Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-2_15-cv-00131/USCOURTS-alsd-2_15-cv-00131-0/pdf.json

Parties Involved:
Central Alabama Electric Cooperative
Defendant
William A. Davis
Plaintiff

Document Text:

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

NORTHERN DIVISION

WILLIAM A. DAVIS, :

Plaintiff, :

v. : CA 15-00131-CG-C

CENTRAL ALABAMA ELECTRIC :

COOPERATIVE,

:

Defendant.

REPORT AND RECOMMENDATION

This matter is before the undersigned, pursuant to 28 U.S.C. § 636(b)(1)(B), on the 

Plaintiff’s Motion to Remand this matter to the Circuit Court of Dallas County, 

Alabama, (doc. 8); the Defendant’s response (doc. 11); the Plaintiff’s reply (doc. 12); the 

supplemental submission of recent authority filed by the Defendant (doc. 14); and the 

supplemental submission filed by the Plaintiff (doc. 15). After careful consideration of 

the pleadings and the briefs of the parties, it is RECOMMENDED that the Plaintiff’s 

motion be DENIED. 

Background

The Plaintiff filed his Complaint (doc. 1-1) in the Circuit Court of Dallas County, 

Alabama, on January 26, 2015, asserting a putative class action against the Defendant, 

Central Alabama Electric Cooperative (“CAEC”), an electric cooperative that provides 

electricity to residents in several counties in central Alabama, including Dallas County. 

(Doc. 11 at 6.) The Plaintiff alleges that CAEC has violated section 37-6-20 of the 

Alabama Code1 by failing to distribute excess revenues to its members. (Doc. 1-1, ¶¶ 12, 

 1 Section 37-6-20 provides as follows:

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 1 of 23
2

14.) In Count I of the Complaint, the Plaintiff seeks declaratory, injunctive and 

equitable relief. (Id. at 7.) Specifically, he seeks

a. A permanent injunction requiring the Defendant to distribute 

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

reductions in accordance with Ala. Code § 37-6-20; and find that 

Defendant has failed to distribute excess revenue each year in 

violation of Ala. Code § 37-6-20.

b. An order awarding full restitution to Plaintiff and the putative 

Class members, together with costs, expenses, interest, and 

reasonable attorneys’ fees; and 

c. An order awarding Plaintiff and the putative Class members such 

other relief that the Court deems equitable under the 

circumstances.

(Doc. 1-1 at 7.) In Count II, the Plaintiff asserts a claim for breach of contract. (Id. at 7-

8.) The Plaintiff alleges that CAEC’s bylaws constitute a contract between CAEC and 

the Plaintiff, that those bylaws incorporate the statutory obligations of section 37-6-20, 

 Revenues of a cooperative for any fiscal year in excess of the amount thereof 

necessary to defray expenses of the cooperative and of the operation and 

maintenance of its facilities during such fiscal year; to pay interest and principal 

obligations of the cooperative coming due in such fiscal year; to finance or to 

provide a reserve for the financing of, the construction or acquisition by the 

cooperative of additional facilities to the extent determined by the board of 

trustees; to provide a reasonable reserve for working capital; to provide a reserve 

for the payment of indebtedness of the cooperative maturing more than one year 

after the date of the incurrence of such indebtedness in an amount not less than 

the total of the interest and principal payments in respect thereof required to be 

made during the next following fiscal year; and to provide a fund for education 

in cooperation and for the dissemination of information concerning the effective 

use of electric energy and other services made available by the cooperative shall 

be distributed by the cooperative to its members as, and in the manner, provided 

in the bylaws, either as patronage refunds prorated in accordance with the 

patronage of the cooperative by the respective members paid for during such 

fiscal year or by way of general rate reductions, or by combination of such 

methods. Nothing contained in this article shall be construed to prohibit the 

payment by a cooperative of all or any part of its indebtedness prior to the date 

when the same shall become due.

Ala. Code § 37-6-20 (1975).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 2 of 23
3

and that CAEC breached its contract with the Plaintiff when it failed to distribute its 

excess revenue. (Id.) In Count III (mislabeled as Count II), the Plaintiff asserts an unjust 

enrichment claim against CAEC; and in Count IV the Plaintiff requests an accounting to 

determine the amount CAEC owes to the Plaintiff and each member of the putative 

class. (Id. at 8-9.)

CAEC filed its Notice of Removal (doc. 1) in this Court on March 10, 2015,2

asserting that removal is proper pursuant to 28 U.S.C. § 1442(a)(1), which allows for the 

removal of actions against “any person acting under [an] officer[] of the United States or 

of any agency thereof[.]” Id. CAEC argues that, when determining whether to issue 

distributions to its members, it acted under the direction of the Rural Utilities Service 

(RUS),3 which prohibited CAEC “from making distributions of patronage capital to 

members if, after giving effect to the distribution, CAEC’s equity will fall below 30 

percent (30%) of its total assets.” (Doc. 1, ¶¶ 6-8.) The Plaintiff argues that section 

 2 The Notice of Removal was timely filed because CAEC was served with the 

Summons and Complaint on February 13, 2015, (see doc. 1 at 1; doc. 1-1 at 11). 28 U.S.C. § 

1446(b) (“The notice of removal of a civil action or proceeding shall be filed within 30 days after 

the receipt by the defendant, through service or otherwise, of a copy of the initial pleading 

setting forth the claim for relief upon which such action or proceeding is based[.]”). 

3 The RUS is a federal agency. See 7 U.S.C. § 6942.

The Secretary of Agriculture (Secretary) established the Rural Utilities Service 

(RUS) on October 20, 1994, pursuant to the Department of Agriculture 

Reorganization Act of 1994, (7 U.S.C. 6941 et seq.). RUS was assigned 

responsibility for administering electric and telecommunications loan and loan 

guarantee programs previously administered by [the Rural Electrification 

Administration (REA)], including programs of the Rural Telephone Bank (RTB), 

and water and waste loans and grants previously administered by the Rural 

Development Administration, along with other functions as the Secretary 

determined appropriate. The rights, interests, obligations, duties, and contracts 

previously vested in REA were transferred to, and vested in RUS.

