Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alnd-4_15-cv-00341/USCOURTS-alnd-4_15-cv-00341-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

---

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

MIDDLE DIVISION

HERMAN KRITNER, on behalf of

himself and on behalf of others

similarly situated,

Plaintiff,

v.

ARAB ELECTRIC

COOPERATIVE,

Defendant.

)

)

)

)

)

)

)

)

)

)

)

)

Case No.: 4:15-CV-341-VEH

MEMORANDUM OPINION AND 

ORDER DENYING MOTION TO REMAND

I. INTRODUCTION

On January 26, 2015, plaintiff Herman Kritner (“Mr. Kritner”) filed a class

action complaint against defendant Arab Electric Cooperative (“Arab”) in the Circuit

Court of Marshall County, Alabama. (Doc. 1-1 at 3). Arab is an electric cooperative

that purchases electricity from the Tennessee Valley Authority (“TVA”) and sells it

to customers. Mr. Kritner is a member of Arab. (Id. at 4). His action seeks a

declaration that the putative class that he represents is entitled to a refund of excess

revenues as“patronage capital” from Arab pursuant to Alabama law. (Id. at 3-4).

On February 25, 2015, Arab removed the action to this court. (Doc. 1). The case

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 1 of 10
is presently before the court on Mr. Kritner’s motion to remand (“the Motion”), filed

on March 26, 2015. (Doc. 15). The Motion alleges that this court lacks subject matter

jurisdiction over this case. (Id.). Arab has filed a response in opposition to the motion

(Doc. 17), to which Mr. Kritner has replied (Doc. 19). Therefore, the matter is now

under submission. For the following reasons, the court DENIES the Motion.

II. BRIEF STATEMENT OF FACTS

The TVA is an agency of the United States established by the Tennessee Valley

Authority Act (“the Act”) for the purpose of, among other things, providing electricity

throughout the Tennessee Valley, including parts of Northern Alabama. 16 § U.S.C.

831 et seq. The Act provides that the TVA’s Board of Directors is authorized to sell

surplus power “to States, counties, municipalities, corporations, partnerships, or

individuals . . . and to carry out said authority, the Board is authorized to enter into

contracts for such sale.” 16 § U.S.C. 831i. The Act also states that the Board of

Directors “is authorized to include in any contract for the sale of power such terms and

conditions, including resale rate schedules, and to provide for such rules and

regulations as in its judgment may be necessary or desirable for carrying out the

purposes of this [Act].” Id.

Arab is a cooperative corporation created under the law of Alabama. (See Doc.

17-2 at 2). On August 28, 1987, Arab and the TVA entered into a contract whereby

2

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 2 of 10
Arab would sell electricity produced by the TVA. (Id.). The contract stipulates that

resale rates — the rates by Arab charges to its customers — must conform to the

TVA’s “Schedule of Rates and Charges.” (Id. at 5). Furthermore, the contract specifies

that any change (including a decrease) to the rates must be agreed upon by both

parties. (Id. at 5-6). A “Schedule of Terms and Conditions” incorporated in the

contract gives specific procedures that govern when and how the parties can make

adjustments to Arab’s resale rates. (Id. at 22-24). Additionally, the contract limits the

possible uses Arab can make of revenue earned from the sale of TVA-produced

electricity. Any surplus revenue (revenue remaining after electric system operating

expenses, debt payments, and reasonable reserves) is to be used for new construction

or early debt retirement. (Id. at 6).

III. APPLICABLE LAW

“Federal courts are courts of limited jurisdiction. They possess only that power

authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of

America, 511 U.S. 375, 377 (1994). For removal to be proper, the court must have

subject matter jurisdiction in the case. The notice of removal in this case premises

jurisdiction on 28 U.S.C. § 1442, which states,

(a) A civil action or criminal prosecution that is commenced in a State court

and that is against or directed to any of the following may be removed by them

to the district court of the United States for the district and division embracing

the place wherein it is pending:

3

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 3 of 10
(1) The United States or any agency thereof or any officer (or any person

acting under that officer) of the United States or of any agency thereof,

in an official or individual capacity, for or relating to any act under color

of such office or on account of any right, title or authority claimed under

any Act of Congress for the apprehension or punishment of criminals or

the collection of the revenue.

28 U.S.C. § 1442(a). It is well-established that private parties can qualify as “acting

under” a United States agency or officer. See, e.g., Isaacson v. Dow Chem. Co., 517

F.3d 129, 137 (2d Cir. 2008) (applying this section to “non-governmental

defendants”).

The Supreme Court has explained that the “basic purpose” of the removal

jurisdiction in 28 U.S.C. § 1442(a) is

to protect the Federal Government from the interference with its operations that

would ensue were a State able, for example, to arrest and bring to trial in a State

court for an alleged offense against the law of the State, officers and agents of

the Federal Government acting within the scope of their authority. State-court

proceedings may reflect local prejudice against unpopular federal laws or

federal officials. In addition, States hostile to the Federal Government may

impede through delay federal revenue collection or the enforcement of other

federal law. And States may deprive federal officials of a federal forum in

which to assert federal immunity defenses. 

