Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-2_15-cv-00129/USCOURTS-alsd-2_15-cv-00129-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

---

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

NORTHERN DIVISION

PAMELA CAVER, et al., )

 )

Plaintiffs, )

)

v. ) CIVIL ACTION 15-0129-WS-C

 )

CENTRAL ALABAMA ELECTRIC )

COOPERATIVE, )

 )

Defendant. )

ORDER

This matter comes before the Court on plaintiffs’ Motion to Remand (doc. 13), the 

Magistrate Judge’s Report and Recommendation (doc. 28) recommending denial of said Motion, 

and plaintiffs’ Objection (doc. 31) to same.

I. Background.

On July 10, 2015, Magistrate Judge Cassady entered a Report and Recommendation in 

which he recommended that plaintiffs’ request to remand this action to the Circuit Court of 

Dallas County, Alabama, be denied. The Report and Recommendation concluded that federal 

subject matter jurisdiction properly lies pursuant to the so-called federal officer removal statute, 

which authorizes removal of any civil action against “any officer (or any person acting under that 

officer) of the United States or of any agency thereof, ... for or relating to any act under color of 

such office.” 28 U.S.C. § 1442(a)(1).

Plaintiffs timely filed an Objection (doc. 31) and an accompanying Brief (doc. 32), both 

of which have been taken under submission. By statute, the undersigned “shall make a de novo

determination of those portions of the report or specified proposed findings or recommendations 

to which objection is made.” 28 U.S.C. § 636(b)(1). The applicable legal standard expressly 

authorizes the district court to “accept, reject, or modify, in whole or in part, the findings or 

recommendations made by the magistrate judge.” Id. This Order proceeds in recognition of 

those principles.

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 1 of 10
-2-

II. Analysis.

To establish jurisdiction under § 1442(a)(1), a removing defendant must show that “(1) it 

is a ‘person’ within the meaning of the statute; (2) the plaintiff’s claims are based upon the 

defendant’s conduct ‘acting under’ a federal office; (3) it raises a colorable federal defense; and 

(4) there is a causal nexus between the claims and the conduct performed under color of a federal 

office.” Morgan v. Bill Vann Co., 2011 WL 6056083, *3 (S.D. Ala. Dec. 6, 2011). The Report

and Recommendation concluded that defendant, Central Alabama Electric Cooperative 

(“CAEC”), had satisfied each of these elements. In their Objection, plaintiffs take issue with 

those determinations as they relate to the second, third and fourth factors. Each will be 

considered in turn.

A. The ‘Acting Under’ Requirement.

To satisfy the “acting under” requirement, a removing defendant must show something 

more than its status as a regulated firm or its obligation to comply with federal law. See, e.g.,

Watson v. Philip Morris Companies, Inc., 551 U.S. 142, 153, 127 S.Ct. 2301, 168 L.Ed.2d 42 

(2007) (“a highly regulated firm cannot find a statutory basis for removal in the fact of federal 

regulation alone,” and “[a] private firm’s compliance (or noncompliance) with federal laws, 

rules, and regulations does not by itself fall within the scope of the statutory phrase ‘acting 

under’ a federal ‘official’”). Rather, this “acting under” element “must involve an effort to 

assist, or to help carry out, the duties or tasks of the federal superior.” Id. at 152. Also, 

“[c]ritical under the statute is to what extent defendants acted under federal direction at the time 

they were engaged in the conduct now being sued upon.” In re Methyl Tertiary Butyl Ether 

(“MTBE”) Products Liability Litigation, 488 F.3d 112, 124-25 (2nd Cir. 2007) (citation 

omitted).