7 C.F.R. § 1700.1(c).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 3 of 23
4

1442(a)(1) is not implicated in this case and, therefore, this matter should be remanded 

to the Circuit Court of Dallas County, Alabama. (Doc. 8.)4

Discussion

28 U.S.C. § 1442(a)(1), the Federal Officer Removal Statute, allows 

removal of any civil or criminal action against “[a]ny officer of the United 

States or any agency thereof, or person acting under him, for any act 

under color of such office.”5 The right of removal “is made absolute 

whenever a suit in a state court is for any act ‘under color’ of federal 

office, regardless of whether the suit could originally have been brought 

in a federal court.” Willingham v. Morgan, 395 U.S. 402, 406, 89 S. Ct. 1813, 

1816, 23 L. Ed. 2d 396 (1969). If the statutory prerequisites are satisfied, 

section 1442(a)(1) provides an independent federal jurisdictional basis.

Magnin v. Teledyne Cont’l Motors, 91 F.3d 1424, 1427 (11th Cir. 1996). Although a 

“federal defense generally does not qualify a case for removal[,]” actions falling under 

the federal officer removal statute “may be removed despite the nonfederal cast of the 

complaint[.]” Jefferson Cnty. v. Acker, 527 U.S. 423, 431, 119 S. Ct. 2069, 2075, 144 L. Ed. 

 4 The Plaintiff also argues in his Motion to Remand that this Court does not have 

federal question jurisdiction over this case. (Doc. 8 at 18-22.) Because CAEC made no assertion 

of federal question jurisdiction in its Notice of Removal, (see doc. 1), and acknowledged that fact 

in its response brief, (doc. 11 at 3 n.1 (“CAEC did not raise a federal question in its notice of 

removal, it raised only federal officer removal[.]”), the undersigned does not address the 

Plaintiff’s arguments regarding federal question jurisdiction herein. 

5 Section 1442(a) provides in pertinent part as follows:

(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:

(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. 

§ 1442(a).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 4 of 23
5

2d 408 (1999) (citation omitted). Furthermore, “[u]nlike certain other removal 

provisions, § 1442(a) must be liberally construed in favor of removal.” Morgan v. Bill 

Vann Co., Inc., Civil Action 11-0535-WS-B, 2011 WL 6056083, at *3 (S.D. Ala. Dec. 6, 2011) 

(citations omitted). 

To establish jurisdiction pursuant to section 1442(a)(1), CAEC “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, 2011 WL 6056083, at *3 (citing Feidt 

v. Owens Corning Fiberglas Corp., 153 F.3d 124, 127 (3rd Cir. 1998); Bennett v. MIS Corp.,

607 F.3d 1076, 1085 (6th Cir. 2010); Isaacson v. Dow Chemical Co., 517 F.3d 129, 135 (2nd 

Cir. 2008); In re Asbestos Litigation, 661 F. Supp. 2d 451, 453 (D. Del. 2009)) (internal 

quotation marks omitted); accord Swanstrom v. Teledyne Cont’l Motors, Inc., 531 F. Supp. 

2d 1325, 1331 (S.D. Ala. 2008) (citing Dahl v. R.J. Reynolds Tobacco Co., 478 F.3d 965, 967 

n.2 (8th Cir. 2007)).

The first requirement is not in dispute as it is clear that CAEC is a person within 

the meaning of section 1442(a)(1). (Doc. 8 at 7 n.3 (“Plaintiff concedes that CAEC meets 

the requirement of being a ‘person’ within the meaning of the statute.”).) This Court 

and most other courts have found that corporations are persons for purposes of that 

section. See Morgan, 2011 WL 6056083, at *3 n.3 (citing Bennett, 607 F.3d at 1085; 

Isaacson, 517 F.3d at 136; In re Asbestos, 661 F. Supp. 2d at 454); Swanstrom, 531 F. Supp. 

2d at 1331 (citing McMahon v. Presidential Airways, Inc., 410 F. Supp. 2d 1189, 1196 (M.D. 

Fla. 2006); Alsup v. 3-Day Blinds, Inc., 435 F. Supp. 2d 838, 845 n.3 (S.D. Ill. 2006); Jones v.

Three Rivers Elec. Coop., 166 F.R.D. 413, 414 (E.D. Mo. 1996)). CAEC is a cooperative nonprofit membership corporation organized pursuant to Ala. Code § 37-6-1, et seq. (Doc. 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 5 of 23
6

1-1, ¶ 1; doc. 1-2 at 2; doc. 11 at 6.) Thus, CAEC, as a corporation, is a person within the 

meaning of the statute. However, the Plaintiff contends CAEC has failed to show that 

the other three requirements are satisfied. Those requirements are discussed below.

Acting under a federal office

“[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.’” Morgan, 2011 WL 6056083, at *3 n.3 (quoting Hagen v. Benjamin Foster Co., 

739 F. Supp. 2d 770, 777 (E.D. Pa. 2010)). Although “[a] defendant’s actions taken 

pursuant to a comprehensive and detailed federal regulatory scheme may qualify the 

defendant as ‘acting under’ the direction of a federal officer[,] . . . [m]ere participation in 

a regulated industry is insufficient to support removal unless the challenged conduct is 

closely linked to detailed and specific regulations.” Swanstrom, 531 F. Supp. 2d at 1331-

32 (citing King v. Provident Bank, 428 F. Supp. 2d 1226, 1231 (M.D. Ala. 2006)) (internal 

quotation marks omitted).

