Justia Federal District Court Opinions

Appellees filed their complaint below to postpone and restrain the Rural Electrification Administrator from disburesing proceeds of a loan with the East River Electric Power Cooperative, Inc. The loan by the REA is pursuant to 4 of 7 U.S.C. 904, and constitutes a 5.9 Million Dollar long-term loan for the construction of transmission facilities in Minnesota and South Dakota. The complaint is to compel the Administrator to perform a duty owed to the appellees pursuant to certain regulations promulgated by the Administrator in handling the loans.1

Appellants filed a motion to dismiss which was heard contemporaneously with appellees' motion for preliminary restraining order as to the consummation of the loan. The lower court denied the motion to dismiss. The preliminary injunction was denied because of the failure of plaintiffs to establish 'the requisite reasonable certainty or substantial likelihood of success on the merits so as to justify preliminary injunctive relief.' The trial court stated:

'In contrast to plaintiffs' allegations concerning disregard of the procedural requirements of Bulletin 111-3, considerable evidence indicates that defendants have indeed proceeded in accordance with the regulations.'2 Northern States Power Co. v. Rural Electrification Admin., D.Minn. 1965, 248 F.Supp. 616, 625.

Subsequently, appellees moved for production of certain documents and correspondence regarding the negotiations leading up to the present loan. The REA claimed executive privilege by Secretary of Agriculture, Orville Freeman, and the Administrator to the various documents. The court granted an in camera order requiring the government to produce the documents to enable the court to examine them to determine validity of the claim. Thereafter, the appellants moved to amend the in camera order to require the court, in the event that their claim of privilege was overruled, to return the documents so that they might determine whether to stand on their claim of privilege. The trial court properly, we think, refused such an order. Thereafter, appellants filed notice asserting the executive privilege and their announced refusal to obey the court's order concerning the in camera production. On June 17, 1966, the appellees by their attorneys, moved pursuant to Rule 37(b)(2) for certain sanctions and again for a preliminary injunction. Pursuant to said motion and bases upon the refusal of the appellants to produce the various documents, the court entered an order finding certain 'designated facts' to be taken as true for the purposes of the action. These established facts are generally composed of the allegations of the complaint. The court also found 'the requisite factual showing for preliminary injunction relief * * * is now apparent,' and entered an order enjoining the defendants and anyone under their control from consummating or participating in the loan to East River or in distributing any portion of said loan. Appellants filed the present appeal from the latter order.

The relationship of the parties is significant. Northern States Power Company and the Otter Tail Power Company, appellees herein, are in the business of generating, transmitting and distributing electrical service within the states of Minnesota, North Dakota and South Dakota. They are known as private power suppliers. The East River Electric Power Cooperative, Inc., organized under the Electric Cooperative Act of the State of South Dakota, is engaged in the business of the transmission of electric service. It does not own any generating facilities. Appellees have for many years been contractual wheeling agents for the Bureau of Reclamation of the Department of Interior, and provide transmission service to various cooperatives. They also supply electrical energy to various borrowers under the Rural Electrification Act. East River purchases its power supply from the Bureau of Reclamation and delivers the electrical energy over its own transmission system to its South Dakota members. The power supply purchased from the Bureau of Reclamation to East River's Minnesota members is presently being transmitted by the appellees to delivery points in Minnesota. In May, 1964, East River applied for a loan with FEA to construct its own transmission lines for service to its Minnesota members.

The Complaint

Summary of the plaintiffs' complaint and the particular regulations is essential to a full understanding of the problems involved:

A. Complaint is filed to postpone * * * actions, for a declaration that such actions are in violation of law; to restrain REA from disbursing loan; to compel Administrator to perform a duty owed to the plaintiffs.

B. Pursuant to statute (7 U.S.C.A. 901) Administrator of REA is empowered to make loans to cooperative associations for construction and operation of generating plants and transmission lines for furnishing of electrical energy to persons in rural areas who are not receiving central station service. Loans made by REA are funds from Congress made available to certain terms under annual appropriation acts.