1 Courts also look to whether the defendant “provides a service the federal government 

would itself otherwise have to provide.” In re Commonwealth’s Motion to Appoint Counsel 

Against or Directed to Defender Ass’n of Philadelphia, --- F.3d ----, 2015 WL 3634888, *8 (3rd

 1 See also Gordon v. Air & Liquid Systems Corp., 990 F. Supp.2d 311, 317 

(E.D.N.Y. 2014) (“An entity acts under a federal officer when it helps with or carries out that 

officer’s duty, often under close supervision.”); Morgan, 2011 WL 6056083, at *3 n.3 (“[t]he 

‘acting under’ element is satisfied if a defendant’s actions that led to the lawsuit were based on a 

federal officer’s direct orders or comprehensive and detailed regulations”) (citation and internal 

quotation marks omitted).

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 2 of 10
-3-

Cir. June 12, 2015); see also Ruppel v. CBS Corp., 701 F.3d 1176, 1181 (7th Cir. 2012) (“Cases 

in which the Supreme Court has approved removal involve defendants working hand-in-hand 

with the federal government to achieve a task that furthers an end of the federal government.”). 

In evaluating a § 1442(a)(1) removal, courts must remain cognizant that, in contrast to other 

removal provisions, “[t]he words ‘acting under’ are broad, and this Court has made clear that the 

statute must be ‘liberally construed.’” Watson, 551 U.S. at 147.

In their Objection, plaintiffs maintain that the “acting under” requirement of § 1442(a)(1) 

is not satisfied here because CAEC simply borrowed money and entered into a loan agreement 

with a federal agency, the Rural Utilities Service (“RUS”).2 This characterization does not fairly 

capture the nature of the relationship and interaction between RUS and CAEC, as portrayed by 

defendant. As the Report and Recommendation explains, review of the history of RUS and its 

predecessor, the Rural Electrification Administration (“REA”), reveals that CAEC and other 

rural electric cooperatives exist to provide a necessary public function conceived and directed by 

the United States. (See doc. 28, at 14-17.)3 In this regard, CAEC and other rural electric 

cooperatives assist the federal government by carrying out the rural electrification program, 

providing electric power supply and distribution services that RUS would otherwise have to 

undertake to provide itself. (Id.)

4

 2 “RUS makes loans and loan guarantees to finance the construction of electric 

distribution, transmission and generation facilities, including system improvements and 

replacements required to furnish and improve electric service in rural areas, and for demand side 

management, efficiency and energy conservation programs, and on grid and off grid renewable 

energy systems.” 7 C.F.R. § 1710.100.

3 One appellate court summarized the federal government’s conception and 

direction of this public function in the following terms: “In 1936 Congress, concerned with the 

fact that those then engaged in the business of generating electrical energy had failed to extend 

electric service to the farms of America, created the [REA]. ... Congress determined that the 

national interest would be served by subsidizing the rural user of electricity. ... True, the United 

States, when the loan is paid, no longer has the same direct interest in the borrowing distributor, 

but so long as the United States is interested in keeping the electric lamps lit on the farms, it is of 

necessity interested in the vehicles distributing the electricity which will light those lamps.” 

Public Utility Dist. No. 1 of Pend Oreille County v. United States, 417 F.2d 200, 201 (9th Cir. 

1969) (footnotes omitted). 

4 The Court will not reiterate all of the authorities identified by the Magistrate 

Judge in support of this proposition. Federal courts have long recognized, however, that the 

(Continued)

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 3 of 10
-4-

As an instrumentality of the United States furthering the federal government’s objective 

of providing economical electric power to farms that investor-owned utilities had forsaken, 

CAEC is much more than merely a borrower from a federal agency. Viewed in this light, CAEC

works hand in hand with RUS to assist that agency in facilitating rural electrification, providing 

services that otherwise RUS would have to perform in order to fulfill that objective. Given these 

specific considerations concerning the shared goals and interrelationship between CAEC and 

federal regulators, the Court rejects plaintiffs’ dire prediction that “if CAEC is ‘acting under’ the 

Rural Utilities Service, then anyone who borrows money from and enters a loan agreement with 

any regulated federal government agency is arguably ‘acting under’ a federal officer.” (Doc. 32, 

at 8.) Far from an ordinary, run-of-the-mill borrower/lender relationship, CAEC effectively

assists and helps RUS in fulfilling its statutory objective.

