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In 1990, the State of Pennsylvania enacted a statutory scheme for regulating 911 emergency calls throughout the State. Most notably, counties were responsible for maintaining 911 systems and were obliged to make arrangements with local exchange carriers (“LECs”) operating within the county to provide 911 service. Service providers would impose a charge on its customers to pay for the 911 service. Funds collected via this new charge would be reimbursed to the counties. In April of 2016, the County of Butler filed a complaint against CenturyLink, and other LECs (collectively “Providers”) operating within the county, alleging that they have failed to assess the proper charges to reimburse Butler County for its expenses related to setting up a 911 emergency call system. The County couched its claims based on various common law theories. Providers respond that Butler County is barred from bringing any claims against them, as the 911 Emergency Call Act explicitly gave enforcement authority to the Pennsylvania Emergency Management Agency (“PEMA”), and that the statute’s explicit grant of enforcement authority precludes any other party from enforcing the statute.

Ultimately, the Supreme Court of Pennsylvania ruled in favor of Providers. As an initial note, The Court found that its decision did not implicate any party’s due process rights. A county’s right to reimbursement for setting up a 911 system was granted purely by statute, and thus the enforcement of such rights could be limited by statute. While the Court found the statute to be ambiguous, it ultimately agreed with the Providers’ interpretation. The Court held that any action to enforce the 911 Act’s requirement that LECs charge customers for 911 services may only be brought by PEMA. Thus, Butler County’s various common law claims were properly dismissed. However, this does not mean that Pennsylvania counties are without a remedy. In his concurring opinion, Justice Todd noted that, should the current state of affair continue, Butler County would be entitled to bring a mandamus action against PEMA for its failure to enforce the 911 Act.

Jeremy Fetty is a partner in the law firm of Parr Richey with offices in Indianapolis and Lebanon. Mr. Fetty is current Chair of the Firm Utility and Business Section and often advises businesses and utilities (for profit, non-profit and cooperative) on regulatory, compliance, and transactional matters.

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Great River Energy (“GRE”) is a G&T cooperative that services 28 members. Crow Wing Coop. Power & Light (“Crow Wing”) is one of GRE’s 28 members. In 2004, Crow Wing entered into a power purchase contract with GRE. The pertinent parts of power purchase contract are (i) the section which provides the rate making formula and governs GRE’s charges to members for generated electricity, and (ii) the sections governing GRE’s amendment of its rate formula.

The contract obligated Crow Wing to acquire a fixed portion of the total power it purchases from GRE. For members obligated to purchase fixed- portion of power, the member’s rate is calculated in part by accounting for the various power plants (“resources”) that serve that particular member. Thus, each fixed-portion member may be charged a different rate based on the resources associated with that member. In the event that GRE chooses to retire a resource, a fixed-portion member is entitled to reduce the amount of energy it is required to purchase. The contract also provides that when GRE retires a resource, it is entitled to pass on certain costs associated with the retirement.

As to the amendment of rates and charges, the contract allows GRE to amend its rates so long as it obtains sufficient member approval. Specifically, GRE may amend its rates by obtaining approval of (i) 55% of its members, and (ii) members representing 45% of its load. GRE has amended its rate formula twice since 2004, most recently in 2009. Even though Crow Wing voted against the 2009 amendment, GRE obtained sufficient approval for the amendment.

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Alcorn County Electric Power Association (“ACE”) began supplying The Door Shop, Inc. (“Door Shop”) with electric service beginning in November 2004. In the course of setting up Door Shop’s account, ACE failed to enter the proper data into their billing system. This error resulted in Door Shop being dramatically under-billed for their electric service. From November 2004 to January 2011, the actual price Door Shop should have paid ACE for electric service was $36,081.86. However, due to the entry error in ACE’s billing system; Door Shop was only charged $10,396.28 for electric service over that period. After Ace discovered this error, it sent Door Shop a supplemental bill for the under-billed amount of $25,685.58. After the Door Shop refused to pay the under-billed amount, ACE filed suit in Mississippi Circuit Court to recover the amount due. Summary judgment was eventually granted in favor of ACE and Door Shop was ordered to pay the under-billed amount. Door Shop appealed to the State Supreme Court.