CAEC argues that the “acting under” element is satisfied because it acted 

pursuant to the detailed regulatory framework imposed by the RUS, as well as the 

specific directives in CAEC’s contract with the RUS. Regarding the level of control 

imposed by the RUS, CAEC asserts that

[b]y virtue of its loan agreement with RUS, CAEC must comply with a 

series of regulations that touch on nearly every facet of CAEC’s 

operations. See 7 C.F.R. § 1700 to § 1730. This includes electrical 

engineering and architectural controls, construction contract requirements 

(7 C.F.R. §§ 1724 & 1726), and being subject to regular RUS auditing of the 

use of loan funds (7 C.F.R. § 1737). RUS must approve many of [CAEC]’s

contracts, and, under some circumstances, its selection of a general 

manager, board compensation, expenditures, and even the bank CAEC 

uses. 17 C.F.R. §§ 1717.600 et seq.

(Doc. 11 at 6-7.) Indeed, the RUS maintains significant control over CAEC. See, e.g., 7 

C.F.R. § 1717.605 (“All borrowers, regardless of the source of funding, are required to 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 6 of 23
7

comply with applicable RUS requirements with respect to system design, construction 

standards, and the use of RUS accepted materials.”); § 1717.608 (“Power supply 

contracts . . . are deemed approved if they have a term of 2 years or less.”); § 1717.609 

(“If a borrower is in default with respect to any provision of its loan documents or any 

other agreement with RUS: (1) Such borrower, if directed in writing by RUS, shall 

replace its general manager within 30 days after the date of such written notice; and (2) 

Such borrower shall not hire a general manager without prior written approval by 

RUS.”).

Additional restrictions and controls are set forth in the “RUS LOAN

CONTRACT” (“the Contract”) executed by CAEC and the United States on February 2, 

2009. (Doc. 1-2 at 3.) Most significantly, the Contract provides as follows regarding 

distributions to CAEC’s members:

Section 6.8 Limitation on Distributions.

Without the prior written approval of RUS, [CAEC] shall not in any 

calendar year make any Distributions (exclusive of any Distributions to 

the estates of deceased natural patrons) to its members, stockholders or 

consumers except as follows:

(a) Equity above 30%. If, after giving effect to any such Distribution, 

the Equity of [CAEC] shall be greater than or equal to 30% of its 

Total Assets; or

(b) Equity above 20%. If, after giving effect to any such Distribution, 

the Equity of [CAEC] shall be greater than or equal to 20% of its 

Total Assets and the aggregate of all Distributions made during the 

calendar year when added to such Distribution shall be less than or 

equal to 25% of the prior year’s margins.

Provided however, that in no event shall [CAEC] make any Distributions

if there is unpaid when due any installment of principal of (premium, if 

any) or interest on any of its payment obligations secured by the 

Mortgage, if the Borrower is otherwise in default hereunder or if, after 

giving effect to any such Distribution, the Borrower’s current and accrued 

assets would be less than its current and accrued liabilities.

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 7 of 23
8

(Id., § 6.8.) Furthermore, 7 C.F.R. § 1717.617 provides the following limitation on 

distributions:

If a distribution or power supply borrower is required by its loan 

documents to obtain prior approval from RUS before declaring or paying 

any dividends, paying or determining to pay any patronage refunds, or 

retiring any patronage capital, or making any other cash distributions, 

such approval is hereby given if the following conditions are met:

(a) After giving effect to the distribution, the borrower's equity will be 

greater than or equal to 30 percent of its total assets;

(b) The borrower is current on all payments due on all notes secured 

under the mortgage;

(c) The borrower is not otherwise in default under its loan documents; 

and

(d) After giving effect to the distribution, the borrower's current and 

accrued assets will be not less than its current and accrued 

liabilities.

7 C.F.R. § 1717.617.

CAEC contends that the excess revenue or patronage capital that the Plaintiff

claims should have been distributed to its members, (doc. 1-1, ¶ 2), was retained by 

CAEC to comply with the RUS’s requirement that CAEC maintain equity above 30%. 

(Doc. 1, ¶ 7; doc. 11 at 11-12.) Thus, CAEC argues that it acted under the RUS when it

retained those funds. (Doc. 11 at 11-12.) The undersigned agrees. CAEC has 

adequately shown for purposes of removal that it acted pursuant to the RUS’s detailed 

regulatory framework and the specific requirements in the Contract. CAEC is not 

merely conducting business within a regulated industry. The RUS exercises 

considerable control over CAEC through the regulations and contractual provisions 

governing CAEC’s operations. See supra; see also Kritner v. Arab Elec. Coop., No. 4:15-CV341-VEH, 2015 WL 2354414, at *4 (N.D. Ala. May 14, 2015) (concluding that an electric 

cooperative acted under a federal officer when it acted pursuant to its contract with the 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 8 of 23
9

Tennessee Valley Authority); Lake v. Marshall-DeKalb Elec. Coop., No. 4:15-CV-339-VEH, 

2015 WL 2354384, at *4 (N.D. Ala. May 14, 2015) (same).

6

 More importantly, the RUS 

directly controls CAEC’s distributions to its members by placing specific and detailed 

limitations on said distributions. (Doc. 1-2, § 6.8.)

7

In Watson v. Philip Morris Companies, Inc., 551 U.S. 142, 154, 127 S. Ct. 2301, 2308, 

168 L. Ed. 2d 42 (2007), the Supreme Court provided guidance to courts applying the 

federal officer removal statute to situations where corporations maintain a contractual 

relationship with the United States. In Watson, the Supreme Court held that a cigarette 

manufacturer, which was not acting pursuant to a contract with the United States, did 

not act under a federal officer merely by complying with federal regulations. Id. at 153

(“The upshot is that a highly regulated firm cannot find a statutory basis for removal in 

the fact of federal regulation alone. 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.’”). The Court stated that, for a private 

 6 In Kritner and Lake, the Northern District of Alabama treated the acting under 

and causal nexus prongs as a single requirement. See Kritner, 2015 WL 2354414, at *2 n.2; Lake, 

2015 WL 2354384, at *2 n.3.

7 At the time of the hearing on Plaintiff’s motion to remand, Plaintiff’s counsel 

argued that CAEC’s showing was insufficient because CAEC had not produced an affidavit 

from a representative of the RUS confirming that the RUS prohibited CAEC from distributing 

the excess revenues at issue. However, CAEC’s burden is not so heavy as to require the 

evidentiary showing demanded by the Plaintiff. See Magnin, 91 F.3d at 1428-29 (concluding that 

the defendant established the “acting under” requirement where the defendant did not produce 

any affidavits or other evidentiary submissions); Morgan, 2011 WL 6056083, at *4 (“[F]ederal 

courts have routinely allowed defendants removing on the basis of federal officer jurisdiction . . 