In addition to helping RUS to carry out its public function, CAEC operates under close 

supervision, direction and control of RUS. The Report and Recommendation correctly observed 

that RUS exercises considerable control over CAEC’s operations, pursuant to both detailed 

 

objective of the REA “was to provide electricity to those sparsely settled areas which the 

investor-owned utilities had not found it profitable to service” through the use of non-profit 

cooperatives owned by consumer members “who have been unable to obtain electricity from any 

other source.” Salt River Project Agr. Imp. and Power Dist. v. Federal Power Commission, 391 

F.2d 470, 473 (D.C. Cir. 1968). The REA was “an attempt, through rural electrification 

cooperatives, to bring economical electric power to the nine out of ten farms that were then 

without it.” Id. at 475. In the words of the old Fifth Circuit, “rural electric cooperatives are 

something more than public utilities; they are instrumentalities of the United States. They were 

chosen by Congress for the purpose of bringing abundant, low cost electric energy to rural 

America.” Alabama Power Co. v. Alabama Elec. Co-op., Inc., 394 F.2d 672, 677 (5th Cir. 1968) 

(emphasis added, and citation and internal quotation marks omitted); see also Fuchs v. Rural 

Elec. Convenience Co-op. Inc., 858 F.2d 1210, 1217 (7th Cir. 1988) (“Unlike private actors who 

seek to further their own interests and will exploit market factors to reap the highest possible 

profits, rural electric cooperatives are in some sense instrumentalities of the United States.”) 

(citations and internal quotation marks omitted). Plaintiffs themselves acknowledge that 

“[c]ourts have consistently held that the goal of the RE Act is not to protect the government’s 

investment, but rather to facilitate rural electrification.” (Doc. 16, at 4 (emphasis added).) 

That is precisely the point: RUS and CAEC work hand in hand to make rural electrification a 

reality, one which would not exist if the matter were left to traditional investor-owned utilities.

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 4 of 10
-5-

governing regulations and extensive contract provisions. (Doc. 28, at 6-8.)5 This level of control 

is significant to the “acting under” analysis. See, e.g., Carter v. Monsanto Co., 635 F. Supp.2d 

479, 488 (S.D. W.Va. 2009) (“a defendant acts under the control of a federal officer if the federal 

officer has ‘direct and detailed control’ over the activity”); Swanstrom v. Teledyne Continental 

Motors, Inc., 531 F. Supp.2d 1325, 1331 (S.D. Ala. 2008) (“To determine whether a defendant is 

acting under the direction of a federal officer depends on the detail and specificity of the federal 

direction of the defendant’s activities and whether the government exercises control over the 

defendant.”) (citations and internal quotation marks omitted). The Report and Recommendation 

properly relied on the unusually close and detailed regulatory and contractual relationship 

between CAEC and RUS and determining that this case is distinguishable from the ordinary 

situation where a defendant in a highly regulated industry or in a contractual relationship with 

the government does not thereby satisfy the “acting under” requirement of § 1442(a)(1).

 5 Review of the pertinent regulations readily reveals the extensive direction and 

close supervision that CAEC receives from RUS in performing its operations. See, e.g., 7 C.F.R. 

§ 1710.117 (requiring borrowers to comply with NEPA and “any other applicable Federal or 

state environmental laws and regulations”); 7 C.F.R. § 1710.120 (“Borrowers shall follow all 

RUS requirements regarding construction work plans, energy efficiency and conservation 

program work plans, construction standards, approved materials, construction and related 

contracts, inspection procedures, and bidding procedures.”); 7 C.F.R. § 1710.121 (“Borrowers 

are required to comply with certain requirements with respect to insurance and fidelity coverage 

....”); 7 C.F.R. § 1710.122 (“Borrowers are required to comply with certain regulations on 

nondiscrimination in program services and benefits and on equal employment opportunity ....”); 

7 C.F.R. § 1710.123 (“Borrowers are required to comply with certain requirements on debarment 

and suspension ....”); 7 C.F.R. § 1710.251 (“All distribution borrowers must maintain a current 