C. In 1963 Congress created duties and rights of private power suppliers by directing the Administrator to promulgate regulations 'REA Bulletin 111-3' duly published in Fed.Register (Vol. 29, No. 40, pp. 2765-6) requiring the Administrator, in connection with any loan, to:

(1) make power survey and determine wherein the proposed contract for power is unreasonable;

(2) advise the supplier wherein such contract is unreasonable; and

(3) endeavor to get such contract modified to make it reasonable. No loan is to be made unless a reasonable contract cannot be obtained.3

D. On May 26, 1964, East River made application for loan to be used for construction of independent transmission lines, including transmission system for service to Minnesota members.

E. Administrator undertook power supply survey and requested plaintiffs and East River to consider, discuss and negotiate long-term arrangement for power supply to East River members:

(1) A conference was held on June 11, 1964, by representatives of all parties;

(2) Proposal for 'Joint Plan' sent to East River on July 9, 1964, rejected by East River on July 27, 1964;

(3) On August 3, 1964, REA states proposal must meet certain requirements and submit final plan by October 5, 1964;

(4) Plaintiffs submitted its proposed plan on October 2, 1964;

(5) May 17, 1965, notification by REA that proposals were not satisfactory and loan to East River would proceed.4

F. Plaintiffs complied with basic requirements and with all basic suggestions made in August. Plaintiffs are ready, willing and able to provide services and to resolve all questions concerning the proposed contract.

(1) advise plaintiffs wherein their proposal of October 2, 1964, was unreasonable or deficient;

(2) endeavor to have the proposal made reasonable or the deficiencies corrected. The failure and refusal constitutes:

(a) a willful violation of Rea regulations;

(b) an unlawful failure to preform duty owed to plaintiffs, and

(c) a denial of plaintiffs' rights.

H. Defendants arbitrarily set a cut-off date for negotiations and prejudged the loan substituting East River's judgment for their own.5

I. Reasons for rejection were not communicated to plaintiffs.

J. Purported certifications were arbitrary and capricious and in excess of statutory authority and were without observance of procedural requirements.

As a result thereof, appellees have incurred damages in the sum of $1,000,000. Appellees pray to enjoin loan pending performance of duty to effectuate a reasonable contract by advising in writing of deficiencies and unreasonableness of their proposal of October 2, 1964; and endeavor with 'deliberate speed' to make the proposed contract reasonable, if at all possible; and otherwise comply with regulations.

The Regulations

We are in accord with the trial court's analysis as to the legal effect of regulations promulgated by the administrator. Congress undoubtedly intended that the Administrator's regulations be followed, whether they speak only of internal policy or not. See Columbia Broadcasting System v. United States, 316 U.S. 407, 62 S.Ct. 1194, 86 L.Ed. 1563.6 However it does not necessarily follow, as the trial court has assumed, that the legal status of the regulations necessarily permits review by the appellees herein.7 In Schilling v. Rogers, 363 U.S. 666, 80 S.Ct. 1288, 4 L.Ed.2d 1478, the Supreme Court in reviewing statutory restrictions on the Custodian under The Trading With the Enemy Act stated:

'* * * we think the congressional decision to spell out in some detail certain limitations on the power it was conferring on the Executive was not designed to bestow rights on claimants, arising out of an assertedly too-narrow reading by the Executive of the discretionary power given him. Rather we consider the specifications * * * as designed to provide guides for the Executive, thereby lessening the administrative burden of decision. * * *'

A. Standing by 'public interest'.

Although concepts of standing, judicial reviewability and justiciable controversy are intermingled in the area of administrative review, our analyses compels reversal under any or all of these jurisdictional bases. Appellees' brief well demonstrates isolated statements and cases dealing with agency review are not all simply reconciled.8 However, distinguishing factors become readily apparent in review of the myriad of cases.

