City of Morgan City v. South Louisiana Electric Cooperative Ass'n

ON PETITION FOR REHEARING AND SUGGESTION FOR REHEARING EN BANC

Before POLITZ, Chief Judge, DAVIS and WIENER, Circuit Judges.

PER CURIAM:

We deny Morgan City’s petition for rehearing in this case.¹ We take this opportunity, however, to address a number of Morgan City’s arguments.

Morgan City first argues that we have created a far-reaching “per se” rule of preemption that is inconsistent with the Supreme Court’s decision in Arkansas Electric Coop. Corp. v. Arkansas Public Service Commission, 461 U.S. 375, 103 S.Ct. 1905, 76 L.Ed.2d 1 (1983). The Arkansas Electric ease is distinguishable. In that decision, a rural electric cooperative mounted a facial challenge to a state’s right to regulate a rural cooperative’s wholesale electric rates. The Court held that the Rural Electrification Act (“REAct”), 7 U.S.C. § 901 et seq., does not preempt a state’s “mere assertion of jurisdiction” to regulate a cooperative’s rates. Id. at 389, 103 S.Ct. at 1915.

In the present case, SLECA does not assert a facial challenge to a state’s power to regulate or expropriate a rural cooperative’s service area and equipment. Rather, SLE-CA challenges actual expropriations of its specific property and service rights. Morgan City’s characterization of our decision as creating a “per se” rule of preemption is therefore mistaken. The panel’s preemption analysis focussed on the actual effect of these specific expropriations, not whether the REAct facially preempts all attempts by states to expropriate the property of a rural cooperative. Significantly, Arkansas Elec-trie confirms that concrete action taken by a state “may so seriously compromise important federal interests, including the ability of the [coop] to repay its loans, as to be implicitly preempted by the Rural Electrification Act.” 461 U.S. at 389, 103 S.Ct. at 1915 (emphasis added). Morgan City’s argument is thus unavailing.

Morgan City argues next that the language of the REAct does not create a federal purpose which could be frustrated if the threatened condemnation were allowed to proceed. We disagree. The language of 7 U.S.C. § 907 reflects Congress’ concern that piecemeal disposition of a cooperative’s property and service rights might impair the Rural ■ ■ Electrification Administration’s (“REA”) security interest in the cooperative’s assets. Section 907 prohibits a cooperative or other entity that borrows funds from the REA from “sell[ing] or dispose[ing] of its property, rights, or franchises” without the agency’s prior approval. In the panel opinion, we declined to decide whether § 907 should be interpreted broadly enough to allow the REA to prevent a proposed expropriation.² However, at the very least, the provision reflects a general federal policy of protecting the integrity of the REA’s security interests. Thus, even a narrow interpretation of § 907 supports the panel’s preemption analysis'.

Finally, we reject Morgan City’s contention that the record, does not support the panel’s conclusions. SLECA’s summary judgment evidence includes a copy of a comprehensive twenty-eight page report on the effect of proposed expropriations prepared by the REA, the agency charged with administering the REAct. The report considered not only the number of SLECA’s customers affected by the expropriations, but also the extent to which these customers accounted ■for a large percentage of SLECA’s revenues because of the density of the service area involved. The report concludes that the planned condemnations would reduce SLE-CA’s gross revenues by $768,000 annually and decrease its system operating margins by 88.26%. In assessing the effect of the condemnations, the REA also considered future planned expropriations by Morgan City (the Phase III Plan) and the nearby City of Houma.

Morgan City’s summary judgment affidavits fail to effectively rebut the REA report’s detailed findings. Morgan City’s primary contention is that the panel should not have considered the proposed future expropriations in assessing the impact on SLECA. However, these proposed condemnations were not merely hypothetical threats. SLE-CA points to testimony by Morgan City’s mayor that Phase III was fully planned and ready for implementation. The REA report also points to statements by Houma city officials revealing that the city planned to expropriate SLECA’s adjoining service area. These planned future expropriations were thus highly relevant to assessing the overall impact of the expropriations on SLECA. If courts are . not allowed to ■ consider fully planned future expropriations under these circumstances, states and municipalities could escape preemption by merely dividing planned expropriations into incremental phases that, when considered individually, are insufficient to invoke preemption.

For these reasons, Morgan City’s petition for panel rehearing is DENIED.

A member of the court in active service having requested.a poll on the reconsideration of this cause en banc, and a majority of the judges in active service not having voted in favor, rehearing en banc is DENIED.

1 . City of Morgan City v. South Louisiana Elec. Coop. Ass’n, 31 F.3d 319 (5th Cir.1994).

2 . The Ninth Circuit has suggested in two decisions that § 907 might authorize the REA to block a proposed expropriation. In both decisions, however, the court ultimately based its holding on the fact that the proposed condemnation frustrated a federal purpose. See Public Utility District No. 1 of Franklin County v. Big Bend Elec. Coop., Inc., 618 F.2d 601, 603 (9th Cir.1980); Public Utility District No. 1 of Pend Oreille County v. United States, 417 F.2d 200, 200-02 (9th Cir.1969).