. to rely on factual allegations in the notice of removal untethered to specific evidentiary 

proof.”); Holton v. Blue Cross & Blue Shield of S.C., 56 F. Supp. 2d 1347, 1351-52 (M.D. Ala. 1999) 

(finding that Blue Cross and Blue Shield established that it was acting under a federal office 

without making an evidentiary showing). Here, CAEC’s showing is sufficient based on the 

Contract (doc. 1-2), the regulatory framework discussed above, and CAEC’s representations in 

its notice of removal (doc. 1) and its response brief (doc. 11).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 9 of 23
10

person, “‘acting under’ must involve an effort to assist, or to help carry out, the duties 

or tasks of the federal superior.” Id. at 152 (emphasis and citation omitted).8 The Court 

distinguished the cigarette manufacturer’s actions from those of private firms acting 

under a contract with the United States. Id. at 153-54. Specifically, the Court stated as 

follows: 

[The defendant] asks why, if close supervision is sufficient to turn a 

private contractor into a private firm “acting under” a Government 

“agency” or “officer,” does it not do the same when a company is 

subjected to intense regulation.

The answer to this question lies in the fact that the private 

contractor in such cases is helping the Government to produce an item 

that it needs. The assistance that private contractors provide federal 

officers goes beyond simple compliance with the law and helps officers 

fulfill other basic governmental tasks. In the context of Winters [v. Diamond 

Shamrock Chemical Co., 149 F.3d 387 (1998)], for example, Dow Chemical 

fulfilled the terms of a contractual agreement by providing the 

Government with a product that it used to help conduct a war. Moreover, 

at least arguably, Dow performed a job that, in the absence of a contract 

with a private firm, the Government itself would have had to perform.

These circumstances distinguish Winters from this case. For present 

purposes that distinction is sufficient. And we need not further examine 

here (a case where private contracting is not at issue) whether and when 

 8 As the Supreme Court explained,

the help or assistance necessary to bring a private person within the scope of the 

statute does not include simply complying with the law. We recognize that 

sometimes an English speaker might say that one who complies with the law 

“helps” or “assists” governmental law enforcement. Taxpayers who fill out 

complex federal tax forms, airline passengers who obey federal regulations 

prohibiting smoking, for that matter well-behaved federal prisoners, all “help” or 

“assist” federal law enforcement authorities in some sense of those words. But 

that is not the sense of “help” or “assist” that can bring a private action within 

the scope of this statute. That is in part a matter of language. One would usually 

describe the behavior of the taxpayers, airline passengers, and prisoners we have 

described as compliance with the law (or acquiescence to an order), not as “acting 

under” a federal official who is giving an order or enforcing the law. 

Watson, 551 U.S. at 152 (citation omitted).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 10 of 23
11

particular circumstances may enable private contractors to invoke the 

statute.

Id. Thus, “[w]hile the [Supreme] Court has not precisely determined ‘whether and 

when particular circumstances may enable private contractors to invoke the statute,’ . . . 

it has noted with approval that ‘lower courts have held that Government contractors 

fall within the terms of the federal officer removal statute, at least when the relationship 

between the contractor and the Government is an unusually close one involving 

detailed regulation, monitoring, or supervision.’” In re Commonwealth’s Motion to 

Appoint Counsel Against or Directed to Defender Ass’n of Philadelphia, --- F.3d ----, 2015 WL 

3634888, at *7-8 (3d Cir. 2015) (quoting Watson, 551 U.S. at 153-54).

Subsequently, several courts considering whether the federal officer removal 

statute applies to private contractors have applied the principles discussed in Watson. 

The Second and Seventh Circuits have applied the Supreme Court’s reasoning in 

Watson to determine that military contractors fall within the scope of the statute. Ruppel 

v. CBS Corp., 701 F.3d 1176, 1181 (7th Cir. 2012) (concluding that a corporation that

supplied the Navy with turbines satisfied the acting under requirement); Isaacson, 517 

F.3d at 136-37 (concluding that a chemical company providing the United States 

military with Agent Orange satisfied the acting under requirement). Likewise, the 

Third Circuit applied the principles in Watson when determining that the Federal 

Community Defender, a private entity “that represents indigent defendants charged 

with federal crimes,”9 acted under a federal officer. In re Commonwealth’s Motion, 2015 

WL 3634888, at *2, 7-9. The Fifth Circuit concluded that a standing bankruptcy trustee

 9 “The Federal Community Defender is a non-profit entity created through the 

Criminal Justice Act that is delegated the authority to provide representation under the CJA and 

[18 U.S.C.] § 3599.” In re Commonwealth’s Motion, 2015 WL 3634888, at *8.

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 11 of 23
12

acted under a federal officer. Bell v. Thornburg, 743 F.3d 84, 88-89 (5th Cir. 2014) 

(“[Standing trustees] ‘assist’ and ‘carry out’ the duties and tasks of their federal

superiors. Thus, we conclude that [the defendant] ‘act[s] under’ officers of the United 

States and fall[s] within § 1442(a)(1)'s purview.”). The Sixth Circuit held that a private 

mold remediation firm removing mold from an airport acted under a federal officer. 

