Davis v. Cooperative

WILLIAM A. DAVIS, on behalf of himselfand on behalf of others similarly situated, Plaintiff, v. CENTRAL ALABAMA ELECTRIC COOPERATIVE, Defendant.

CIVIL ACTION 15-0131-WS-C

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ALABAMA NORTHERN DIVISION

August 11, 2015

ORDER

This matter comes before the Court on plaintiff William A. Davis's Motion to Remand (doc. 8), the Magistrate Judge's Report and Recommendation (doc. 21) recommending denial of said Motion, and plaintiff's Objection (doc. 24) to same.

I. Background.

On July 10, 2015, Magistrate Judge Cassady entered a Report and Recommendation in which he recommended that plaintiff's request to remand this action to the Circuit Court of Dallas County, Alabama, be denied. The Report and Recommendation concluded that federal subject matter jurisdiction properly lies pursuant to the so-called federal officer removal statute, which authorizes removal of any civil action against "any officer (or any person acting under that officer) of the United States or of any agency thereof, ... for or relating to any act under color of such office." 28 U.S.C. § 1442(a)(1).

Davis timely filed an Objection, which has now been taken under submission. By statute, the undersigned "shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(b)(1). The applicable legal standard expressly authorizes the district court to "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." Id. This Order proceeds in recognition of those principles.

II. Analysis.

To establish jurisdiction under § 1442(a)(1), a removing defendant 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 v. Bill Vann Co., 2011 WL 6056083, *3 (S.D. Ala. Dec. 6, 2011). The Report and Recommendation concluded that defendant, Central Alabama Electric Cooperative ("CAEC"), had satisfied each of these elements. Plaintiff now offers objections that relate to the second, third and fourth factors. Each will be considered in turn.

A. The 'Acting Under' Requirement.

To satisfy the "acting under" requirement, a removing defendant must show something more than its status as a regulated firm or its obligation to comply with federal law. See, e.g., Watson v. Philip Morris Companies, Inc., 551 U.S. 142, 153, 127 S.Ct. 2301, 168 L.Ed.2d 42 (2007) ("a highly regulated firm cannot find a statutory basis for removal in the fact of federal regulation alone," and "[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'"). Rather, this "acting under" element "must involve an effort to assist, or to help carry out, the duties or tasks of the federal superior." Id. at 152. Also, "[c]ritical under the statute is to what extent defendants acted under federal direction at the time they were engaged in the conduct now being sued upon." In re Methyl Tertiary Butyl Ether ("MTBE") Products Liability Litigation, 488 F.3d 112, 124-25 (2^nd Cir. 2007) (citation omitted).¹ Courts also look to whether the defendant "provides a service the federal government would itself otherwise have to provide." In re Commonwealth's Motion to Appoint Counsel Against or Directed to Defender Ass'n of Philadelphia, --- F.3d ----, 2015 WL 3634888, *8 (3^rd Cir. June 12, 2015); see also Ruppel v. CBS Corp., 701 F.3d 1176, 1181 (7^th Cir. 2012) ("Casesin which the Supreme Court has approved removal involve defendants working hand-in-hand with the federal government to achieve a task that furthers an end of the federal government."). In evaluating a § 1442(a)(1) removal, courts must remain cognizant that, in contrast to other removal provisions, "[t]he words 'acting under' are broad, and this Court has made clear that the statute must be 'liberally construed.'" Watson, 551 U.S. at 147.

In his Objection, plaintiff maintains that the "acting under" requirement of § 1442(a)(1) is not satisfied here because the Rural Utilities Service ("RUS") simply "has a debtor/creditor relationship with CAEC." (Doc. 24, ¶ 6.).² This characterization does not fairly capture the nature of the relationship and interaction between RUS and CAEC, as portrayed by defendant. As the Report and Recommendation explains, review of the history of RUS and its predecessor, the Rural Electrification Administration ("REA"), reveals that CAEC and other rural electric cooperatives exist to provide a necessary public function conceived and directed by the United States. (See doc. 21, at 14-16.)³ In this regard, CAEC and other rural electric cooperatives assist the federal government by carrying out the rural electrification program, providing electric power supply and distribution services that the RUS would otherwise have to undertake to provide itself. (Id.)⁴

As an instrumentality of the United States furthering the federal government's objective of providing economical electric power to farms that investor-owned utilities had forsaken, CAEC is much more than merely a borrower from a federal agency. Viewed in this light, CAEC works hand in hand with RUS to assist that agency in facilitating rural electrification, providing services that otherwise RUS would have to perform in order to fulfill that objective. These specific considerations concerning the shared goals and interrelationship between CAEC and federal regulators demonstrate that, far from an ordinary, run-of-the-mill borrower/lender relationship, CAEC effectively assists and helps RUS in fulfilling its statutory objective.

