Mabey v. Dixie Elec Mbrship ( 2007 )

No. 06-30774
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 7, 2007
No. 06-30774
Charles R. Fulbruge III
Clerk
Ralph R. Mabey
Appellee
v.
Dixie Electric Membership Corp.
Appellant
Appeal from the United States for the Middle District of Louisiana, Baton Rouge Division
USDC No. 3:06-CV-11
Before DENNIS, CLEMENT, and PRADO, Circuit Judges.
PER CURIAM:*
Plaintiff Mabey, as bankruptcy trustee for Cajun Electric Power Cooperative (“Cajun”), sued
to recover $2,754,760.04 for 39 months of electricity received by defendant Dixie Electric
Membership Corporation (“DEMCO”) but unmetered (and therefore not billed) by Cajun until a
calibration error in a transformer at a power substation was discovered. The bankruptcy court granted
Cajun’s motion for summary judgment and denied DEMCO’s motion; the district court affirmed
without oral argument. After review of the record and the parties' arguments, we agree. The judgment
of the district court is therefore AFFIRMED.
I.
Cajun is a nonprofit corporation that generates and transmits electricity to members of the
cooperative as well as non-members. The cooperative's members, including DEMCO, are also
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published
and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
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non-profit electric distribution cooperatives, who sell and distribute power to the end consumer.
DEMCO was required by a contract known as the 1976 Wholesale Power Supply Agreement
(“WPSA”) to purchase from Cajun at wholesale all of its electric power requirements. The WPSA
contains, inter alia, the following provisions:
1. GENERAL. The Seller [Cajun] shall sell and deliver to the Member [DEMCO] and
the Member shall purchase and receive from the Seller all electric power and energy
which the Member shall require for the operation of the Member's system to the
extent that the Seller shall have such power and energy and facilities available;
provided, however, that the Member shall have the right to continue to purchase
electric power and energy under any existing contract or contracts with a supplier
other than the Seller during the remainder of the term thereof. If the Member
continues to purchase electric power and energy under a contract or contracts with
a supplier or suppliers other than the Seller, then the power and energy purchased
under such contract or contracts shall be paid for by Seller for the account of the
Member, and the Member shall be billed by Seller for such power and energy in
accordance with the terms and conditions of [Article] 4 hereof.
3. DELIVERY FACILITIES. The Seller shall be responsible for the facilities to
deliver power and energy to the Point or Points of Connection [e.g., a power
substation]. The Member shall be responsible for providing the facilities necessary to
take and use the power and energy from the Point or Points of Connection. The
parties shall provide and maintain, or cause to be provided and maintained, switching
and protective equipment which may be reasonably necessary to protect the system
of the other. Meters and metering equipment shall be furnished, maintained, and read,
or caused to be furnished, maintained, and read, by the Seller.
4. RATE. .... The Member shall pay the Seller for all electric power and energy
furnished hereunder at the rates and on the terms and conditions set forth in Rate
Schedule A....
6. METER TESTING AND BILLING ADJUSTMENT. The Seller shall test and
calibrate or cause to be tested and calibrated meters by comparison with accurate
standards at intervals of twelve (12) months. The Seller shall also make or cause to
be made special meter tests at any time at the Member's request. . . . The readings of
any meter which shall have been disclosed by test to be inaccurate shall be corrected
for the ninety (90) days previous to such test in accordance with the percentage of
inaccuracy found by such test. If any meter shall fail to register for any period the
Member and the Seller shall agree as to the amount of energy furnished during such
period and the Seller shall render a bill therefor.
In the 1990s, DEMCO built the Vignes power substation; although constructed by DEMCO
alone, the facility was jointly owned by DEMCO and Cajun. Entergy, per a contractual arrangement
with Cajun, provided electricity through the substation to DEMCO for further distribution. The
station had two meters: one, a "high side" meter, belonged to Cajun and measured electricity coming
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into the station from Entergy's lines; the other, a "low side" meter, belonged to DEMCO and
measured the electricity DEMCO received for distribution.
The station became operational in September 1996. At that time, it is undisputed that Cajun's
meter was incorrectly calibrated, such that it registered only half of the electricity entering the
substation. Cajun's resulting bill to DEMCO therefore covered only half of the electricity provided.
DEMCO, however, had a properly calibrated meter and was charging its customers for the full
amount of electricity provided. The problem continued for 39 months until, in December 1999, an
Entergy employee discovered the problem.
