Opinion
CAUSE NO. 3:18-CV-818-CWR-FKB
2023-03-15
Ray C. TURNAGE, et al., Plaintiffs, v. Sam BRITTON, et al., Defendants.
Ellis Turnage, Ellis Turnage, Attorney, Cleveland, MS, David D. O'Donnell, Clayton O'Donnell, PLLC, Oxford, MS, for Plaintiffs. Justin L. Matheny, Mississippi Attorney General's Office, Jackson, MS, for Defendants Sam Britton, Cecil Brown, Brandon Presley. Jason B. Tompkins, Pro Hac Vice, Balch & Bingham, LLP, Birmingham, AL, Jonathan P. Dyal, Balch & Bingham, LLP, Gulfport, MS, for Defendant Mississippi Power Company.
Ellis Turnage, Ellis Turnage, Attorney, Cleveland, MS, David D. O'Donnell, Clayton O'Donnell, PLLC, Oxford, MS, for Plaintiffs. Justin L. Matheny, Mississippi Attorney General's Office, Jackson, MS, for Defendants Sam Britton, Cecil Brown, Brandon Presley. Jason B. Tompkins, Pro Hac Vice, Balch & Bingham, LLP, Birmingham, AL, Jonathan P. Dyal, Balch & Bingham, LLP, Gulfport, MS, for Defendant Mississippi Power Company. ORDER Carlton W. Reeves, UNITED STATES DISTRICT JUDGE
Before the Court are Defendant's Motion to Dismiss, the Plaintiffs' response in opposition, and the Defendant's reply. See Docket Nos. 78, 83, and 85. Upon review, the motion will be granted.
I. Factual and Procedural History
This dispute traces back more than a decade. It encompasses proceedings before a state regulator, the Mississippi Supreme Court, this Court, and the U.S. Court of Appeals for the Fifth Circuit. For purposes of brevity, the Court recounts the facts most relevant to the present motion.
On March 5, 2013, the Mississippi Public Service Commission ("the Commission") unlawfully authorized Mississippi Power Company ("MPC") to raise its customers' utility rates to finance the construction of a power plant in Kemper County, Mississippi. Docket No. 31 at 1. In 2015, the Supreme Court of Mississippi invalidated the rate increase and ordered MPC to refund customers the money it collected under the faulty rate. See Turnage v. Britton, 29 F.4th 232, 238 (5th Cir. 2022).
On November 6, 2015, MPC commenced issuing refund checks to ratepayers. It mailed out the final batch of checks on December 4, 2015. Id. Ratepayers who chose not "to receive a refund check received a credit on their utility bill instead." Id. On May 27, 2016, an independent auditor confirmed that all refunds "had been distributed" or "otherwise accounted for" and the refund program formally ended. Id.
On August 13, 2016, Plaintiffs commissioned economist Mark A. Cohen to compare the interest they would receive under the refund plan to the interest guaranteed by Mississippi statute. Id. Cohen informed them "that he believed that Mississippi Power had shorted them more than ten million dollars." Id. Cohen "calculated that, compounded annually, Mississippi Power would have owed customers $40.7 million in interest at the statutory rate" of 8% and $48.2 million in interest at the 9.5% weighted average cost of capital rate (WACC). Id. at 246.
A little more than three months later, Plaintiffs filed this case in this Court against MPC and three Mississippi Public Service Commissioners in their official capacities. Id. at 238. Plaintiffs asserted claims "under state law, as well as section 1983 claims under the Due Process Clause and the Takings Clause." Id. Seeking declaratory and injunctive relief against Defendants, Plaintiffs contended that the interest rate calculation governing the refund plan resulted in underpayment to Plaintiffs. Id.
In two separate orders, this Court dismissed the claims against the Commissioners and MPC. First, it determined that sovereign immunity barred Plaintiffs' claims against the Commissioners in their official capacities. Id. And second, the undersigned found that while the Johnson Act, 28 U.S.C. § 1342, did not divest the district court of subject matter jurisdiction over the remaining federal claims against MPC, those claims were time-barred under Mississippi law. Id. Plaintiffs appealed.