Bennett, 607 F.3d at 1086-88 (“[W]e conclude that the contractual ‘relationship between

[MIS] and [the FAA] [was] an unusually close one[,] involving detailed regulation, 

monitoring, [and] supervision.’ For these reasons, we conclude that MIS has satisfied § 

1442(a)(1)'s ‘acting under’ requirement.” (quoting Watson, 551 U.S. at 148, 153)). The 

Eighth Circuit held that health insurance companies administering health care plans 

covered by the Federal Employees Health Benefits Act (FEHBA) acted under a federal 

officer. Jacks v. Meridian Res. Co, LLC, 701 F.3d 1224, 1230-32 (8th Cir. 2012) (“We thus 

conclude that FEHBA program carriers contracting with the federal government to 

provide health care insurance for federal employees are not unrelated and wholly 

separate business entities merely doing business in a highly regulated arena, but rather 

conduct business under the delegation of the federal government.”).

The Eleventh Circuit has not yet discussed the Supreme Court’s analysis in 

Watson. However, prior to Watson—and seven years before the Eighth Circuit’s 

decision in Jacks—, the Eleventh Circuit concluded in an unpublished opinion that “[a] 

health plan insurer contracting with a government agency under a federal benefits 

program is considered a ‘person acting under’ a federal officer.” Anesthesiology 

Associates of Tallahassee, Fla., P.A. v. Blue Cross Blue Shield of Fla., Inc., No. 03-15664, 2005 

WL 6717869, at *2 (Mar. 18, 2005) (per curiam) (unpublished) (citing Peterson v. Blue 

Cross/Blue Shield of Tex., 508 F.2d 55, 56–58 (5th Cir. 1975)). In that case, the plaintiff 

brought a claim against Blue Cross Blue Shield seeking reimbursement for services 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 12 of 23
13

under health benefit plans that were administered by Blue Cross Blue Shield and 

covered by the FEHBA. Id. at *1. In determining that Blue Cross Blue Shield had 

properly removed the matter under the federal officer removal statute, the Eleventh 

Circuit noted that “FEHBA gives OPM [the U.S. Office of Personnel Management] the 

authority to administer the program by contracting with qualified private carriers . . . , 

by distributing information on the available plans to eligible employees, by 

promulgating necessary regulations, and by interpreting the plans to determine the 

carrier's liability in an individual case.” Id. (citations and internal quotation marks 

omitted).10 The Eleventh Circuit’s decision in Anesthesiology Associates is consistent with 

the principles discussed in Watson. See Jacks, 701 F.3d at 1233-35 (concluding that Blue 

Cross Blue Shield, “and other similar entities, help the government fulfill the basic task 

of establishing a health benefits program for federal employees”); see id. (discussing 

Watson and citing Anesthesiology Associates). Thus, in determining whether CAEC acted 

under the RUS, the undersigned considers Anesthesiology Associates in conjunction with 

Watson and the cases from our sister circuits cited above.

 10 In Peterson, the case relied upon by the Eleventh Circuit in Anesthesiology 

Associates, the former Fifth Circuit held that Blue Cross Blue Shield “act[ed] within the purview 

of 1442(a)(1)” and properly removed the matter where Blue Cross Blue Shield was operating 

under Medicare pursuant to a contract with the United States. Peterson, 508 F.2d at 57-58. In 

Holton v. Blue Cross & Blue Shield of S.C., the Middle District of Alabama reached a similar 

conclusion finding that Blue Cross and Blue Shield acted under a federal officer for purposes of 

the federal officer removal statute when it acted pursuant to a contract with the federal 

government to administer a health care program through which medical care was provided to 

“dependents of members of the uniformed services.” Holton, 56 F. Supp. 2d at 1351-52. 

Subsequently, in Ala. Dental Ass’n v. Blue Cross & Blue Shield of Ala., Inc., the Middle District 

followed its decision in Holton, as well as the Eleventh Circuit’s decision in Anesthesiology 

Associates, in finding that Blue Cross Blue Shield had acted under a federal officer when it acted 

in compliance with the directives of the OPM pursuant to the FEHBA. Alabama Dental, No. 205-

CV-1230-MEF, 2007 WL 25488, at *7-8 (M.D. Ala. Jan. 3, 2007).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 13 of 23
14

Here, CAEC is achieving an important service—rural electrification—intended

by the United States and facilitated through the RUS. The REA, the precursor to the 

RUS, was established

to ‘initiate, formulate, administer, and supervise a program of approved 

projects with respect to the generation, transmission, and distribution of 

electric energy in rural areas.’ The objective was to provide electricity to 

those sparsely settled areas which the investor-owned utilities had not 

found it profitable to service. To this end [the] REA makes long-term lowinterest loans to approved non-profit cooperatives organized and owned 

by their consumer members, usually farmers, who have been unable to 

obtain electricity from any other source.

Salt River Project Agric. Improvement and Power Dist. v. Fed. Power Comm’n, 391 F.2d 470, 

473 (D.C. Cir. 1968) (citing Executive Order No. 7037, issued May 11, 1935, and noting 

that “[t]he Rural Electrification Act, [which] provid[ed] a statutory basis for the 

Administration[,] was enacted the following year. 7 U.S.C. §§ 901 et seq. (1964 ed.)”); id.

at 475 (“For, in contrast to the Federal Power Act, the Rural Electrification Act which 

was conceived contemporaneously was not the response to a need for reform in an 

immense and corrupted industry, but rather constituted simply an attempt, through 

rural electrification cooperatives, to bring economical electric power to the nine out of 

ten farms that were then without it.” (footnote omitted)).11 Significantly, the former 

 11 Additionally, in Salt River Project, the D.C. Circuit discussed the level of control 

employed by the REA to facilitate rural electrification. The D.C. Circuit explained that

[the] REA exercises extensive supervision over the planning, construction and 

operation of the facilities it finances. The REA borrower as a condition of 

securing its loan must secure REA approval of its manager, engineer and 

counsel; of its construction contracts and contracts for purchase of materials, 

equipment and supplies; of its contracts for purchase and sale of power; of its 

insurance coverage, its purchase of land, and so on. Moreover, [the] REA's 

concern is not only with providing high standards of electric service and 

guaranteeing its loan, but also with reducing the cost of service to the 

cooperative's consumers. It furnishes retail rate schedules designed for rural use 

and assists distribution cooperatives in obtaining electric energy at reasonable 

costs.

