Natl. Gas Dist. v. Sevier Co. Utility ( 1999 )

IN THE COURT OF APPEALS OF TENNESSEE
FILED
AT KNOXVILLE July 13, 1999
Cecil Crowson, Jr.
Appellate C ourt
Clerk
NAT IONA L GA S DIS TRIB UTO RS, ) C/A NO. 03A01-9902-CH-00077
)
Plaintiff-A ppellant, ) SEVIER CHANCERY
)
v. ) HON . TEL FOR D E. F ORG ETY , JR.,
) CHANCELLOR
SEVIER COUNTY UTILITY )
DIST RICT of Sev ier Cou nty, )
Tennessee, )
)
Defendant-Appellee. )
)
and )
)
PAU L G. SU MM ERS , Atto rney )
General and Reporter for the State of )
Tennessee, ) AFFIRMED
) AND
Intervening Defendant-Appellee. ) REMANDED
DONALD K. VOWELL , VOWELL & ASSOCIATES , Knoxville, for Plaintiff-
Appellan t.
ROB ERT E. CO OPE R, JR., a nd W . SCO TT SI MS, B ASS , BER RY & SIMS , PLC .,
Nashville, and
RONALD E. SHARP, SHARP & RIPLEY, Sevierville, for Defendant-Appellee.
PAU L G. S UM MER S, Atto rney Ge neral an d Rep orter,
MIKE E. MOO RE, Solicitor General, and
JAN ET M . KLE INFE LTE R, Sen ior Cou nsel, Fin ancial D ivision, N ashville ,
for Intervening Defendant-Appellee.
O P I N IO N
Franks, J.
Plaintiff app eals from a T.R.C.P . 12.02(6), dism issal of its com plaint.
Plaintiff’s prin cipal place o f business is in Knox ville, Tenne ssee, and it
sells and distrib utes propa ne in Sevie r County, Te nnessee. D efendan t is a utility
district cr eated p ursuan t to the T enness ee Utility D istrict La w of 1 937.
Initially, plaintiff alleged that the Utility District Law of 1937 did not
allow defendant to sell propane, and sought a permanent injunction enjoining
defenda nt from m arketing an d selling pro pane to its cu stomers, or f rom eng aging in
other unauthorized, unlawful or ultra vires activities.
Subsequently, plaintiff amended its complaint to allege that after the
original complaint was filed, defendant proceeded to contact certain members of the
Tennessee General Assembly and cause those members to assist in enacting a law that
would free the defendants from liability. The law which was enacted by the General
Assembly, amended the Utility District Law of 1937, and added a new subsection
which states:
Any district pro viding pro pane gas service on A pril 15, 1998 , is
empow ered to prov ide such se rvice within the county or c ounties in
which it is providing service on that date without any further
proceedin gs before or approv als of any cou nty executive, th e utility
management review board or any other person or agency; provided, the
authorization contained in this subsection shall not preclude any other
person, firm or corporation, public or private, from furnishing propane
gas service within the a rea served by the district.
Tenn . Code Ann. § 7-82-3 02(j) (19 98).
Plaintiff’s amended complaint stated the statute is impermissible under
Article I, § 8 a nd Article II, § 8 of the T ennessee Constitution , and the 5th and 14th
Amendments to the United States Constitution.
It specifically alleged that the statute would operate to suspend the
general law for the benefit of seven favored utility districts, thereby giving them a
special privilege to sell propane, w hich is not available to the other utility districts. It
stated that the amendment creates two classes of propane dealers, with one being
granted special privileges and the other not. It also averred that the amendment places
a special burden on private propane dealers doing business in territories of the seven
favored utility districts that is not placed on propane dealers doing business in the rest
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of the State , because th ose dealers must com pete with a n entity that does not have to
pay certain taxe s and that ca n raise capita l by bond issue s. The Co mplaint alleg es this
treatment creates two classes of propane dealers, one which is exempt from paying
spec ified taxe s, and one wh ich is not, a nd th at thi s classifi catio n is arbitrary,
capricio us and unreas onable .
After the statute came under attack, the Attorney General was permitted
to intervene, and defendant again moved to dismiss the amended complaint. The
motion was granted by the Trial Judge and this appeal ensued.