Door Shop first challenges the trial court’s grant of summary judgment on jurisdictional grounds, claiming that the Mississippi Public Service Commission (“MPSC”) has exclusive jurisdiction over this case. Under the applicable state statute, the MPSC has “exclusive original jurisdiction” over a utility’s intrastate supply of electric service. However, that same statute also states that the MPSC “shall not have jurisdiction to regulate the rates for the sales and/or distribution [of electricity].” Thus, Door Shop’s jurisdictional argument hinges on whether or not the issue presented in this case can be attributed “rates” set by ACE. Door Shop argues that the error in ACE’s billing system presents an issue of “quality of service” rather than “rates.” The Mississippi Supreme Court rejected Door Shop’s argument. The Court stated that Mississippi law defined the term “rate” broadly. Taking this broad definition into account, and considering that the error occurred in ACE’s billing system, the Court held that this case fell squarely within the purview of rates. Thus, the trial court did not err in disposing of ACE’s claim originally rather than referring it to the MPSC.

The Supreme Court then addressed whether granting ACE summary judgment was proper. In affirming the trial court’s decision, the Supreme Court emphasized that ACE’s bylaws specifically address errors in billing. The by-laws provide that, were an error in billing occurs, ACE has the right to issue a sub-bill for the unaccounted for amount owed, regardless of who caused the error or when it was discovered. Because Door Shop agreed to be bound by Ace’s bylaws in the service agreement between the two parties, ACE is entitled to recover the un-billed amount of $25,685.58 as a matter of law.

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In 2015, the town of Avon passed an ordinance which allowed the town to force a utility to relocate facilities on public streets or public rights-of-way at the utilities expense due to municipal projects. Duke Energy subsequently filed a complaint with the IURC, alleging Avon’s ordinance violated Indiana law. Initially, the IURC dismissed the complaint because Avon had already initiated suit in Hendricks County. Duke appealed, and the Indiana Court of Appeals reversed the IURC’s dismissal, finding that the IURC had exclusive jurisdiction to hear the claim. The IURC proceeded to hear the merits of the claim. On January 23, 2019, the IURC issued an Order holding that Avon’s Ordinance is unreasonable and void.

The IURC found Avon’s ordinance unreasonable for four primary reasons. First, the ordinance required that utilities must relocate their facilities within 60 days, which is inconsistent with INDOT relocation procedures. Second, the ordinance required a utility to bear all the costs associated with relocation. This is inconsistent with an Indiana statute requiring a utility to be reimbursed where that utility had property rights for existing facilities. Third, the ordinance unilaterally allows Avon to determine where and how the utility must relocate their facilities without any consideration of feasibility or least costly alternatives. Fourth, the Avon ordinance unreasonably burdens customers outside its limits by forcing them to contribute to Avon’s municipal projects.

The IURC did not decide on whether Avon must actually reimburse Duke, as it found it only had jurisdiction to consider the reasonableness of the statute, not to order any reimbursement. The IURC’s decision serves as a strong policy statement that utility property rights should be respected and an encroachment of such rights must be compensated. However, left unanswered was whether or not the IURC support reimbursement to utilities for relocating facilities without any declared property rights attached (i.e. easements by prescription). Relevant INDOT rules, if applicable, would hold that a relocating utility need not be compensated where they did not have any declared private property rights attached to the facilities.

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The Indiana Tort Claims Act (I.C. 34-13-3 et seq.) requires that notice must be filed before a plaintiff may bring a tort claim against any state agency or political subdivision. The timing of this notice is critical, as failing to file a tort claim notice within the applicable time limit will most likely bar an individual from seeking any remedy available under tort law. If an individual’s tort claim involves the State or any state agency, notice must be served upon the attorney general or the relevant state agency within 270 days of the incident occurring. I.C. 34-13-3-6(a). Where a tort claim is against a political subdivision, notice must be given to the governing body of such political subdivision, as well as with Indiana Political Subdivision Risk Management Fund, within 180 days of the event occurring. The definition of a political subdivision can be found at IC 34-13-3-22. In a case where an individual’s injury, or other circumstance, causes them to become incapacitated, or in the case where the injured party is a minor, the time limit tolls. I.C. 34-13-3-9. In such a case, the tort claims notice must be filed within 180 days after the incapacity ends, or in the case of a minor, 180 days after his/her 18th birthday.

It is important to note that whether a party is a state agency or a political subdivision is not always apparent. The Court of Appeals has held in one case that a state university is not an agent of the State, but rather a political subdivision subject to the 180 day tort claim notice deadline. Therefore, it is advisable that all tort claim notices be filed as soon as possible, ideally within 180 days.

James A. L. Buddenbaum has practiced law for more than 25 years with Parr Richey representing municipalities and businesses in utility, healthcare and general business sectors in both regulatory and transactional matters. Jim also has extensive experience in representing businesses in making large property damage and similar insurance claims.