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 14 of 23
15

Fifth Circuit has stated that “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.” Ala. 

Power Co. v. Ala. Elec. Coop., Inc., 394 F.2d 672, 677 (5th Cir. 1968) (citations and internal 

quotation marks omitted);12 see Greensboro Lumber Co. v. Ga. Power Co., 643 F. Supp. 1345, 

1358-59 (N.D. Ga. 1986) (“[The defendant] owes its existence to the Rural Electrification 

Administration (“REA”) in that it is principally financed by loans and loan guarantees 

of the United States, acting through the REA. . . . The objectives of the REA Act were to 

extend the benefits of economical central station service to the numerous farms in 

sparsely-settled areas in which investor-owned utilities had not found it profitable to 

provide service.” (citations omitted)), aff’d, 844 F.2d 1538 (11th Cir. 1988).13

 Salt River Project, 391 F.2d at 473.

12 The Eleventh Circuit, in Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) 

(en banc), adopted as binding precedent all decisions of the former Fifth Circuit issued before 

October 1, 1981. Id. at 1209.

13 In Alabama Power, the former Fifth Circuit held that Alabama Electric 

Cooperative, Inc., a rural electric cooperative, was immune from anti-trust claims arising from 

its contract with distribution cooperatives where the contract was required by the REA and 

where the Administrator of the REA was immune from such claims. Alabama Power, 394 F.2d at 

676-77 (“The making of loans by the Administrator necessarily includes the existence and ability 

of borrowers to whom such loans can be made. If the security which the Administrator requires 

can be undercut and the borrower mulcted in treble damages for complying with the condition 

imposed by the Administrator for making the loan, then the functioning of the Act will be 

crippled, if not defeated. To avoid frustrating the intent of Congress, it must follow that in cases 

where the Administrator is immune from suit under the antitrust laws, the borrower is likewise 

immune.”). In Greensboro Lumber, the Eleventh Circuit followed Alabama Power and concluded 

that electric cooperatives in Georgia were immune from antitrust claims arising from the same 

types of contracts at issue in Alabama Power. See Greensboro Lumber, 844 F.2d at 1540-42; see also 

United States v. Coosa Valley Elec. Coop., Inc., Civ. A. No. 85-C-0515-S, 1986 WL 11270, at *5-6 

(N.D. Ala. Feb. 5, 1986) (“[T]o deny antitrust immunity [to Alabama Electric Cooperative, a 

cooperative organized under Ala. Code § 37-6-1, et seq,] would undermine the operation of the 

Rural Electrification Act which specifically authorizes the Administrator to obtain reasonably 

adequate security for loans made pursuant to the Act. We therefore conclude that implied 

repeal of the antitrust laws with respect to the REA approved power supply contracts between 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 15 of 23
16

CAEC was formed in 1938 and began providing rural communities with 

electricity in 1939, after receiving a loan from the REA.14 CAEC states that “it has 

borrowed money from the United States . . . since its inception,” (doc. 11 at 6), and, as 

discussed above, it has been subject to extensive supervision and regulation by the 

federal government. CAEC is not merely complying with the law like the cigarette 

manufacturer in Watson. Watson, 551 U.S. at 152-53. Rather, it exists to provide a 

necessary function for the public as conceived and directed by the United States.15 In 

this respect, CAEC is assisting the federal government with its rural electrification 

program. See, e.g., Alabama Power, 394 F.2d at 677. The United States need not perform 

that service directly because CAEC, and other rural electric cooperatives, fill that void. 

As such, this case falls within the category of cases found by the Supreme Court to be 

properly removed under the federal officer removal statute. See Watson, 551 U.S. at 153-

54.

For the reasons stated above, the undersigned finds that CAEC has acted under 

the RUS for purposes of federal officer removal.

Causal nexus

To satisfy the causal nexus requirement CAEC must establish a causal connection 

between the acts it performed under color of federal office and the claims asserted by

 [Alabama Electric Cooperative] and its member cooperatives is necessary to make the Rural 

Electrification program work.” (footnote and citation omitted)).

14 See Central Alabama Electric Cooperative: Our Story, http://caec.coop/aboutcaec/our-story/ (last visited July 10, 2015).

15 Arguably, CAEC is more closely tied to the federal government than Blue Cross 

Blue Shield in Jacks and Anesthesiology Associates. Although Blue Cross Blue Shield serves the 

federal government pursuant to its contractual agreements, it was not created to fulfill a federal 

program. As the Northern District of Georgia commented, rural electric cooperatives owe their 

existence to the federal government. Greensboro Lumber, 643 F. Supp. at 1358.

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 16 of 23
17

the Plaintiff. Magnin, 91 F.3d at 1427; Morgan, 2011 WL 6056083, at *8. “The hurdle 

erected by this requirement is quite low, as ‘[t]he statute does not require that the 

prosecution must be for the very acts which the officer admits to have been done by 

him under federal authority.’” Isaacson, 517 F.3d at 137-38 (quoting Maryland v. Soper 

(No. 1), 270 U.S. 9, 33, 46 S. Ct. 185, 70 L. Ed. 449 (1926)); see id. at 138 (stating that the 

causal connection requirement must be afforded a broad interpretation); Morgan, 2011 

WL 6056083, at *8 (“[T]he causal nexus requirement does not establish a stringent 

standard.” (citations and internal quotation marks omitted)); Kritner v. Arab Elec. Coop., 

No. 4:15-CV-341-VEH, 2015 WL 2354414, at *4 (N.D. Ala. May 14, 2015) (“This 

requirement is ‘quite low.’” (citation omitted)). 