Whether the complaint was properly dismissed for failure to state a
claim upon which relief can be granted, essentially presents two questions:
1. Whether plaintiff has standing to challenge the statute, and 2. If plaintiff has
standing, whether the complaint states a claim for relief.
We are re quired to co nstrue the alle gations of th e compla int in
plaintiff’s favor, and accept the allegations of fact as true. However, inferences to be
drawn f rom the fa cts or legal co nclusions se t forth in the c omplaint a re not require d to
be take n as true . Riggs v. Burson, 941 S .W.2d 44, 47- 48 (Te nn. 199 7), cert. denied
118 S. Ct. 444 (19 97).
There are twenty-one u tility districts in Tennessee, of w hich seven we re
providing propane service on April 15, 1998, including defendant. T.C.A. §7-82-
302(j) (199 8), applies to se ven utility districts and either divides utility districts into
two groups, one which can lawfully sell propane and one which cannot; or divides
utility districts into two groups, one which can lawfully sell propane without going
through the approval process set out in the statue, and one which must get prior
approva l before sellin g propan e. Either classif ication is a class ification am ong utility
districts, w hich the defen dant, w e conc lude, do es not h ave stan ding to challen ge.
Standing is a judge-made doctrine “used to refuse to determine the
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merits of a legal controversy irrespective of its correctness where the party advancing
it is not properly situated to prosecute the action.” Knierim v. Leatherwood, 542
S.W.2d 806, 808 (Tenn. 1976). To establish standing, a party must show:
(1) that it sustained a distinct and palpable injury, (2) that the injury was
caused by the challenged conduct, and (3) that the injury is apt to be
redressed by a remedy that the court is prepared to give.
Metro. A ir Researc h Testing A uth., Inc. v. M etro. Gov. o f Nashville, 842 S.W.2d 611,
615 (Tenn. A pp. 1992) (citing Allen v. Wright, 468 U.S. 737, 752 104 S. Ct. 3315,
3325, 82 L. Ed. 2d. 5 56 (1984 ); Morristown Emergency & Rescue Squad, Inc. v.
Volunteer Dev. Co., 793 S .W.2d 262, 26 3 (Ten n. App . 1990) ). See also P rice v. State,
806 S.W .2d 179, 18 1 (Tenn. 1 991); Davis v. Allen, 307 S.W.2d 800 (Tenn. App.
1957) perm. to app. denied. Even if a s tatute is unco nstitutional,
only those w ho have a right to raise a q uestion of its u nconstitution ality
may invoke the aid of the courts to have it judicially set aside, and the
constitutionality of a legislative act is open to attack by those persons
whose rights are affected thereby. Before a law can be assailed by any
person on the ground that it is unconstitutional, he must show that he has
an interest in the question in that the enforcement of the law would be
an infringement on his rights. Assailants must therefore show the
applicability of th e statute to them and that the y are thereby injuriou sly
affected.
Parks v. Alexander, 608 S.W.2d 88 1, 885 (Tenn. A pp. 1980) (quoting 16 Am. Jur. 2d
Constitutional Law § 188 (1979)).
Plaintiff argues that the classifications among utility districts are a
violation of due process and equal protection under United States and Tennessee
Constitution s. It states that it is injured because it is f orced to co mpete w ith utility
districts that have a substantial advantage because they do not pay taxes, among other
things. Thus, its injury is due to having to compete for business with utility districts,
not due to either some utility districts being allowed to sell propane and some not, or
some districts being allowed to sell propane without going through the approval
process, and some not. As such, it cannot establish the causal element of standing,
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therefore it ca nnot challe nge the am endmen t because it trea ts utility districts
diff eren tly.