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In an opinion issued on December 31, 2018, the Indiana Court of Appeals upheld Charlestown’s sale of its water utility to the Indiana-American Water Company. See Now!, Inc. v. Indiana-American Water Company, Inc., Case No. 18A-EX-844 (Ind. Ct. App. Dec. 31, 2018). The City of Charlestown owned and operated its water utility for over fifty years. Id. at 3. At the time of the sale, the water utility system served 2,898 metered accounts. Id. Due to the City’s failure to maintain its water distribution system properly, minerals began to build up in the system, causing some customers to see “brown water” flow from their taps. Id. at 4. The estimated cost to remedy Charlestown’s water system was $7.2 million. Id. Concluding that this repair cost was too burdensome for the City to take on, City officials met with Indiana-American in the Spring of 2016 to discuss the sale of Charlestown’s water utility. Id. Appraisers valued the utility’s assets at just under $13.5 million. Id. at 5. Charlestown and Indiana American agreed on a sale price of $13,403,711. Id. This price reflected the appraised value of the water utility minus the value of a few wells/well pumps which Charlestown would retain and lease to Indiana-American. Id. The City held a public meeting to discuss the sale on May 11, 2017. Id. On July 6, 2017, the City adopted an ordinance to sell the utility. Id. A day later, NOW filed a complaint with the IURC asking it to reject the sale. Id. at 6. NOW eventually filed a motion for summary judgment, and the IURC held a three-day evidentiary hearing on the motion. Id. After the hearing, the IURC denied NOW’s motion and approved the sale. Id. at 7.

On appeal, the Court addressed three issues: (i) whether the sales price was reasonable as required by statute, (ii) whether information relating to the sale was properly made available to the public, and (iii) whether the statute requiring a public hearing on the sale was satisfied. Id. at 3. The “reasonableness” of a municipal utility’s sale price is defined by two statutes: Ind. Code § 8-1.5-2-6.1 (applying to the sale of “non-surplus utility property”) and IC §8-1-30.3-5 (applying to the sale of property by “distressed utilities”). Id. at 12. NOW argued that these two statutes present two distinct reasonableness standards and that the IURC applied the wrong standard in its order approving the sale. Id. The Court of Appeals rejected this argument; finding that the two statutes govern similar situations must be read harmoniously. Id. at 20. It determined that, since Charlestown sold its water utility to Indiana-American for its appraised value, the sales price was reasonable under both statutes. Id. at 21.

As to the second issue, NOW argued that Charlestown failed to comply with IC § 8-1.5-2-4 which requires that certain information about the sale be made available to the public “in a written document.” Id. at 21-22. Charlestown made the required information available, but failed to compile it into a single document. Id. at 22. Acknowledging this failure, the Court nonetheless held that Charlestown made the required information available in substantial compliance with § 8-1.5-2-4. Id. at 23. Finally, the Court of Appeals held that the timing of Charlestown’ public hearing to discuss the sale was proper. Id. at 26.

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On January 11, 2019, the Indiana Court of Appeals held that the trial court properly denied appellant RCM Phoenix Partners LLC’s (“Phoenix”) slander of title claim, even though the appellee 2007 East Meadows, LP (“Meadows”) failed to raise a claim of absolute privilege at the trial court level and raised it for the first time on appeal.

Due to complications surrounding an assignment of a purchase agreement and assumption of an existing mortgage of an apartment community (“Property”) to Meadows, the parties were unable to close on the Property. Meadows sued Phoenix in Texas, alleging that Phoenix breached the purchase agreement and committed fraud. Meadows filed a lis pendens notice against the property of the pending Texas lawsuit. The trial court in Texas dismissed the lawsuit for lack of personal jurisdiction, but a second suit in Indiana, where Phoenix countersued and added a slander of title claim to its complaint continued. In Meadows’ answer, it did not assert that the lis pendens notice was privileged. Meadows first raised the claim of absolute privilege upon Phoenix’s appeal of a trial court decision that found in favor of Phoenix’s claim for retention of the earnest money but found in favor of Meadows for the slander of title claim.

The Court of Appeals noted that while the general rule is that an argument or issue raised for the first time on appeal is waived and thus ineligible for appellate review, the trend in recent Indiana Supreme Court cases is to allow an appellee seeking affirmance of a trial court’s judgment to defend the trial court’s ruling on any basis, including with arguments not raised at trial. Here, because Meadows was the appellee and sought an affirmance of the trial court’s decision to deny the slander of title claim, the Court of Appeals held that Meadows had not waived the right to argue that it had absolute privilege from a slander of title claim.