The Rural Electrification Administration's powers are all exercised by the Administrator under the supervision of the Secretary of Agriculture. 7 U.S.C. 901. The Administrator, in 902 and 904, is 'authorized and empowered to make loans' for the development of rural areas deficient in rural electrification. Under the same or similar statutory authority appellees readily recognize that the interest of the economic competitor is not sufficient standing to challenge the authority or discretion of the Administrator to make loans. Alabama Power Company v. Ickes, 302 U.S. 464, 58 S.Ct. 300, 82 L.Ed. 374; Tennessee Electric Power Co. v. T.V.A., 306 U.S. 118, 59 S.Ct. 366, 83 L.Ed. 543; Duke Power Co. v. Greenwood, 302 U.S. 485, 58 S.Ct. 306, 82 L.Ed. 381; Kansas City Power & Light Co. v. McKay, 96 U.S.App.D.C. 273, 225 F.2d 924, cert. den. 350 U.S. 884, 76 S.Ct. 137, 100 L.Ed. 780; Rural Electrification Administration v. Central Luisiana Electric Co., 5 Cir., 354 F.2d 859; Alabama Power Co. v. Alabama Electric Coop., Inc., M.D.Ala.N.D., 1965, 249 F.Supp. 855. Nor did passage of the Administrative Procedure Act cerate legal rights which otherwise did not exist.9

The Supreme Court has long recognized that an 'enforceable right' must be more than 'a common concern for obedience to law.' Singer & Sons v. Union Pac. R. R. Co., 311 U.S. 295 at 304, 61 S.Ct. 254 at 258,85 L.Ed. 198. Nor is standing given to the appellees as representing 'the public interest' analogous to F.C.C. v. Sanders Brothers Radio Station, 309 U.S. 470, 60 S.Ct. 693, 84 L.Ed. 869. Some interpretations of Samders make the area confusing and more complicated. See e.g., American President Lines v. Federal Maritime Board, D.C.D.C., 112 F.Supp. 346.10 The theory of Sanders is extended in Associated Industries of New York State v. Ickes, 2 Cir., 134 F.2d 694, which allows review of any administrative order when the 'public interest' is being represented by any person 'aggrieved,' acting as 'a private Attorney General.' Of course, the concern of the public is involved when a regulatory charter is being granted or denied by some administrative agency. Scripps-Howard Radio, Inc. v. F.C.C., 316 U.S. 4, 62 S.Ct. 875, 86 L.Ed. 1229. Thus, 'when an existing licensee offers to prove that the economic effect of another station would be detrimental to the public interest' the court will review. See Carroll Broadcasting Co. v. F.C.C., 103 U.S.App.D.C. 346, 258 F.2d 440, 443, followed recently in Southwestern Operating Co. v. F.C.C., 1965, 122 U.S.App.D.C. 137, 351 F.2d 834. See also Panhandle Eastern Pipeline Co. v. F.P.C., 83 U.S.App.D.C. 297, 169 F.2d 881 (existing natural gas supplier has standing to challenge certification of competitor). Cf. Webster Groves Trust Co. v. Saxon, 8 Cir., Dec. 14, 1966,370 F.2d 381. Any claim of representation of 'public interest' by appellees herein is found in their abbreviated reliance on Western Pac. Calif. R.R. v. Southern Pac. R.R., 284 U.S. 47, 52 S.Ct. 56, 76 L.Ed. 160, and Texas & Pac. Ry. v. Gulf C. & S.F. Ry., 270 U.S. 266, 46 S.Ct. 263, 70 L.Ed. 578. However, the agency conduct in those cases is too remote from the instant facts. The decisions in Alabama Power and T.V.A., both decided subsequent to the Western Pac. and Texas & Pac. cases deny that standing is derivative from 'public interest' in federally supported programs involving public utilities.