This Court also declined to exercise supplemental jurisdiction over the remaining state law claims under the Class Action Fairness Act and dismissed them without prejudice. See Turnage, 29 F.4th at 238.
On appeal, the Fifth Circuit affirmed the dismissal of Plaintiffs' claims against the Commissioners but vacated the dismissal of the claims against MPC. Id. at 246. It found that Plaintiffs' claims accrued on August 6, 2015, "when the Commission approved the refund plan proposed by Mississippi Power." Id. at 244. Emphasizing that the limitations period begins when "the circumstances would lead a reasonable person to investigate further," the Fifth Circuit noted that the refund plan neither mentioned the term "interest" nor "explain[ed] how interest would be calculated on the refunds." Id.; see Piotrowski v. City of Houston, 51 F.3d 512, 516 (5th Cir. 1995). Consequently, Plaintiffs did not have notice of facts which would have led to actual knowledge of injury on August 6. The Fifth Circuit remanded to determine the correct accrual date. Id. at 246.
Nevertheless, the Fifth Circuit suggested that the district court "need not reach the limitations issue" due to two additional arguments for dismissal raised by MPC. Id. at 246 n.ll. The first is MPC's argument that it is not a state actor subject to suit under § 1983. Id. The second is MPC's argument that ratepayers do not have a property interest in their refund protected by the Due Process Clause. Id. The Court will consider those issues first.
II. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed R. Civ. P. 12(b)(6). Upon considering a Rule 12(b)(6) motion, the Court accepts the plaintiff's factual allegations as true and makes reasonable inferences in the plaintiff's favor. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The complaint must "contain a short and plain statement of the claim showing that the pleader is entitled to relief." Id. Though the plaintiff need not "plead detailed factual allegations," a successful complaint requires "more than an unadorned, the defendant unlawfully-harmed-me accusation." Id. A claim must be "plausible on its face," enabling the court to draw reasonable inferences that the defendant is liable for the misconduct alleged." Id.
III. Discussion
A. State Actor
Section 1983 imposes liability on anyone who, under color of state law, deprives a person of "any rights, privileges, or immunities secured by the Constitution and laws." Blessing v. Freestone, 520 U.S. 329, 340, 117 S.Ct. 1353, 137 L.Ed.2d 569 (1997). To state a cause of action under § 1983, the plaintiff must allege that the person who caused the deprivation of a federal right was acting under color of law. See Cinel v. Connick, 15 F.3d 1338, 1342 (5th Cir. 1994). A private actor may be considered a state actor only if "there is such a close nexus between the State and the challenged action that seemingly private behavior may be fairly treated as that of the State itself." Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288, 295, 121 S.Ct. 924, 148 L.Ed.2d 807 (2001).
The United States Supreme Court has utilized a number of tests to evaluate whether the conduct of a private actor can be fairly attributable to the state: 1) the state compulsion test; 2) the nexus test; 3) the public function test; and 4) the joint-action test. Cornish v. Corr. Servs. Corp., 402 F.3d 545, 549-50 (5th Cir. 2005). The present motion concerns the first two tests, and the Court takes each up in part.
The Supreme Court has not resolved "whether these different tests are actually different in operation or simply different ways of characterizing [this] necessarily fact-bound inquiry." Lugar v. Edmondson Oil Co., 457 U.S. 922, 939, 102 S.Ct. 2744, 73 L.Ed.2d 482 (1982).
1. Compulsion Test
Under the state compulsion test, "a state normally can be held responsible for a private decision only when it has exercised coercive power or has provided such significant encouragement, either overt or covert, that the choice must in law be deemed to be that of the state." Bass v. Parkwood Hosp., 180 F.3d 234, 242 (5th Cir. 1999) (citing Blum v. Yaretsky, 457 U.S. 991, 1004, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982)).