The meter itself was corrected the same day. Entergy and Cajun executed a plan under which
Cajun reimbursed Entergy for Entergy's share of the unmetered electricity delivered to DEMCO. In
January 2000, Cajun made written demand on DEMCO for the unmetered electricity received but not
billed, a total value of $2,754,760.04. The following month, DEMCO tendered a check for
$179,483.82, citing to a provision under the WPSA known as the "reach back" provision that,
DEMCO claimed, limited its liability for excess electricity to the excess received during the 90 days
prior to discovery of the error. Cajun refused tender; the company subsequently underwent a
bankruptcy reorganization.
On February 17, 2003, the bankruptcy trustee sued DEMCO as a part of an adversary
proceeding related to Cajun's declaration of bankruptcy under Chapter 11. The trustee sought to
recover the entirety of the $2,754,760.04, asserting three different bases for recovery: (1) breach of
contract; (2) indemnity (for the payments Cajun made to Entergy for the power sold to DEMCO);
and (3) unjust enrichment. The trustee moved for summary judgment on the issue of liability in
January 2005; DEMCO responded with a motion to dismiss for failure to state a claim or, in the
alternative, for summary judgment. In September 2005, the bankruptcy court granted summary
judgment for Cajun. DEMCO appealed both the grant of Cajun's motion and the denial of its own;
at the same time, it also asserted that an order of the Louisiana Public Service Commission barred
Cajun from seeking reimbursement for billing errors over six months old. In June 2006, the district
court, without oral argument, affirmed the judgment of the bankruptcy court. DEMCO timely
appeals.
II.
We review the bankruptcy court's grant of a motion for summary judgment de novo. In re:
Ark-La-Tex Timber Co., 482 F.3d 319, 328 (5th Cir. 2007). Summary judgment is appropriate where
the record shows “that there is no genuine issue as to any material fact and that the moving party is
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entitled to a judgment as a matter of law.” FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). Facts and inferences reasonably drawn from those facts should be taken in the light
most favorable to the non-moving party. Ark-La-Tex, 482 F.3d at 329 (citing Duckett v. City of
Cedar Park, 950 F.2d 272, 276 (5th Cir. 1992)). Where the non-moving party fails to establish “the
existence of an element essential to that party's case, and on which that party will bear the burden of
proof at trial,” no genuine issue of material fact can exist. Celotex, 477 U.S. at 322-23. “If the moving
party meets the initial burden of showing there is no genuine issue of material fact, the burden shifts
to the non-moving party to produce evidence or designate specific facts showing the existence of a
genuine issue for trial.” Ark-La-Tex, 482 F.3d at 329 (citing Allen v. Rapides Parish Sch. Bd., 204
F.3d 619, 621 (5th Cir. 2000)).
A.
As a preliminary matter, DEMCO asserts that Cajun lacks standing to bring suit, arguing that
under the WPSA, DEMCO is required to compensate Cajun only for the power provided by Cajun.
Since the surplus energy was in fact provided by Entergy, DEMCO argues, under the language of
Articles 1 and 4 of the WPSA, Cajun has no contractual right to seek payment from DEMCO for
electricity provided by Entergy.
DEMCO's argument fails. Even assuming, arguendo, as DEMCO urges that its principal
obligation is to Entergy as the actual supplier, Louisiana law unequivocally establishes that Cajun is
legally subrogated to Entergy's claim because Cajun has already entirely reimbursed Entergy for that
company's share of the unmetered electricity. See LA. CIV. CODE ANN. art. 1829(3) (“Subrogation
takes place by operation of law: . . . [i]n favor of an obligor who pays a debt he owes with others or
for others and who has recourse against those others as a result of the payment[.]”); see also State
Farm Mut. Auto. Ins. Co. v. Berthelot, 732 So. 2d 1230, 1233 (La. 1999) (“Subrogation is a legal
fiction whereby payment by a third person . . . extinguishes an obligation of the original creditor. The
third person then steps into the shoes of the original creditor, acquiring the right to assert the actions
and rights of the original creditor.”). To the extent DEMCO argues that the record is devoid of
evidence that Cajun paid Entergy for the electricity sold to DEMCO, the record belies that assertion:
Mr. Elmer, Cajun's vice president for operations, testified before the bankruptcy court that Cajun had
determined that Entergy was owed payment for its share of the delivered electricity and that Cajun
accordingly reimbursed Entergy. DEMCO offers no evidence to rebut that testimony. We therefore
hold that Cajun has standing to bring this suit.
B.
