Opinion ID: 1204241
Heading Depth: 1
Heading Rank: 5

Heading: The sound business principles standard provides adequate law to apply.

Text: BPA next argues that even if its decision to contract with Alcoa is subject to the sound business principles standard, that standard is so suffused with discretion that it provides no law to apply and cannot form the basis of our review. [7] In forwarding this position, BPA relies on City of Santa Clara v. Andrus, 572 F.2d 660 (9th Cir.1978), and Aluminum Co. of America v. BPA (Alcoa), 903 F.2d 585 (9th Cir.1989), cases that BPA claims definitively ruled that judicial review cannot be premised on the sound business principles standard. Although we fully acknowledge that actions taken by BPA in furtherance of its business interests are entitled to particular deference, see PNGC, 550 F.3d at 860-61, we reject BPA's argument that such decisions are unreviewable, for several reasons. First, BPA's contention that its business decisions are entirely unreviewable is directly at odds with this court's precedent, as well as with a Supreme Court case, United States v. City of Fulton, 475 U.S. 657, 106 S.Ct. 1422, 89 L.Ed.2d 661 (1986). As already noted, we have, on multiple occasions, held that actions taken by BPA in furtherance of its business interests, while owed significant deference, are nonetheless reviewable. See PNGC, 550 F.3d at 861, 877-78; APAC, 126 F.3d at 1171; Public Power Council, 442 F.3d at 1204; Bell v. BPA, 340 F.3d 945, 948-49 (9th Cir.2003); Dep't of Water & Power, 759 F.2d at 693. In APAC, for example, BPA asserted that its decision to begin wheeling non-federal power was a valid exercise of its broad [statutory] authority to contract in [its] best business interests. APAC, 126 F.3d at 1169. In evaluating this argument, the court noted that [t]he statutes governing BPA's operations are permeated with references to the `sound business principles' Congress desired the Administrator to use in discharging his duties. Id. at 1171. In the court's view, these references provided BPA with an unusually expansive mandate to operate with a business-oriented philosophy. Id. This unusually expansive mandate did not, however, preclude the court from reviewing the agency's decision for reasonableness. See id. After performing this review, the court concluded that the BPA's decision to begin wheeling non-federal power, a decision that was intended to increase BPA's competitiveness in a recently deregulated market, appear[ed] reasonable and was therefore entitled to deference. See id. at 1171. In PNGC, BPA likewise argued that its decision to provide cash payments to the DSIs furthered its statutory mandate to operate in accordance with sound business principles. See PNGC, 550 F.3d at 877-78. As in APAC, we noted that this court is particularly deferential to BPA when the agency acts in furtherance of its business interests. Id. at 861. We nonetheless held that BPA's conclusion that a specific action was consistent with sound business principles was reviewable for reasonableness. See id. BPA's assertion that the sound business principles standard is too vague to support review is also undermined by our decision in Public Power Council. In that case, we expressly relied on the sound business principles standard to review a decision by BPA to revise upward its previously approved wholesale power rates. Public Power Council, 442 F.3d at 1209-11. Ultimately, we concluded that [i]n light of [the] eximious reasons for BPA's [acting] in the way it did, we are not able to say that BPA failed to proceed in accordance with `sound business principles.' Id. at 1210. Although we affirmed BPA's actions in Public Power Council, our holding clearly indicates that we did not find the sound business principles standard too indeterminate to support any review, however deferential. Finally, in Bell, we reviewed BPA's decision to buy out its contractual obligations to supply suddenly high-cost power to DSIs at uneconomically low prices during a recent energy crisis. See Bell, 340 F.3d at 948-49. The court concluded that BPA's decision to amend its contract obligations was eminently businesslike, given the probably devastating result of performing the original contract . . . . Id. at 949. The court therefore refused to second-guess the wisdom of BPA's winning business decision[ ], especially when it was responding to unprecedented market changes. Id. Implicit in this holding, however, is an assumption that the court would second-guess an action by BPA that was not eminently business-like. See also Dep't of Water, 759 F.2d at 693 (citing 16 U.S.C. § 839e(a)(1)'s requirement that rates be designed consistent with sound business principles and holding that, as a result of this and other legislative requirements, a decision by BPA to implement a policy designed to mitigate revenue shortfalls was not only statutorily authorized but statutorily mandated). As these cases demonstrate, the law of this circuit is clear: when Congress imposed a duty on BPA to operate in accordance with sound business principles, see APAC, 126 F.3d at 1171, it imposed a requirement that was capable of supporting review. Our approach in all these cases, like our holding in this case, is consistent with the Supreme Court's approach in City of Fulton to review under a different statute containing sound business principles language. In City of Fulton, the Supreme Court held that Section 5 of the Flood Control Act imposed a statutory obligation on the Secretary of Energy to protect consumers by ensuring that power is sold at the lowest possible rates . . . consistent with sound business principles.' 