CAEC easily satisfies this requirement because the conduct at issue, the failure to 

distribute revenues to members of the cooperative, was performed under color of 

federal office. As discussed above, the RUS controlled distributions, and CAEC claims 

that the specific distributions demanded by the Plaintiff were withheld pursuant to the 

RUS’s requirement that it maintain equity in an amount greater than or equal to 30% of 

its total assets. (See doc. 1, ¶¶ 7-8.) The Plaintiff argues that CAEC has not 

demonstrated a causal nexus because CAEC has not fully shown why it cannot make 

the distributions demanded by the Plaintiff without violating contractual provisions 

and RUS regulations. (Doc. 8 at 13.) The Plaintiff argues that CAEC needed to disclose

the value of its assets and explain how distributions of capital would cause its equity to 

fall below 30% of its total assets. (Id.)

Again, CAEC’s burden is not so onerous. See Acker, 527 U.S. at 432 (“To choose 

between those readings of the Ordinance is to decide the merits of this case. Just as 

requiring a clearly sustainable defense rather than a colorable defense would defeat the

purpose of the removal statute, . . . so would demanding an airtight case on the merits 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 17 of 23
18

in order to show the required causal connection. Accordingly, we credit the 

[defendants’] theory of the case for purposes of both elements of our jurisdictional 

inquiry and conclude that the [defendants] have made an adequate threshold showing 

that the suit is “for a[n] act under color of office.” (citations and internal quotation 

marks omitted)); Morgan, 2011 WL 6056083, at *8 (noting the low causal nexus 

standard); see also supra note 6. CAEC has satisfied the causal nexus requirement 

through its representations in the notice of removal and its contract with the United 

States. 

Colorable federal defense

Lastly, the undersigned considers whether CAEC has raised a colorable federal 

defense. “In construing the colorable federal defense requirement, [the Supreme Court] 

ha[s] rejected a ‘narrow, grudging interpretation’ of the statute.” Acker, 527 U.S. at 431 

(quoting Willingham, 395 U.S. at 407). “[The federal] defense need only be plausible; its 

ultimate validity is not to be determined at the time of removal.” Magnin, 91 F.3d at 

1427; see Acker, 527 U.S. at 431 (“We therefore do not require the officer virtually to ‘win 

his case before he can have it removed.’” (quoting Willingham, 395 U.S. at 407)); id.

(concluding that the defendants asserted a colorable federal defense even though that 

defense was ultimately rejected). 

Although different courts have couched the quantum of proof necessary 

to establish a “colorable federal defense” differently, they have 

overwhelmingly framed it as a modest burden for removing defendants. 

See, e.g., Hagen, 739 F. Supp. 2d at 783 (“[T]he Court concludes that a 

defense is colorable for purposes of determining jurisdiction under Section 

1442(a)(1) if the defendant asserting it identifies facts which, viewed in the 

light most favorable to the defendant, would establish a complete defense 

at trial.”); Corley [v. Long-Lewis, Inc.], 688 F. Supp. 2d [1315,] 1332 [(N.D. 

Ala. 2010)] (to satisfy “colorable defense” requirement, “[a]ll a removing 

defendant needs to do is to make a showing that his federal defense is not 

without foundation and made in good faith.”) (citation and internal 

quotation marks omitted); McGee [v. Arkel Int’l, LLC], 716 F. Supp. 2d

[572,] 578 [(S.D. Tex. 2009)] (to satisfy this prong, the removing defendant 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 18 of 23
19

“need not prove the asserted defense, but need only articulate its 

‘colorable’ applicability to the plaintiff's claims”).

Morgan, 2011 WL 6056083, at *5.

CAEC fulfilled the colorable federal defense requirement by asserting the 

defense of conflict preemption. (Doc. 11 at 13-14.) “Conflict preemption . . . arises in 

instances where (1) ‘compliance with both federal and state regulations is a physical 

impossibility,’ or (2) ‘the challenged state law stands as an obstacle to the 

accomplishment and execution of the full purposes and objectives of Congress.’” 

Fresenius Med. Care Holdings, Inc. v. Tucker, 704 F.3d 935, 939 (11th Cir. 2013) (quoting 

Arizona v. United States, --- U.S. ----, 132 S. Ct. 2492, 2501, 183 L. Ed. 2d 351 (2012)). As 

discussed above, CAEC argues that Ala. Code § 37-6-20, the state law that governs

Plaintiff’s claims and requires distribution of excess revenue, conflicts with the Rural 

Electrification Act (“RE Act”) and 7 C.F.R. § 1717.617, which prohibits CAEC from 

making distributions to its members unless its “equity will be greater than or equal to 

30 percent of its total assets[,]” id. CAEC also argues that the state law, as construed by 

the Plaintiff, “create[s] an obstacle to and frustrate[s] the purpose of the [RE] Act [and]

[] § 1717.617.” (Doc. 11 at 14.)

The Plaintiff argues that CAEC cannot assert a federal preemption defense 

because the Fifth and Seventh Circuits have rejected preemption defenses asserted by 

rural electric cooperatives that argued that state rate-setting regulations were 

preempted by federal law. (Doc. 8 at 16-17 (citing In re Cajun Elec. Power Coop., Inc., 109 

F.3d 248 (5th Cir. 1997); Wabash Valley Power Ass’n, Inc. v. Rural Elec. Power Coop., Inc., 

988 F.2d 1480 (7th Cir. 1993); doc. 12 at 10-11 (same)).) The Plaintiff contends that those 

two cases “signal the federal judiciary’s reluctance to find federal preemption of state 

law concerning electric cooperatives.” (Doc. 8 at 17.) However, even if the Fifth and 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 19 of 23
20

Seventh Circuits have signaled their reluctance to find preemption in such cases, those 

circuits certainly have not foreclosed CAEC’s attempt to assert a plausible preemption 

defense in this Court based on the facts in this case.