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On appeal, DEMCO argues that LA. CIV. CODE art. 2002, which requires an obligee to
undertake reasonable efforts to mitigate damage resulting from an obligor's failure to perform, bars
Cajun’s recovery because Cajun has not mitigated its damages. We disagree.
The Louisiana Supreme Court has held that “[the] duty to mitigate . . . damages is not
applicable where the party whose duty it is primarily to perform a contract ‘has equal opportunity for
performance and equal knowledge of the consequences of nonperformance.’” Unverzagt v. Young
Builders, Inc., 215 So. 2d 823, 828 (La. 1968) (quoting Parker v. Harris Pine Mills, Inc., 291 P.2d
709, 717 (Or. 1955). Moreover,
[t]he injured person need not make extraordinary efforts or do what is unreasonable
or impracticable in his efforts to minimize damages; reasonable diligence and ordinary
care are all that is required to allow full recovery of all damages caused by the
defendant's wrongful activity. More completely stated, the consequences of an injury
are recoverable where the injured party acts with such care and diligence as a man of
ordinary prudence would under the circumstances, and his efforts to minimize
damages are determined by the rules of common sense, good faith, and fair dealing.
What constitutes reasonable care depends upon the circumstances of the particular
case, taking into consideration time, knowledge, opportunity, and expense.
Id. at 825-26. The record indicates that once Cajun was notified of the problem by Entergy personnel,
it took immediate steps to correct the issue: the meter was corrected that same day. In other words,
Cajun appears to have taken the proper steps to mitigate as soon as it was aware that the problem
existed.
DEMCO, furthermore, admits that it knew that it was receiving twice the electricity it was
paying for but argues that Cajun knew about the problem before Entergy's report. DEMCO asserts
that it notified Cajun of the error at the outset, relying on testimony from Mr. Lindsley, its Vice
President of Engineering and Operations. Mr. Lindsley testified that he believed DEMCO, in the
person of Mike Landry, DEMCO's Construction Supervisor at Vignes, informed Bob Bayley, Cajun's
Manager of Engineering and Maintenance at Vignes, of the error. During his deposition, however,
Mr. Landry denied ever having a conversation with Mr. Bayley about the meter reading error. In
short, no one could personally testify as to who personally informed Mr. Bayley of the metering error.
On the other hand, Mr. Elmer testified that had Cajun been informed of the error, Mr. Elmer would
have taken immediate action to correct the problem. In fact, that is precisely what occurred when
Entergy notified Cajun of the error. The record does not, therefore, establish that DEMCO ever
notified Cajun of the error such that Cajun should have begun mitigating damages at an earlier point
in time.
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DEMCO also argues, however, that the error resulted from Cajun's breach of Article 6 of the
WPSA, which places responsibility for testing and calibration of the high-side meters with Cajun.
Because Cajun did not set the proper transformer ratio and because Cajun failed to detect the error
during routine testing, DEMCO asserts, Cajun breached its duties under the WPSA and therefore
DEMCO is not responsible for the unmetered electricity it received. DEMCO cites no authority for
the proposition that Cajun's error in failing to detect the error at the time the station became active
precludes later recovery for DEMCO's breach of the WPSA terms requiring it to pay for all energy
furnished to it by Cajun. Even assuming, however, that the duty to mitigate reaches back to the time
of the initial error, it is not clear that Cajun's actions were deficient. The record indicates that the
company performed its standard yearly tests at the station. Mr. Elmer testified that to detect the
calibration error, the entire substation would have needed to be taken out of service. Mr. Elmer also
testified that the only reason Entergy was able to detect the error without a complete shut-down was
because its employee was using a recently acquired piece of specialized equipment. Given that
evidence, it cannot be said that Cajun failed to perform any of the routine checks required of it under
the WPSA. Furthermore, to the extent DEMCO is arguing that such a shut-down should have been
performed, Cajun is only required to mitigate as a reasonable person would have done in those
circumstances. Unverzagt, 215 So. 2d at 825. With no notice from DEMCO that there was an error
in the meter’s calibration, a reasonable person would not have undertaken to shut the entire substation
down to test that calibration. We therefore find no failure to mitigate on Cajun’s part such as would
restrict its ability to recover from DEMCO.
C.
DEMCO next argues that the error in the meter is, under the terms of Article 6 of the WPSA,
an “inaccuracy” such that DEMCO must only pay Cajun for the amount of energy furnished during
the 90-day period prior to the discovery of the problem. Cajun responds by asserting that the problem
is, instead, better described as a “failure to register,” such that the parties shall agree to the amount
of electricity furnished over that period - here, 39 months - and the provider shall be reimbursed for
that amount.