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Both the IRS excess benefit statute and the private inurement doctrine DO NOT apply to tax-exempt cooperatives. 26 U.S.C. § 4958(c) defines an excess benefit transaction as “any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person.” For the purposes of this statute, an applicable tax-exempt corporation includes “any organization which…would be described in 501(3),(4), or (29)…” See 26 U.S.C. § 4958(e). As far as private inurement goes, the general rule is that no one private individual may benefit (i.e. receive earnings) from a charitable organization. (See Treas. Reg. Section 1.501(c)(3)-1(c)(2)). Allowing such inurement would run contrary to notion that many charitable organizations are set up for the benefit of the public, not individuals. However, coops are the exception to this doctrine. Indeed, tax-exempt organizations under 501(c)(12) do not share the same purpose as 501(c)(3)-(4) corporations. Unlike charitable corporations est. via 501(c)(3), coops organized under 501(c)(12) are set up precisely to benefit their members, who are almost always private individuals. Thus, application of the private inurement doctrine to tax-exempt cooperatives does not seem consistent with their established purpose.

 

James A. L. Buddenbaum has practiced law for more than 25 years with Parr Richey representing municipalities and businesses in utility, healthcare and general business sectors in both regulatory and transactional matters. Jim also has extensive experience in representing businesses in making large property damage and similar insurance claims.

The statements contained here are matters of opinion for general information purposes only and should not be considered by anyone as forming an attorney client relationship or advice for any particular legal matter of the reader. All readers should obtain legal advice for any specific legal matters.

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A group of four former cooperative members filed a breach of contract claim against Flathead Electric Cooperative. Wolfe v. Flathead Elec. Coop., Inc., 393 Mont. 312, 314 (Mont. 2018).Plaintiffs were members of the coop during various times, the latest of which was in 2007. Plaintiffs alleged that Flathead violated Montana law when it allocated patronage capital to their accounts, but did not actually refund any capital to the members on an annual basis. The Federal District Court of Montana mentioned that plaintiff’s claim would not likely prevail, as the statute governing capital refunds only requires that refunds be distributed “whenever the revenue exceeds the amount necessary to fund operations.” Id. However, the district court did not ultimately reach this question. Instead, it ruled that Plaintiffs did not file their claim within the applicable 8-year statute of limitations. Id. at 315.

On appeal, the Supreme Court of Montana affirmed. Id. at 313. When bringing a claim under a written contract, the statute of limitations runs from the moment a plaintiff’s claim accrues. Id. at 315. The Court held that Plaintiffs’ claim had accrued in February, 2008, as this was the date of the last board meeting that took place while Plaintiffs were still members of the cooperative. Id. at 315-16. Their complaint was filed in September, 2016 – 8-and-a-half years after their claim had accrued. Thus, the statute of limitations for Plaintiff’s breach of contract claim had expired. Id. at 316.

The court rejected plaintiff’s argument of fraudulent concealment, which would have tolled the statute of limitations until the time of discovery. Id. Flathead had a defined policy regarding patronage capital in their bylaws, and the Court did not find that it took any affirmative action to deceive Plaintiffs. Id. at 317. The Court also rejected the Plaintiff’s assertion that the breach is ongoing, holding that the latest any Plaintiff was a member was up to the board meeting of 2008, and that Plaintiffs had knowledge of the breach from that point onward. Id. at 316.

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On September 13, 2018, the Seventh Circuit Court of Appeals upheld an Illinois law, 20 ILSC 3855/1-75(d-5), who provides subsidies to some of the state’s struggling nuclear generation facilities, against a challenge by the Electric Power Supply Association (EPSA), an advocacy group for the electric power industry.

Under the Federal Power Act, the Federal Energy Regulatory Commission (FERC) is authorized to regulate the sale of electricity in interstate commerce while states regulate local distribution of electricity, as well as the facilities used to generate it. In this case, EPSA argued that the Illinois law was preempted by the Federal Power Act because the subsidies indirectly regulated the price of power, which only FERC has the authority to regulate.

The Seventh Circuit explained that the states’ and FERC’s powers under the Federal Power Act often overlap; it would be impossible for states to regulate the local distribution of electricity without at least affecting the price of power within its borders. If a state were to offer subsidies that depended on selling power in interstate auction, then the legislation would be preempted. However, the Illinois law in this case only regulates local generation of power. Thus, the court found no preemption and the law was upheld.

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