CWP approved by their board of directors covering all new construction, improvements, 

replacements, and retirements of distribution and transmission plant, and improvements 

replacements, and retirements of any generation plant.”); 7 C.F.R. § 1710.301 (requiring 

distribution borrowers to prepare and maintain financial forecasts covering at least ten years); 7 

C.F.R. § 1717.603(a) (“Prior written approval by RUS is required for a distribution borrower to 

extend or add to its electric system if the extension or addition will be financed by RUS.”); 7 

C.F.R. § 1717.605 (“All borrowers ... are required to comply with applicable RUS requirements 

with respect to system design, construction standards, and the use of RUS accepted materials.”); 

7 C.F.R. § 1717.608 (enumerating circumstances in which RUS approval is necessary for 

borrower’s contracts for construction, architecture, engineering, power supply, system 

management and maintenance); 7 C.F.R. § 1717.611(a) (“the selection of a certified public 

accountant by the borrower to prepare audited reports required by RUS remains subject to RUS

approval”).

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 5 of 10
-6-

In light of the foregoing considerations, and with due regard for the liberal construction 

that § 1442(a)(1) must be afforded and the breadth of its “acting under” language, the Court 

makes a de novo determination that plaintiffs’ claims in this action are based upon CAEC’s 

conduct “acting under” a federal officer. Plaintiffs’ objections to that aspect of the Report and 

Recommendation are overruled. 

B. The “Causal Nexus” Requirement.

To satisfy § 1442(a)(1), CAEC must also show a causal nexus between the acts that form 

the basis of the lawsuit and the defendant’s acts performed pursuant to the federal officer’s direct 

orders or to comprehensive regulations. See, e.g., Citrano v. John Crane-Houdaille, Inc., 1 F. 

Supp.3d 459, 469 (D. Md. 2014) (“To establish a causal connection, GE must show that the acts 

that form the basis for the state civil suit were performed pursuant to an officer’s direct orders or 

to comprehensive and detailed regulations.”) (citations, internal marks and footnote omitted); 

Cabalce v. VSE Corp., 922 F. Supp.2d 1113, 1122 (D. Haw. 2013) (“The ‘causal nexus’ between 

a federal officer’s directions and the private actor must be predicated on a showing that the acts 

forming the basis of the state suit were performed pursuant to an officer’s direct orders or 

comprehensive and detailed regulations.”) (citations and internal quotation marks omitted). “The 

causal nexus requirement does not establish a stringent standard .... The defendants in this case 

need only show that the federal direction created the circumstances underlying the liability.” 

Carter, 635 F. Supp.2d at 489; see also Morgan, 2011 WL 6056083, at *8 (similar).

The Report and Recommendation correctly found that the low hurdle of the “causal 

nexus” requirement has been overcome. (Doc. 28, at 17-18.) The gravamen of the Complaint is 

that CAEC violated Alabama law and contractual provisions by repeatedly and consistently 

failing to refund excess revenue to its members in the form of patronage refunds. Meanwhile,

CAEC’s filings identify federal direction by which RUS purportedly forbade CAEC (in its role 

as an instrumentality of the United States performing rural electrification services hand-in-hand 

with RUS) from distributing the very patronage capital refunds that plaintiffs demand in this 

lawsuit.6 Defendant’s position is that it “cannot make yearly cash refunds of all patronage 

 6 The pertinent regulation reads as follows: “If a distribution or power supply 

borrower is required by its loan documents to obtain prior approval from RUS before ... paying 

or determining to pay any patronage refunds, ... such approval is hereby given if ... [a]fter 

giving effect to the distribution, the borrower’s equity will be greater than or equal to 30 percent 

(Continued)