475 U.S. at 667-68, 106 S.Ct. 1422 (quoting United States v. Tex-La Elec. Cooperative, Inc., 693 F.2d 392, 399-400 (5th Cir.1982)). The Court then reviewed an action by the Secretary for consistency with that standard, ultimately affirming the Secretary's action on the ground that the action was reasonable and well suited to meeting this obligation. See id. at 668, 106 S.Ct. 1422. So, the Supreme Court, too, has recognized that consistent with sound business principles language provides a reviewable standard. Second, precedent aside, there is no basis for concluding that this is one of the rare instances where a statute is drawn in such broad terms that in a given case there is no law to apply. Heckler v. Chaney, 470 U.S. 821, 830, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985) (quoting Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971)). The statutory requirement that BPA operate in a manner consistent with sound business principles is at least as specific as other statutory mandates held sufficient to permit judicial review. For example, Keating v. FAA, 610 F.2d 611 (9th Cir.1979), held that an FAA Administrator's decision was reviewable where the relevant statute required that the decision be made in the public['s] interest. See id. at 612. Similarly, City of Los Angeles v. U.S. Dep't. of Commerce, 307 F.3d 859 (9th Cir.2002), determined that a statute requiring the Secretary of Commerce to use statistical sampling if he considers it feasible provided a meaningful standard for the court to review the Secretary's decision not to use sampling. See id. at 869 n. 6; see also Barber v. Widnall, 78 F.3d 1419, 1423 (9th Cir.1996) (holding a decision of the Secretary of the Air Force not to correct a military record reviewable where the governing statute allowed the Secretary to make a correction when the Secretary considers it necessary to correct an error or remove an injustice). And, of course, it is well-established that courts may review FERC's determination that a given electricity rate is just and reasonable. See Morgan Stanley Capital Group Inc. v. Pub. Util. Dist. No. 1 of Snohomish County, ___ U.S. ___, 128 S.Ct. 2733, 2738, 171 L.Ed.2d 607 (2008); see also E. & J. Gallo Winery v. Encana Corp., 503 F.3d 1027, 1039 (9th Cir.2007). If we may review whether a decision was in the public's interest or whether a particular act was feasible or just and reasonable, we can certainly review whether an action is consistent with sound business principles. Moreover, courts routinely review the rationality of business decisions in other contexts. For example, under the common law business judgment rule, courts are required to defer to business decisions made by a corporation's board of directors, unless the directors[, among other things,] act in a manner that cannot be attributed to a rational business purpose. Brehm v. Eisner, 746 A.2d 244, 264 n. 66 (Del.2000); see also Navellier v. Sletten, 262 F.3d 923, 946 (9th Cir.2001) (affirming district court's formulation of the business judgment rule as requiring a director to [r]ationally believe that the [director's] business judgment is in the best interest of the corporation). Even more relevantly, the Sixth Circuit, in interpreting a statutory directive very similar to the statutory requirements at issue here, concluded that there was sufficient law to apply. See McCarthy v. Middle Tenn. Elec. Membership Corp., 466 F.3d 399 (6th Cir.2006). In McCarthy, the Sixth Circuit held that an electric cooperative's decision to incur non-necessary expenses, if proven true, would clear[ly] violate the cooperative's statutory duty under Tennessee law to provide its members with electricity `at the lowest cost consistent with sound business principles.' Id. at 410 (citing Tenn.Code Ann. § 65-25-203). The statute at issue in Rank v. Nimmo, 677 F.2d 692 (9th Cir. 1982), which was found not to provide law to apply, provides a useful contrast to the statutes held to permit review in the cases just surveyed. In Rank, the relevant statute provided that the Administrator [of the Veterans Administration] may, at the Administrator's option, accept assignment of a veteran's loan. See id. at 699-700. According to the court, Congress's use of the precatory `may' and of the phrase at the Administrator's option made clear that Congress intended to vest the widest discretion possible in the Administrator. Id. The Administrator's decision to accept or reject assignment of a loan was therefore unreviewable. See id. No such precatory language existed in the statutes in the cases we have reviewed, and none exists in the statutes governing BPA's conduct in this case. Section 838g, for instance, states that BPA shall fix and establish rates in a manner consistent with sound business principles. 