Plaintiff argues, however, that it does have standing because defendant
is engaging in illegal and u nfair com petition and that plaintiff h as been h armed by this
com petit ion. I n sup port of its posi tion, it cites an Alabam a cas e wh ich says, “[ c]lea rly,
the threat of competition is sufficient to provide standing to contest the legality of a
comp etitor’s f acility,” Traders & Farmers Bank of Haleyville v. Central Bank of Ala.,
320 So.2d 638, 641 (Ala. 1975), and a federal case which states, “. . . where, as here,
the threatene d compe tition arises from an allegedly illega l facility, the appellee state
banks have standing . . . .” Whitney Nat. Bank v. Bank of New Orleans, 323 F.2d 290,
300 (D.C. Cir. 1963). While plaintiff may have standing to challenge illegal
competition, it admits that the amendment authorizes defendant to sell propane. As
such, the ac tivity is not illegal, as it is exp licitly authorized b y statute. Plaintiff, to
have standing, must have an interest harmed by the classification of the statute, which
it has no t alleged .
Plaintiff could have standing to challenge any classifications that may
have bee n created b etween p rivate and p ublic propa ne dealers, b ut it failed to state th is
claim beca use, as the T rial Judge fo und, there is a rational basis to allow utility
districts to sell propane. Plaintiff did not allege any intentional discrimination in the
enactmen t of the statute. T he Am endmen t, as applied to p rivate propa ne dealers, is
neutral on its face, and there is no allegation that the statute violates plaintiff’s due
proces s or equ al protec tion.
Plaintiff arg ues the class ifications in the amendm ent violate the 14th
Amendment to the United States Constitution, and Article 1, §8 and Article 11 §8 of
the Ten nessee Cons titution.
The Tennessee Supreme Court has held that the due process guarantees
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in the 14th Amendment to the United States Constitution and Article 1, § 8 of the
Tennessee Constitution are “synonymous.” Newton v. Cox, 878 S.W.2d 105. 110
(Tenn . 1994) , cert. denied 513 U.S . 869 (199 4); “Unles s a funda mental righ t is
involved, the test for determining whether a statute comports with substantive due
process is whether the legislation bears ‘a reasonable relation to a proper legislative
purpose’ and is ‘neither arbitrary nor discriminatory.’” Newton, 878 S.W.2d at 110
(citing Nebbia v. New York, 291 U.S. 502, 537, 54 S. Ct. 505, 516, 78 L. Ed. 940(1934); National Railroad Passenger Corp. v. Atchison, Topeka Santa Fe Ry. Co., 470
U.S. 45 1, 105 S . Ct. 144 1, 84 L . Ed. 2d 432 (1 985).
Similarly, while the “equal protection provisions of the Tennessee
Constitution and the Fo urteenth A mendm ent are historic ally and linguistica lly
distinct,” the Fourteenth Amendment and Article 1, § 8 and Article 11, § 8 of the
Tenness ee Cons titution “conf er essentially the sa me protec tion upon the individu als
subject to those provisions.” Tenn. Small Sch. Sys. v. McWherter, 851 S.W.2d 139,
152 (Tenn. 1993) (citations omitted). In analyzing equal protection claims under the
Tennessee Constitution, Tennessee has followed the framework developed by the
United S tates Supre me Cou rt. Id. at 153; Newton v. Cox, 878 S.W.2d 105, 109 (Tenn.
1994) cert. denied 513 U.S . 869 (199 4); State v. Tester, 879 S.W.2d 823, 827-828
(Tenn. 1994).
Both the United States Supreme Court and the Tennessee Supreme
Court utilize three standards of scrutiny in examining equal protection claims,
depen ding on the righ t asserted . Tenn. Small Sch. Sys., 851 S.W.2d at 153 (citing City
of Memphis v. International Brotherhood of Elec. Workers Union, 545 S.W.2d 98, 101
(Tenn. 19 76) (reduc ed scrutiny); Mitchell v. M itchell, 594 S.W.2d 699, 701 (Tenn.
