Wolfe v. Flathead Elec. Coop., Inc. – Patronage Capital Refunds

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.

While this decision is not binding on Indiana courts, it serves as a good reminder of how statutes of limitations are enforced, as well as the potential exceptions to their enforcement. While the court did not find it here, any action by an REMC which would make their policies less transparent to its members could toll the statute of limitations and revive a claim that would otherwise not be available to a plaintiff. By making its policies clear to its members, an REMC lessens the time period for potential claims against it, which in turn significantly reduces the costs on litigation.

 

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.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.