Watson v. Philip Morris Companies, Inc., 551 U.S. 142, 150 (2007) (internal citations

and quotation marks omitted). The Court has stated that § 1442(a) “must be liberally

construed.” Id. at 147.1

1

 This makes the statute a rare exception to the general rule that federal courts construe

removal statutes strictly. See, e.g., City of Vestavia Hills v. Gen. Fid. Ins. Co., 676 F.3d 1310,

1313 (11th Cir. 2012).

4

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 4 of 10
IV. ANALYSIS

The Eleventh Circuit has laid out a two-part2test for removing under 28 U.S.C.

§ 1442(a) . First, “the defendant must advance a colorable defense arising out of his

duty to enforce federal law.” Magnin v. Teledyne Cont'l Motors, 91 F.3d 1424, 1427

(11th Cir. 1996). Second, the defendant must establish a “causal connection,” i.e., that

the lawsuit arises from actions taken pursuant to official authority. Id. at 1427-28. In

this case, both parts of the two-part test laid out in Magnin are satisfied. The two parts

will be addressed in turn.

A. The Defendant Has A Colorable Federal Defense

To meet the first element, the removing defendant must only allege a federal

defense that is “plausible,” not one that ultimately is determined valid. Magnin, 91

F.3d at 1427. The removal petition alleges that Mr. Kritner’s claims are preempted by

the TVA Act because these claims arise under Alabama state law and would impose

obligations that conflict with the terms and conditions of the contract between the

TVA and Arab. (Doc. 1 at 7-8; see also Doc. 18 at 18-19). Arab argues that the TVA

2

 Some district courts within this circuit have added a third element to this test: that the

defendant “acted under the direction of a federal officer.” See, e.g., Alfa Mut. Ins. Co. v.

Nicholson, No. 1:13-CV-322-MEF, 2014 WL 903126, at *3 (M.D. Ala. Mar. 7, 2014). It is not

apparent to the court how this element could be considered separately from the second element:

the requirement of a causal connection between the defendant’s action and the plaintiff’s claim.

To the extent that it might be considered a separate element, the court considers it adequately

addressed by the analysis in Section IV.B of this memorandum opinion and order.

5

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 5 of 10
Act gives “a broad grant of discretion to the TVA Board to set power rates at the

consumer level and dictate how excess revenues generated by Defendant are used,”

and that this authority “is not subject to modification or interference by state

legislation.” (Doc. 1 at 7). Arab goes on to argue that Mr. Kritner’s claims are not

subject to judicial review under the TVA Act. Id. 

Mr. Kritner disputes the existence of a colorable federal defense. He argues that

the TVA Act has only been found to preclude “direct claims against the TVA

challenging its rate-making authority,” as opposed to a claim against another party.

(Doc. 15 at 8-9). It is worth reiterating here that the standard for a defense to be

colorable is not whether the defense is ultimately determined to be valid, but whether

it is plausible. Magnin, 91 F.3d at 1427. A survey of case law involving the TVA does

not find support for Mr. Kritner’s contention that the TVA Act precludes only “direct

claims against the TVA” and not claims against distributors. Indeed, the Sixth Circuit

affirmed a decision which suggests the exact opposite to be true. See Ferguson v. Elec.

Power Bd. of Chattanooga, Tenn., 378 F. Supp. 787, 789-90 (E.D. Tenn. 1974), aff'd

sub nom. Ferguson v. Elec. Power Bd. of Chattanooga, 511 F.2d 1403 (6th Cir. 1975)

(holding that state law usury claim against municipal distributor of electricity, which

purchased electricity through contract with TVA, was precluded by the TVA Act’s

grant of rate-making authority to the TVA). It is true that, in Ferguson, the TVA was

6

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 6 of 10
joined as a co-defendant with the distributor, but the court dismissed the claim as to

both defendants on the ground of the TVA Act, and made no mention of the TVA’s

status as a party as a reason for dismissal. Id at 790. In any case, this argument by Mr.

Kritner certainly does not go so far as to show that Arab’s federal defense does not

reach the level of “colorable.”3

Mr. Kritner also argues that the TVA Act “does not address excess revenues

retained by Alabama electric cooperatives.” (Doc. 16 at 9). Although he is technically

correct that the TVA Act does not explicitly discuss excess revenue retention, it is

clear that the issue of rate-making is not separable from that of excess revenues. A

refund of revenues is more or less functionally equivalent to a rate reduction, as shown

by Alabama law and Mr. Kritner’s own complaint. The portion of the Alabama Code

upon which Mr. Kritner relies states that electric cooperatives’ excess revenues “shall

be distributed [to members] . . . either as patronage refunds . . . or by way of general

rate reductions.” Ala. Code § 37-6-20 (emphasis added). In the same vein, Mr.