In addition to helping RUS to carry out its public function, CAEC operates under close supervision, direction and control of RUS. The Report and Recommendation correctly observed that RUS exercises considerable control over CAEC's operations, pursuant to both detailed governing regulations and extensive contract provisions. (Doc. 21, at 6-9.)⁵ This level of controlis significant to the "acting under" analysis. See, e.g., Carter v. Monsanto Co., 635 F. Supp.2d 479, 488 (S.D. W.Va. 2009) ("a defendant acts under the control of a federal officer if the federal officer has 'direct and detailed control' over the activity"); Swanstrom v. Teledyne Continental Motors, Inc., 531 F. Supp.2d 1325, 1331 (S.D. Ala. 2008) ("To determine whether a defendant is acting under the direction of a federal officer depends on the detail and specificity of the federal direction of the defendant's activities and whether the government exercises control over the defendant.") (citations and internal quotation marks omitted). The Report and Recommendation properly relied on the unusually close and detailed regulatory and contractual relationship between CAEC and RUS and determining that this case is distinguishable from the ordinary situation where a defendant in a highly regulated industry or in a contractual relationship with the government does not thereby satisfy the "acting under" requirement of § 1442(a)(1).⁶

In light of the foregoing considerations, and with due regard for the liberal construction that § 1442(a)(1) must be afforded and the breadth of its "acting under" language, the Court makes a de novo determination that plaintiff's claims in this action are based upon CAEC's conduct "acting under" a federal officer. Plaintiff's objections to that aspect of the Report and Recommendation are overruled.

B. The "Causal Nexus" Requirement.

To satisfy § 1442(a)(1), CAEC must also show a causal nexus between the acts that form the basis of the lawsuit and the defendant's acts performed pursuant to either the federal officer's direct orders or comprehensive regulations. See, e.g., Citrano v. John Crane-Houdaille, Inc., 1 F. Supp.3d 459, 469 (D. Md. 2014) ("To establish a causal connection, GE must show that the acts that form the basis for the state civil suit were performed pursuant to an officer's direct orders or to comprehensive and detailed regulations.") (citations, internal marks and footnote omitted); Cabalce v. VSE Corp., 922 F. Supp.2d 1113, 1122 (D. Haw. 2013) ("The 'causal nexus' between a federal officer's directions and the private actor must be predicated on a showing that the acts forming the basis of the state suit were performed pursuant to an officer's direct orders or comprehensive and detailed regulations.") (citations and internal quotation marks omitted). "The causal nexus requirement does not establish a stringent standard .... The defendants in this case need only show that the federal direction created the circumstances underlying the liability." Carter, 635 F. Supp.2d at 489; see also Morgan, 2011 WL 6056083, at *8 (similar).

The Report and Recommendation correctly found that the low hurdle of the "causal nexus" requirement has been overcome. (Doc. 21, at 16-18.) The gravamen of the Complaint is that CAEC violated Alabama law and contractual provisions by repeatedly and consistently failing to refund excess revenue to its members in the form of patronage refunds. Meanwhile, CAEC's filings identify federal direction by which RUS purportedly forbade CAEC (in its role as an instrumentality of the United States performing rural electrification services hand-in-hand with RUS) from distributing the very patronage capital refunds that Davis demands in thislawsuit.⁷ Defendant's position is that it "cannot make yearly cash refunds of all patronage capital because of this detailed regulation and the loan contract." (Doc. 11, at 12; see also doc. 1, at ¶¶ 6-8.) Such an allegation, if proven, readily establishes the requisite causal connection between the federal direction of CAEC (i....