1980) (he ightened sc rutiny); Doe v. N orris, 751 S.W.2d 834, 840 (Tenn. 1988) ( strict
scrutiny)). Equa l protection “r equires strict sc rutiny of a legislativ e classification only
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when the classification interferes with the exercise of a ‘fundamental right’ (e.g., right
to vote, right of privacy), or operates to the peculiar disadvantage of a ‘suspect class’
(e.g., age or race).” Tester, 879 S.W .2d at 828 (c itations omitted ). Intermedia te
scrutiny only applies when the classification involves a quasi-suspect class, such as
gende r or illegitim acy. Craig v. Boren, 429 U.S. 190, 198-199, 97 S. Ct. 451, 457, 50
L. Ed. 2d 397 (1976). Most often, “the legislative choice is limited to whether the
classifications have a reasonable relationship to a legitimate state interest.” Norris,
751 S.W.2d at 841. The Tennessee Supreme Court said long ago,
If legislation arbitrarily confers upon one class benefits, from which
others in a like situation are e xcluded, it is a g rant of a sp ecial right,
privilege, or immunity, prohibited by the Constitution, and a denial of
the equal protection of the laws to those not included. If the legislation,
without good reason and just basis, imposes a burden upon one class
which is n ot imposed upon oth ers in like circu mstances or engag ed in
the same b usiness, it is a de nial of the eq ual protection of the law s to
those subject to the burden and a grant of an immunity to those not
subject to it.
State v. Nashville C. & St. L. Ry. Co., 124 Tenn. 1, 135 S.W. 773, 775 (1 911).
However, “[u]nder this standard, if some reasonable basis can be found for the
classification, or if any state of facts may reasonably be conceived to justify it, the
classification will be upheld.” Tenn. Small Sch. Sys., 851 S.W.2d at 153.
The equal protection arguments and the due process arguments can be
dealt with together, because they both require the same analysis. If there is a rational
basis fo r the statu te, and if the statu te is not d iscrimin atory, then it must b e uphe ld.
Here, the trial court specifically found that the legislature had a rational basis for
enacting this legislation. The Court indicated that if it was reasonable to create a
utility district to provide services such as natural gas, water, and sewer, then it was
reason able to a llow ut ility districts to provid e propa ne to its c ustom ers.
Ensuring that the citizens of the state have access to needed utilities, like
natural gas a nd propa ne, is a prope r legislative pu rpose. It is rationa l to allow utility
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districts to provide propane in addition to other services, and it is rational to allow the
utility districts already prov iding prop ane to con tinue to do so , in order that th eir
customers do not suffer a lapse in service while the districts are getting approval from
the cou nty execu tive.
The amendment, on its face, does not discriminate against any class of
private propane dealers. It applies only to utility districts. The only mention made of
private dealers is the section stating that the amendment will not prevent any other
person or entity from selling propane gas, which does not establish any discrimination
agai nst any person or en tity.
Plaintiff, however, essentially argues the am endment is discriminatory
because the dow nstream effects create a d isparate impact on private pro pane dealers
because th ey are subject to taxation an d other bu rdens wh ich do not a pply to the utility
districts. While violations of equal protection have been found in cases where a
statute is neutral on its face, but has a disparate impact on particular classes, those
cases involve discrimination against suspect or quasi-suspect classes, like race, age, or
gende r. See Yick Wo v. Hopkins, 118 U.S. 355, 6 S . Ct. 1064, 30 L. Ed. 22 0 (1886);
Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U.S. 252, 97 S. Ct. 555,
50 L. Ed . 2d 450 ( 1 977); Personnel Adm’r of Mass. V. Feeney, 442 U.S. 256, 99 S.
Ct. 228 2 60 L . Ed. 2d 870 (1 979).
This case d oes not inv olve a susp ect or quasi-s uspect class , and to
establish any violation of due process or equal protection by the amendment, plaintiff
must show that the Leg islature intend ed to discrim inate agains t such deale rs when it
enacted the amen dment. Plaintiff wou ld be required to illustrate that the Legislature
“selected or reaffirmed a particular course of action at least in part ‘because of ,’ not
merely ‘in spite of,’ its adverse effects on an identifiable group.” Feeney, 442 U.S. at
279, 99 S. Ct. at 2296. Plaintiff’s allegations do not assert that the Legislature enacted
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this ame ndme nt, at leas t in part, to discrim inate ag ainst priv ate prop ane de alers.
Moreover, discrimination against private propane dealers is not apparent on the face
of the amendment. Accordingly, plaintiff has not stated a claim for violation of due
process or equal protection.
We affirm the judgment of the Trial Court for the foregoing reasons, and
remand with cost of the appeal assessed to plaintiff.
__________________________
Herschel P. Franks, J.
CONCUR:
___________________________
Charles D. Susano, Jr., J.
___________________________
William H. Inman, Sr.J.
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