16 U.S.C. § 838g; see also 16 U.S.C. § 839e(a)(1) (stating that rates shall be established . . . in accordance with sound business principles) (emphasis added). Moreover, unlike in Rank, BPA's governing statutes do not evince an intention on Congress's part to vest BPA with the widest discretion possible, by referring to BPA's option or choice or similar language. To the contrary, by requiring BPA to act in a prescribed manneri.e., in a manner that accord[s] with sound business principlesCongress clearly intended to limit BPA's discretion to a degree. Finally, BPA is incorrect in maintaining that City of Santa Clara and Alcoa held that the sound business principles standard is so vague that it provides no law to apply. Those cases held instead that a congressional directive to sell power in such a way as `to encourage the most widespread use thereof' was too vague and general to provide applicable law. See City of Santa Clara, 572 F.2d at 668; Alcoa, 903 F.2d at 599. Neither case directly precluded reviewability under the sound business principles standard at issue here, and neither can be fairly taken to have done so by implicationparticularly in light of the already surveyed precedents to the contrary. In City of Santa Clara, the petitioners argued that certain decisions made by the Secretary of the Interior violated Section 5 of the Flood Control Act of 1944. See City of Santa Clara, 572 F.2d at 667. Section 5 requires the Secretary to transmit and dispose of [surplus energy from reservoir projects] in such manner as to encourage the most widespread use thereof at the lowest possible rates to consumers consistent with sound business principles. 16 U.S.C. § 825s. We refused to review the decision, holding that the statute's widespread use requirement was too vague to support judicial review. See City of Santa Clara, 572 F.2d at 668. As we explained, The Flood Control Act's directive to market power in such a way as to encourage the most widespread use thereof could be interpreted in many different ways, such as to require that power be sold to as many different preference entities as possible, thereby fostering the most widespread geographic use of the power, or to mandate sale of the power to those preference entities whose customers present the most diversified mix of agricultural, industrial or residential users, or to require sale of federal power to those preference entities which serve the largest number of ultimate consumers. Clearly, the most widespread use standard is susceptible of widely divergent interpretations. As we said of another law in Strickland v. Morton, supra, (t)he provisions of this statute breathe discretion at every pore. 519 F.2d at 469. The statute permits the exercise of the widest administrative discretion by the Secretary. It does not supply law to apply. Id. at 668. As the above quoted passage reveals, the court in City of Santa Clara considered only whether the widespread use clause provided law to apply; it did not address the sound business principles clause. In this case, we are concerned solely with the sound business principles standard, a standard that permeate[s] BPA's governing statutes. See APAC, 126 F.3d at 1171 (citing 16 U.S.C. §§ 825s, 838g, 839e(a)(1)); see also 16 U.S.C. § 839f(b) ([T]he Administrator shall take such steps as are necessary to assure the timely implementation of this chapter in a sound and businesslike manner.). City of Santa Clara 's holding is therefore not applicable here. [8] For similar reasons, this court's holding in Alcoa is inapplicable. In Alcoa, the petitioners asserted that BPA had violated section 7(k) of the Regional Act when it established certain rates for non-firm power. See Alcoa, 903 F.2d at 599. Section 7(k) requires BPA to establish nonfirm energy rates in accordance with a number of statutory provisions, including § 838g. See 16 U.S.C. § 839e(k). Reviewing the various statutory provisions, the court in Alcoa concluded that section 7(k) require[s] that BPA rates for nonfirm energy be drawn: 1. having regard to the recovery of the cost of generation and transmission of such electric energy; 2. so as to encourage the most widespread use of Bonneville power; 3. to provide the lowest possible rates to consumers consistent with sound business principles; and 4. in a manner that protects the interests of the United States in amortizing its investments in the projects within a reasonable period. Alcoa, 903 F.2d at 590-91. The court then addressed the question whether there is law to apply here to the four standards section 7(k) incorporates. Id. at 599. Citing City of Santa Clara, the court noted that the `widespread use' requirement provides BPA with ... so much discretion that there is no law to apply. Id. The court nonetheless held that there was law to apply overall because the first and fourth standards limit[ed] BPA's discretion to set nonfirm energy rates. Id. It was careful to note that [t]his conclusion does not conflict with City of Santa Clara, because these two standards were not present in that case. Id. Although the court in Alcoa did not apply the consistent with sound business principles standard, it did not state that the standard provided no law to apply. Nor was there any need for the case to address that standard, as the court held that other standards set forth in section 7(k) provided adequate law. [9] In sum, neither City of Santa Clara nor Alcoa addressed the reviewability of the standard at issue here. As a result, neither decision controls the outcome of this case. For all the reasons noted above, we hold that the sound business principles standard incorporated in BPA's governing statutes is sufficiently specific to support judicial review and does not indicate that Congress committed to agency discretion decisions concerning compliance with that statutory requirement.