16 As stated above, CAEC need not 

demonstrate the ultimate validity of its preemption defense at this juncture. See 

Magnin, 91 F.3d at 1427; City of Cookeville v. Upper Cumberland Elec. Membership Corp., 484 

F.3d 380, 391 (6th Cir. 2007) (concluding that the RUS satisfied the colorable federal 

defense requirement where it asserted that the plaintiff’s claim was preempted by the 

RE Act).

Furthermore, in Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm’n, 461 U.S. 375, 103 

S. Ct. 1905, 76 L. Ed. 2d 1 (1983), the Supreme Court confirmed that “[a state regulatory 

body] can make no regulation affecting rural power cooperatives which conflicts with 

particular regulations promulgated by the REA.” Arkansas Electric, 461 U.S. at 389.

Additionally, while the Supreme Court ultimately held that Arkansas’ state regulatory 

jurisdiction over wholesale utility rates was not preempted by the RE Act, the Court left 

open the possibility that certain state regulations could be implicitly preempted by the 

RE Act if they “seriously compromise[d] important federal interests.” Id. (“[E]ven 

without an explicit statement from the REA, a particular rate set by [a state regulatory 

body] may so seriously compromise important federal interests, including the ability of 

[a rural electric cooperative] to repay its loans, as to be implicitly preempted by the [RE] 

Act.”). Subsequently, the Fifth Circuit concluded that a state law condemnation 

 16 The undersigned notes that in Cajun Electric and Wabash Valley the courts did not 

address the federal officer removal statute and did not make any determination as to whether 

the preemption defenses asserted were plausible. See Cajun Electric, 109 F.3d at 253-58; Wabash 

Valley, 988 F.2d at 1486-91. The undersigned also notes that the Fifth Circuit determined in 

Morgan City v. S. La. Elec. Coop. Ass’n that a state law proceeding affecting a rural electric 

cooperative was preempted by federal law. 31 F.3d 319, 322-24 (5th Cir. 1994).

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 20 of 23
21

proceeding involving a rural electric cooperative was preempted by federal law in light 

of the federal purpose expressed through the RE Act. Morgan City, 31 F.3d at 322-24

(“Were [the plaintiff’s] expropriation action allowed to stand, it would stand as an 

obstacle to the repayment of federal loans, to the financial viability of federally financed 

electricity cooperatives, and ultimately, to the maintenance of electricity service to rural 

areas. . . . Because we find that the proposed state-law condemnation would frustrate 

the federal purpose of providing low-cost, reliable electric service to rural areas, the 

state-law condemnation proceeding is preempted under the Supremacy Clause.” 

(citation and internal quotation marks omitted)).

The Plaintiff also argues that CAEC has not established its preemption defense 

because it has not shown that it is impossible to comply with both the federal and state 

laws at issue. (Doc. 8 at 15-16.) Again, CAEC need not prove its preemption defense at 

this time. See Einhorn v. CarePlus Health Plans, Inc., 43 F. Supp. 3d 1268, 1270 (S.D. Fla. 

2014) (“[The defendant] contends that at all times it was acting pursuant to [federal]

rules and regulations . . . [and] that it has several defenses based on federal law, 

including . . . federal preemption . . . . ‘The extent to which federal law imposes certain 

requirements upon [the defendant] . . . and whether [federal law] may afford [it] any 

corresponding protection . . . from . . . liability, are issues of federal law.’ . . . The court 

need not at this moment rule on the merits of [the] defenses. ‘All a removing defendant 

needs to do is make a showing that his federal defense is not without foundation and 

made in good faith.’” (quoting Magnin, 91 F.3d at 1428; Marley v. Elliot Turbomachinery 

Co., Inc., 545 F. Supp. 2d 1266, 1271 (S.D. Fla. 2008))).

The undersigned finds that, for purposes of the federal officer removal statute, 

CAEC has adequately shown that its preemption defense is plausible. See City of 

Cookeville, 484 F.3d at 391; Einhorn, 43 F. Supp. 3d at 1270.

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 21 of 23
22

Conclusion

Keeping in mind the liberal construction afforded the federal officer removal 

statute, the undersigned has concluded that CAEC has shown that it is a person for 

purposes of the statute, that it acted under the RUS, that its actions under the RUS are 

causally connected to the Plaintiff’s claims, and that it has a colorable federal defense. 

Accordingly, the undersigned finds that this case was properly removed to this Court 

pursuant to 28 U.S.C. § 1442(a)(1). Therefore, it is hereby RECOMMENDED that the 

Plaintiff’s Motion to Remand (doc. 8) be DENIED.

NOTICE OF RIGHT TO FILE OBJECTIONS

A copy of this report and recommendation shall be served on all parties in the 

manner provided by law. Any party who objects to this recommendation or anything in 

it must, within fourteen (14) days of the date of service of this document, file specific 

written objections with the Clerk of this Court. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 

72(b); S.D. Ala. L.R. 72.4. The parties should note that under Eleventh Circuit Rule 3-1, 

“[a] party failing to object to a magistrate judge’s findings or recommendations 

contained in a report and recommendation in accordance with the provisions of 28 

U.S.C. § 636(b)(1) waives the right to challenge on appeal the district court’s order based 

on unobjected-to factual and legal conclusions if the party was informed of the time 

period for objecting and the consequences on appeal for failing to object. In the absence 

of a proper objection, however, the court may review on appeal for plain error if 

necessary in the interests of justice.” 11th Cir. R. 3-1. In order to be specific, an objection 

must identify the specific finding or recommendation to which objection is made, state 

the basis for the objection, and specify the place in the Magistrate Judge’s report and 

recommendation where the disputed determination is found. An objection that merely 

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 22 of 23
23

incorporates by reference or refers to the briefing before the Magistrate Judge is not 

specific.

DONE this the 10th day of July 2015.

s/WILLIAM E. CASSADY

UNITED STATES MAGISTRATE JUDGE

Case 2:15-cv-00131-WS-C Document 21 Filed 07/10/15 Page 23 of 23