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 6 of 10
-7-

capital because of this detailed regulation and the loan contract.” (Doc. 15, at 12.) Such an 

allegation, if proven, readily establishes the requisite causal connection between the federal 

direction of CAEC (i.e., RUS’s purported restriction preventing CAEC from making the subject 

patronage capital refunds) and the acts forming the basis of this lawsuit (i.e., CAEC’s failure to 

make such refunds to plaintiffs). The Court concurs with the Report and Recommendation on 

this point, and overrules plaintiffs’ redundant objection to same.7

C. The “Colorable Federal Defense” Requirement.

Finally, plaintiffs challenge the portion of the Report and Recommendation determining 

that CAEC has raised a colorable federal defense for purposes of § 1442(a). The Magistrate 

Judge concluded that CAEC had presented a colorable defense of conflict preemption, based on 

the apparent collision between Alabama Code § 37-6-20 (which provides that electrical 

cooperatives must distribute all excess revenues to members as patronage refunds or general rate 

reductions) and 7 C.F.R. § 1717.617(a) (which forbids borrowers such as CAEC from making 

patronage refunds that result in the borrowers’ equity dropping below 30% of total assets). In 

their Objection, plaintiffs insist that this clash between federal and state provisions cannot give 

rise to a colorable preemption defense for CAEC in this action because “it is well established that 

the Rural Electrification Act does not preempt state regulation of electrical cooperatives.” (Doc. 

32, at 11.)

From the outset, it bears emphasis that CAEC need not prove its preemption defense in 

order for removal to be proper under § 1442(a)(1); rather, defendant’s burden is merely to show 

that such a federal defense is not without foundation and is made in good faith. “Because a core 

 

of its total assets.” 7 C.F.R. § 1717.617(a). And the contract between RUS and CAEC barred 

CAEC from making distributions to its members, without prior written approval of RUS, unless 

“after giving effect to any such Distribution, the Equity of [CAEC] shall be greater than or equal 

to 30% of its Total Assets.” (Doc. 1, Exh. B, at § 6.8.)

7 Plaintiffs’ objection as to the “causal nexus” requirement is that there can be no 

causal connection because CAEC “does not perform any official federal duties at all” (doc. 32, at 

9). This argument essentially rehashes plaintiffs’ “acting under” argument, which has already 

been considered and rejected in part A of this Order, supra. In other words, the Court having 

already determined that CAEC was acting under a federal officer in performing the challenged 

conduct, plaintiffs’ sole objection to the “causal nexus” element (i.e., that CAEC engaged in no 

federal duties) cannot carry the day.

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 7 of 10
-8-

purpose of the statute is to let the validity of the federal defense be tried in federal court, a 

defendant seeking removal need not virtually win his case, nor must his defense even be clearly 

sustainable on the facts.” Cuomo v. Crane Co., 771 F.3d 113, 115-16 (2nd Cir. 2014) (citations 

and internal marks omitted); see also Bell v. Thornburg, 743 F.3d 84, 89 (5th Cir. 2014) (“the 

officer seeking removal need not win his case by proving his federal defense before he can have 

it removed”) (citation and internal marks omitted); Magnin v. Teledyne Continental Motors, 91 

F.3d 1424, 1427 (11th Cir. 1996) (“That defense need only be plausible; its ultimate validity is 

not to be determined at the time of removal.”). “The inquiry on the motion to remand is purely 

jurisdictional, and neither the parties nor the district courts should be required to engage in factintensive motion practice, pre-discovery, to determine the threshold jurisdictional issue. A 

merely ‘colorable’ defense is sufficient ....” Cuomo, 771 F.3d at 116 (citation and internal 

quotation marks omitted).

The crux of plaintiffs’ objection to the Report and Recommendation’s “colorable federal 

defense” finding is their citation to three cases purportedly establishing that “the Rural 

Electrification Act does not preempt state regulation of electrical cooperatives, whether expressly 

or impliedly.” (Doc. 32, at 10.) The trouble with this argument is that the cited cases are neither 

as broad nor as on-point as plaintiffs would have them be. By plaintiffs’ own reckoning, the 

issue in their cited cases concerned Rural Electrification Act preemption of the states’ 

ratemaking authority. (Id.) But this is not a ratemaking case. The Complaint does not allege 

that CAEC unfairly or improperly raised rates (at the behest of RUS or otherwise). Moreover, 

plaintiffs identify no authorities and present no arguments that the non-preemption findings of 

these ratemaking cases would or should apply equally to the issue of patronage refunds. See 

Arkansas Elec. Co-op. Corp. v. Arkansas Public Service Com’n, 461 U.S. 375, 386, 103 S.Ct. 