The bankruptcy court phrased the question as one of determining which provision of Article
6 applies to the facts of this case and held, as a matter of law, that the contract could not be read in
such a way that would permit the 90-day reach back period to apply to the circumstances in this case.
In other words, the bankruptcy court held that as a matter of law, this situation could only be
construed as a failure to register because
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[t]he 90 day reachback [sic] provision is coupled with the requirement that Cajun test
and calibrate the meters at intervals of 12 months. The underlying assumption is that
any inaccuracy would be revealed through testing. Also since it would be impossible
to determine when a meter started to read inaccurately, the parties agreed that the
billing adjustment would be limited to 90 days, thereby limiting loss by either party.
The premise underlying the 90 day reachback [sic] provision, however, does not exist
in the present case. Cajun performed the required testing. The incorrect calibration,
however, was not susceptible to discovery through routine testing. The defect could
be discovered only if the substation were shut done [sic] for some major repair or
service. As no major repairs occurred during the time period at issue, the error was
not located. As this type of error could not be located during the testing referred to
in Paragraph 6, the entire underlying premise of the 90-day reachback [sic] period
fails.
We agree with the bankruptcy court’s reasoning. Under Louisiana law, where “the words of
a contract are clear and explicit and lead to no absurd consequences, no further interpretation may
be made in search of the parties' intent.” LA. CIV. CODE ANN. art. 2046. Where a word is susceptible
to “different meanings [, it] must be interpreted as having the meaning that best conforms to the
object in the contract.” LA. CIV. CODE ANN. art. 2048. Moreover, “[e]ach provision in a contract
must be interpreted in light of the other provisions so that each is given the meaning suggested by the
contract as a whole.” LA. CIV. CODE ANN. art. 2050.
The bankruptcy court properly determined that the meanings of the two phrases were clear.
It held that as a matter of law, the type of error at issue in this case, where the meter read the
information it received accurately but was, in fact, receiving the wrong information because of the
wrong current transformer ratio, could only be read as a failure to register. We agree that to hold
otherwise would not comport with the clear intent of the parties as expressed in the contract, which
couples the 90-day reach back provision with calibration and standard testing requirements. We
therefore affirm the grant of summary judgment on this issue.
D.
Finally, DEMCO asserts that certain General Orders of the Louisiana Public Service
Commission limit Cajun's ability to seek unpaid electricity to correct billing errors occurring more
than six months before the discovery of the error. We disagree.
In 1975, the Louisiana Public Service Commission adopted a General Order that provides as
follows:
This Commission is mindful that controversies have arisen between utilities
companies in attempting to levy charges for services furnished in the distant past, but
which were not billed when furnished. Frequently, the problem has been one of a
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faulty meter or meter reading or company billing errors.
The Commission feels that is [sic] should, and by this order, does formulate a
guideline for institution of actions to collect sums allegedly due by reason of faulty
meter or readings thereof, on Company billing errors, excepting fraud. . . .
Accordingly, this Commission hereby orders that no rate on file with this Commission
and billing made pursuant thereto shall be effective against a consumer where the
utility company has permitted twelve months to elapse between the rendition of the
service and accurate billing therefor, incidences of consumer fraud, such as meter
tampering, excepted.
The Order was amended in 1993 to reduce the time to six months.
DEMCO argues that the Order is intended to protect it from having to reimburse Cajun for
anything more than six months. We disagree, for the reasons given by both the bankruptcy court and
district court: the operative language in the order applies to back billing against a consumer - that is,
the end user, rather than intermediate utilities like DEMCO. In 2002, the Louisiana Supreme Court
defined a "consumer" in the context of power utilities as "the ultimate user of the electricity[.]" Cleco
Evangeline, LLC v. La. Tax Comm'n, 813 So. 2d 351, 355 (La. 2002). In doing so, the court
specifically excluded from that definition "the wholesaler or toller that purchases the output from the
. . . plant . . . because both act as middle persons simply transferring the electricity to others that
ultimately consume the electricity." Id. DEMCO fits the second definition precisely; as such, it cannot
receive protection clearly given to "consumers" in the express language of the order.
III.
The bankruptcy court properly granted summary judgment in this case: by the terms of the
WPSA, DEMCO is bound to reimburse Cajun for the electricity received but not metered over the
39-month period before the error was corrected. Cajun has not failed to mitigate its damages, and the
Louisiana Public Service Commission’s orders do not apply to limit the period over which damages
may be recovered. The judgment is therefore AFFIRMED.
AFFIRMED.