B. Standing by 'regulation.'

Elsewhere in their briefs appellees insist that 'freedom from competition is not the basic issue here' but in fact their complaint is one of individual injury by reason of 'unfair treatment' by the Administrator's noncompliancewith his own regulations.11 Appellees claim that Alabama Power, Kansas City Power, and T.V.A. are distinguishable since the regulations were not promulgated at the time of these decisions.¹²

Therefore, we are instructed that we must search the regulations to determine whether appellees have any legally enforceable rights to give standing to sue. The language of the bulletin sets forth the procedure that is to be followed by the Administrator in conducting a survey to consider a borrower's loan application. The power supplier has no enforceable right or privilege to obtain a contract or to otherwise have its proposal accepted.¹³ The regulation states the Administrator will endeavor to make the proposals of the suppliers reasonable within a definite period of time.¹⁴ If appellees' position is correct, short of obtaining a determination of 'reasonable,' they could always cite the Administrator as failing to 'endeavor' to make the proposals reasonable. The regulations say the Administrator will inform the suppliers of the deficiencies. But the regulation does not give the supplier the unconditional right to have its proposal accepted. On the contrary, these requirements are designed to place sufficient information in the hands of the Administrator in order that it 'be considered in evaluation of loan applications related to the problems and needs covered by the survey.'

Appellees contend they have standing since they belong to a special class which is the intended beneficiary of the regulations promulgated by the Administrator. See Kentucky Utilities Co. v. T.V.A., 6 Cir., 375 F.2d 403, decided November 15, 1966. They claim the objectives of the regulations are to protect the rights of the private power suppliers. We would agree with the general proposition that Congress through the REA is not interested in using governmental power to supplant private enterprise. See H.R.Rep. No. 423, 89th Cong., 1st Sess. 33 (Sen. Holland). However, such an expression of policy in and of itself does not grant a legally enforceable right in the utility to maintain it. Tennessee Electric Power Co. v. T.V.A., 306 U.S. 118, at 141, 59 S.Ct. 366. The authority of the REA to grant loans to electrical cooperatives could otherwise be thwarted. As the House Committee on Appropriations said, the right to make loans for generating and transmission purposes is deemed 'absolutely essential to enable REA coops to obtain reasonable contracts with private suppliers with regard to rates, terms and conditions.' H.R.Rep. No. 355, 88th Cong., 1st Sess. 7, (1963).¹⁵ The announced responsibility of the REA in conducting the power supply survey, which is the gist of the regulations in question, is twofold: (1) to render assistance to borrowers in obtaining the 'most advantageous power supply arrangement,' and (2) to conserve REA funds.¹⁶ See Bulletin 111-3, supra. The bulletin does make a general policy statement that the power supply survey 'assure adequate review of existing and proposed power supply alternatives' and 'encourage closer cooperation between borrowers and other electric power suppliers.' However, this statement must be read in conjunction with the expressed concern of the REA that the 'terms and conditions' of power supply arrangements are major and critical factors in REA borrowers ability to carry forward the rural electrification program. If anyone is the beneficiary of the regulation, it is the rural consumer of cheap but efficient electrical energy. The intent of the regulation is to assure the borrower, not the private power supplier, the 'most advantageous power supply arrangement.'

It is difficult to conclude that the purpose of the regulations is to provide previously nonexistent rights to the private power supplier. The federal program under the REA is specifically for the benefit or rural families to have modern and efficient electrical facilities at the lowest rates possible. The implementation of the REA program requires a pragmatic concern for both economy and facility to the borrower, as well as to the consumer. In overseeing the Act, Congress properly is concerned in the conservation of the funds involved. This discerning interest may work to the advantage of the private power supplier, but in many instances it also can result in their economic disenchantment. In administering the REA program 'freedom from competition' is not a legitimate end of the legislation or the regulations promulgated thereunder. More appropriately, we feel the responsibilities under the regulation are as set forth in its preamble. The language and the legislative background of the regulation makes it apparent that Congress was merely seeking a more effective means to police the REA loans.¹⁷ Under such circumstances we find Congress did not intend to create any legally enforceable rights for the private power supplier.

