided (which the plaintiffs vehemently say they do not claim but which their argument in fact implies), then the crux of the argument is that the District charges unreasonable rates for its services. Challenges to public utility rates are matters for state courts.10 In the plaintiffs' own words "[t]he District, like a municipality, is an instrumentality or agency of the state...." (R1-1-18). The District is an artificial entity and, as previously explained, is created and empowered by state law. Whether the plaintiffs have been wrongfully required to pay for the bond debt through increased rates is a question properly assigned to state courts.
CONCLUSION
For all of the foregoing reasons, we dismiss all claims under
AFFIRMED.
JOHNSON, Senior Circuit Judge, dissenting:
I dissent. The plaintiffs appeal from the district court's order dismissing their claims brought pursuant to
I. The Complaint States a Cognizable Claim
A. Takings claim
The plaintiffs' takings claim is that the District took their property in the form of higher rates without providing a corresponding benefit. This allegation states a claim under the Takings Clause for which relief may be granted.
In determining whether the taking of money constitutes an unconstitutional taking, the Supreme Court has examined the taking against a standard of reasonableness. See United States v. Sperry Corp,
B. Equal protection claim
The plaintiffs' equal protection claim is that the District impermissibly distinguished between rate-payers living within the Member Municipalities and rate-payers living outside the Member Municipalities--although all customers of the District share equally in paying for the bond issue, the revenue realized from the bond issue flows only to those customers who reside in the Member Municipalities. This allegation states a claim under the Equal Protection Clause for which relief may be granted.
"The Equal Protection Clause 'is essentially a direction that all persons similarly situated should be treated alike.' " Spence v. Zimmerman,
II. Johnson Act
Although the plaintiffs' complaint does state a claim, the Johnson Act may deprive the district court of jurisdiction to entertain the complaint. The plaintiffs' suit is essentially one challenging the rate charged by the District for services, and as this Court has previously noted, "the Johnson Act has been broadly construed to prohibit federal court actions that indirectly as well as directly affect rate orders." Carlin Communication, Inc. v. Southern Bell Tel. & Tel. Co.,
The majority relies on the broad sweep of the Johnson Act for its alternate holding that even if the plaintiffs had stated a claim, their claim should be heard in state court. In reaching this alternate holding, the majority ignores the plain language of the Act. For the Johnson Act to apply, the District's order increasing its rates must have been preceded by reasonable notice and hearing.
Whether the District gave reasonable notice is a jurisdictional fact, which this Court reviews under the clearly erroneous standard. Lawrence v. Dunbar,
Notes
Honorable Robert R. Merhige, Jr., Senior U.S. District Judge for the Eastern District of Virginia, sitting by designation
The governing body of each city appoints one member to the Board of Directors. At all relevant times, the members of the Board were the mayors of the three member cities
Section 11-50-396 in relevant part provides the following:
Each district incorporated under this article shall have each and all of the following powers ...
(6) To borrow money for any corporate purpose and to issue in evidence of the borrowing interest-bearing bonds payable solely from the revenues derived from the operation of any one or more of its systems....
ALA.CODE § 11-50-396(6) (1992).
Section 11-50-409 in relevant part provides:
The bonds ... of any district incorporated under this article shall not be a debt or obligation of the State of Alabama nor a debt or obligation of any municipality which is a member of the district; and neither the state nor any such municipality shall be liable in any way whatsoever thereon, nor may the holder of any such bonds or obligations compel the levy of any taxes for the payment thereof.
Said bonds shall not be payable out of any funds other than the revenues of the gas system or systems of the district issuing the same....
ALA.CODE § 11-50-409 (1992).
Section 11-50-411 reads in relevant part:
All the net income of the gas transmission system or systems, for each fiscal year, of a gas district incorporated under this article shall.... be divided, within a reasonable time after the close of each fiscal year, among its member municipalities in proportion to the amount of gas sold to or within each such municipality.
....
The term "net income" ... shall mean, with respect to the system or systems and for the fiscal year in question, the net income thereof computed in accordance with generally accepted accounting principles plus depreciation and amortization less [certain sums defined in this section]....
ALA.CODE § 11-50-411 (1992).
The complaint also sets forth a claim for conspiracy in violation of
The trial court found it unnecessary to decide whether the Johnson Act prohibited the federal court from exercising jurisdiction over this action
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State ... subjects, or causes to be subjected, any citizen of the United States ... to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.
The Member Municipalities assume no liability for bonded debt. See ALA.CODE § 11-50-409, supra note 3
A property interest founded upon custom or usage may be a factual determination, in which case a 12(b)(6) dismissal would be inappropriate. We need not decide this question, however, since the complaint does not even allege a property interest on this basis
Although we do not reach the question of whether the Johnson Act bars jurisdiction, the unambiguous language of the statute expresses Congress' intent that federal courts should not interfere with a state's control over public utility rates. The Act provides in pertinent part:
The district courts shall not enjoin, suspend or restrain the operation of, or compliance with, any order affecting rates chargeable by a public utility and made by a State administrative agency or a rate-making body of a State political subdivision, where:
(1) Jurisdiction is based solely on diversity of citizenship or repugnance of the order to the Federal Constitution; and,
(2) The order does not interfere with interstate commerce; and,
(3) The order has been made after reasonable notice and hearing; and,
(4) A plain, speedy and efficient remedy may be had in the courts of such State.
The Johnson Act,