Kritner’s complaint requests “a permanent injunction requiring the Defendant to

distribute excess revenue each year in the form of either refunds and/or rate

reductions.” (Doc. 1-1 at 9) (emphasis added). 

3

 Additionally, the court is granting the TVA’s Motion to Intervene (Doc. 13) in this case

contemporaneous with this order.

7

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 7 of 10
Therefore, Arab has made out a colorable defense that federal law preempts this

claim, and established the first element required to remove under § 1442(a).

B. A Causal Connection Exists Between The Acts Giving Rise To The

Complaint And The TVA’s Directions

The Second Circuit has helpfully explained the causal connection requirement

in the context of non-governmental defendants: “such entities must demonstrate that

the acts for which they are being sued . . . occurred because of what they were asked

to do by the Government.” Isaacson, 517 F.3d at 137. This requirement is “quite low.”

Id. The Supreme Court has directed courts to consider “the [defendant’s] theory of the

case for purposes of the jurisdictional inquiry.” Jefferson Cnty., Ala. v. Acker, 527

U.S. 423, 424 (1999). If there is a question as to whether the removing defendant

actually acted pursuant to official authority when committing the acts that gave rise

to the suit, “then [the defendant] should have the opportunity to present [its] version

of the facts to a federal, not a state, court. . . . [and] the validity of [its] defenses should

be determined in the federal courts. ” Willingham v. Morgan, 395 U.S. 402, 409

(1969).

Mr. Kritner cites several district court cases for the proposition that a removing

defendant must show that it was under the “direct and detailed control” of a federal

agency. (Doc. 19 at 6-8). He goes on to argue that the TVA does not have “direct and

detailed control” of patronage capital, and so Arab cannot meet this standard. (Id. at

8

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 8 of 10
7). However, the language he cites for the “direct and detailed control” standard is

taken out of context; it stems from cases where defendants claimed only the fact of

federal regulation as a causal connection. (See id. at 7-8). In these cases, the courts

held that federal regulations cannot bring a party within the meaning of § 1442(a)

unless they subject the party to “direct and detailed control.” (See id.). Arab does not

point to any federal regulations as a causal connection, but rather to obligations arising

from contracts with the TVA pursuant to the agency’s congressionally granted

authority. Therefore, the “direct and detailed control” standard does not govern the

present case.

Arab easily meets the standard for a causal connection. A sworn declaration

from Dwain Lanier, the TVA’s Vice President of Operations and Regulatory

Assurance, states that the TVA does not permit its distributors to give patronage

refunds, as it considers them to be equivalent to a rate reduction. (Doc. 17-1 at 4).4 As

discussed in the preceding section, the court agrees that the two are functionally

almost equivalent, and, apparently, Alabama law and Mr. Kritner himself (as

evidenced by his complaint) also so agree. Mr. Kritner focuses extensively on the

4

 Mr. Kritner argues that Lanier’s declaration constitutes “expert testimony regarding the

interpretation of a contract,” which is inadmissible except in the case of ambiguity in the

contract. (Doc. 19 at 10). However, it appears to the court that Arab offers the declaration not to

prove a particular interpretation of a contract term, but rather to show that the TVA does not

permit Arab to distribute patronage capital. (See Doc. 17 at 26 (discussing “TVA’s statement that

Defendant is not permitted to distribute patronage capital under the TVA Contract”)).

9

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 9 of 10
language of the contract, arguing that its terms do not actually require Arab to

withhold patronage refunds. (Doc. 15 at 6-7, Doc. 19 at 11-12). However, whether or

not there is a causal connection does not require determining whether TVA’s

interpretation of the contract is correct. Even if Mr. Kritner is correct that the contract

is best interpreted not to prohibit Arab from giving a patronage refund, Lanier’s

declaration is still sufficient evidence that the TVA has a policy prohibiting

distributors such as Arab from granting patronage refunds. Therefore, when Arab

declined to distribute patronage refunds — the acts for which it is being sued — it did

so because it “was asked to do [so] by the Government.” Isaacson, 517 at 137. This

meets the standard for a causal connection, thereby establishing the second element

for removal under 28 U.S.C. § 1442(a).

V. CONCLUSION

As the requirements for removal under 28 U.S.C. § 1442(a) are satisfied, the

court determines that it has subject matter jurisdiction over this removed action. Mr.

Kritner’s Motion To Remand is due to be and hereby is DENIED.

DONE and ORDERED this 14th day of May, 2015.

 

 VIRGINIA EMERSON HOPKINS

United States District Judge

10

Case 4:15-cv-00341-MHH Document 22 Filed 05/14/15 Page 10 of 10