Lack of Judicial Reviewability

However, notwithstanding appellees' claim to certain benefits under the regulations, they have otherwise failed to state a 'justiciable controversy.'¹⁸ Their complaint relates to a phase of an incomplete process of the exercise of administrative discretion. The agency conduct does not invoke any final or adjudicatory order or process which legally wrongs appellees. Every step delineates an investigative stage directed toward accumulation of factual material for the Administrator's expertise evaluation.¹⁹ The ultimate authorization of the loan, which appellees really want to prevent, does not and cannot involve a legal wrong to appellees.

It is patent the judicial action sought by appellees is still subject to subsequent revisory executive or legislative action.²⁰ Appellees attack the negotiation stages only. These lead up to (1) a finding of reasonableness or unreasonableness of the supplier's proposal, (2) evaluation of all proposals for further consideration of the borrower's loan application, (3) certification of approval of the loan to the Secretary of Agriculture, the Comptroller General, the House of Representatives and the United States Senate.²¹ See Bulletin 111-3, supra. See Jaffe, Judicial Control of Administrative Action, 100-3, supra. Even then the Secretary of Agriculture must ultimately approve and request the Secretary of the Treasury to loan the money to the Administrator, 7 U.S.C. 903. Appellees concede in their brief, as well as in oral argument before the court, they are not attacking the certification, see n. 11, aupra.²² It is clear that appellees are attacking 'a step in a pending proceeding' leading to an ultimate decision not otherwise 'judicially reviewable.' United States v. Los Angeles and S.L.R. Co., supra. Cf. Chicago & Southern Air Lines, Inc. v. Waterman Steamship Corp., 333 U.S. 103, at 112-113, 68 S.Ct. 431, 92 L.Ed. 568.²³

Appellees submit that appellants' procedural efforts were arbitrary, capricious²⁴ and illegal.²⁵ Assuming they were, appellees cannot succeed in doing indirectly that which they concede they cannot do directly, to-wit, enjoin the loan. Congress has steadfastly refused to provide judicial review under 7 U.S.C. 901 of the REA Act.²⁶ This silence could be premised on the concern that the private supplier could otherwise interfere with REA loans in each instance where the Administrator finds the public suppliers proposal unreasonable.

The studied expertise of the Administrator, the Comptroller General and Congress as to comparative cost studies, efficiency, flexibility and overall utility should remain in their capable hands and not the courts. The decisions entail engineering know-how and accounting procedures which the executive and legislative branches of government are better equipped to handle than the judiciary. The exercise of judgment by the Administrator, Congress or the Comptroller General invokes far more than performing a ministerial act. We are concerned with an area of the law 'where generally the Executive and the Legislative are supreme.' Panama Canal Co. v. Grace Line, Inc., 356 U.S. 309, 78 S.Ct. 752; United States v. Carmack, 329 U.S. 230, 67 S.Ct. 252; United States v. George S. Bush & Co., 310 U.S. 371, 380, 60 S.Ct. 944, 84 L.Ed. 1259.²⁷ United States v. Wiley's Cove Ranch, 8 Cir., 295 F.2d 436; Duba v. Schuetzle, 8 Cir., 303 F.2d 570; Kansas City Power & Light Co. v. McKay, supra; REA v. Central Louisiana Electric Co., supra. The promulgation of the regulations in question unequivocally demonstrates that the Administrator relies upon Congressional guidance and sanction. Although we doubt that Congress and the Comptroller General will desire to review every loan made by the REA they do possess the machinery and the ability for review, as in the instant case, where the parties are in good faith in attempting to reach a meeting of the minds.²⁸ Under the facts presented here notwithstanding the regulations, the character of the agency action involved falls short of presenting a justiciable controversy.

The preliminary restraining order entered on June 27, 1966, should be dissolved by the District Court and the appellees' case dismissed for lack of jurisdiction.

Reversed in accordance with the opinion.