1905, 76 L.Ed.2d 1 (1983) (“although the REA was expected to play a role in assisting the 

fledgling rural power cooperatives in setting their rate structures, it would do so within the 

constraints of existing state regulatory schemes”) (emphasis added); In re Cajun Elec. Power Coop., Inc., 109 F.3d 248, 255 (5th Cir. 1997) (“There are reasons to doubt that the Secretary is 

authorized to pre-empt state ratemaking power or to fix borrowers’ rates for any purpose.”) 

(emphasis added); Wabash Valley Power v. Rural Electrification Admin., 988 F.2d 1480, 1489 

(7th Cir. 1993) (“To argue that Congress did not intend for states to frustrate the goals of the RE 

Act falls short of establishing a statutory basis for the REA’s sweeping assumption of regulatory 

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 8 of 10
-9-

authority over ratemaking for cooperatives.”) (emphasis added). Perhaps the analysis is the 

same in both the patronage refund context and the ratemaking context. Perhaps it is not. Either 

way, the Court has no information before it at this time that would categorically negate the 

availability of any plausible preemption defense to CAEC on the question of patronage refunds, 

as a matter of law.

Additionally, the Supreme Court has expressly acknowledged, albeit in dicta, that a state 

agency “can make no regulation affecting rural power cooperatives which conflicts with 

particular regulations promulgated by the REA.” Arkansas Elec., 461 U.S. at 388. Is that not 

what we have here? Alabama Code § 37-6-20 appears to be in conflict with many applications 

of § 1717.617(a). Plaintiffs’ Objection does not address this point, which was central to the 

Magistrate Judge’s plausibility finding. (Doc. 28, at 21-22.) The Supreme Court also observed 

in dicta that, even in the rate-setting context, a state agency might set a rate that “may so 

seriously compromise important federal interests, including the ability of the [cooperative] to 

repay its loans, as to be implicitly pre-empted by the Rural Electrification Act.” Arkansas Elec., 

461 U.S. at 388. It is at least plausible that the forced patronage refunds mandated by the 

Alabama statute might so seriously compromise important federal interests as to be implicitly 

preempted by the Rural Electrification Act. Once again, plaintiffs’ Objection offers no rejoinder 

to this premise, on which the Report and Recommendation relied.

The Objection presented by plaintiffs is that, as a matter of settled federal law, the Rural 

Electrification Act does not expressly or implicitly preempt state regulation of electrical 

cooperatives. (Doc. 32, at 10-11.) Such a broad, sweeping statement is not supported by the text 

of the cases on which plaintiffs rely, nor do plaintiffs adequately address or respond to certain 

authorities and propositions lying at the bedrock of the Report and Recommendation on this 

point. Whatever merit CAEC’s preemption defense may or may not ultimately have, the Court is 

of the opinion that the modest hurdle created by the “colorable federal defense” requirement of § 

1442(a)(1) has been satisfied here.

III. Conclusion.

For all of the foregoing reasons, as well as those set forth in the Report and 

Recommendation, plaintiffs’ Objection to Magistrate Judge’s Recommendation (doc. 31) is 

overruled. The Report and Recommendation (doc. 28) issued on July 10, 2015 pursuant to 28 

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 9 of 10
-10-

U.S.C. § 636(b)(1)(B) is adopted as the opinion of this Court. Plaintiffs’ Motion to Remand 

(doc. 13) is denied.

DONE and ORDERED this 11th day of August, 2015.

s/ WILLIAM H. STEELE 

CHIEF UNITED STATES DISTRICT JUDGE

Case 2:15-cv-00129-WS-C Document 34 Filed 08/11/15 Page 10 of 10