Plaintiffs argue that MPC is a state actor. They reason that MPC acted "pursuant to a Commission order in devising the proposed refund plan." Docket No. 84 at 25. In essence, they say, the fact that the Commission approved the refund plan "fully define[s] the scope and character of the Commission's and [Mississippi Power's] role" in "institut[ing] the refund process" and "calculat[ing] the interest at a rate which was less than what Mississippi law required." Id. at 21, 25.
MPC disagrees. It asserts that the Commission - and no one else - "served as the decision-making body overseeing Mississippi Power's requests to raise rates and approve" the refund plan. Docket No. 79 at 13. The simple fact that the Commission approved the refund plan at the increased rate, they say, is not sufficient to establish Mississippi Power "had enough of a nexus to render it a state actor." Id.
The Court finds Plaintiffs' arguments unpersuasive. Plaintiffs' sole allegation rendering MPC a state actor is that the Commission approved MPC's proposed refund plan. They fail to plead any facts that the Commission exerted influence over MPC's proposed refund plan. Lost on Plaintiffs is that "the nature of governmental regulation of private entities is such that a utility may frequently be required by the state regulatory scheme to obtain approval." Jackson v. Metropolitan Edison Co., 419 U.S. 345, 357, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974). A state utility commission's approval, "where the commission has not put its own weight on the side of the proposed practice by ordering it, does not transmute a practice initiated by the utility and approved by the commission into 'state action.' " Id. To hold otherwise would transform nearly every private entity into a state actor for following the orders of a government agency.
2. Nexus Test
Similarly, the nexus test finds state action where the state has "so far insinuated itself into a position of interdependence with the [private actor] that it was a joint participant in the enterprise." Id. at 357-58, 95 S.Ct. 449.
Plaintiffs assert that the nature of the relationship between MPC and the Commission establishes a close nexus. In describing that relationship, Plaintiffs list several reasons detailing "a pattern of joint illegal behavior," including that: 1) MPC "proposed a 'Mirror CWIP' surcharge to be added to its customer's rates - a rate unknown in the law"; 2) the Commission and MPC "engaged in secret negotiations leading to the execution of a Settlement Agreement"; 3) the "Commission acted in excess of its jurisdiction in approving the 'mirror-CWIP' in accordance with the Secret Agreement"; 4) the Commission and MPC's "agreement not to disclose the details of the 'mirror-CWIP' to ratepayers"; and 5) "the denial of the ratepayer's due process rights to notice and an opportunity to be heard on the proposed 'mirror-CWIP' surcharge." Docket No. 84 at 23-24.
At heart, in the hopes of establishing some nexus, Plaintiffs suggest that MPC and the Commission conspired in approving the refund plan. The Fifth Circuit has established that conspiracy claims under § 1983 require that the plaintiff allege facts that show: 1) "an agreement between the private and public defendants to commit an illegal act and 2) an actual deprivation of constitutional rights." Arsenaux v. Roberts, 726 F.2d 1022, 1024 (5th Cir. 1982); see also Villanueva v. McInnis, 723 F.2d 414, 418 (5th Cir. 1984).
To bolster their claims, Plaintiffs rely on the Mississippi Supreme Court's ruling in Mississippi Power Co., Inc. v. Mississippi Public Service Comn'n., 168 So. 3d 905, 915 (Miss. 2015). In that case, the court noted that "the public has a right to know when and how much its rates will be increased at all stages of a proceeding" and that the "Commission's decision to govern in a cloak of secrecy and grant confidentiality to rate-impact information was arbitrary and capricious." Id. Plaintiffs fail to point to any Fifth Circuit authority analogizing the facts of this case to precedent or plead any specific facts tending to show a prior agreement between MPC or the Commission that led to the enactment of the refund plan. Consequently, the Court finds it difficult to infer that the Commission's erroneous decision to govern behind closed doors leads to the inference that an agreement or concerted effort to engage in illegal behavior exists. See Bell Atlantic Corp v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (noting that a "plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions").
Because Plaintiffs fail to plead specific facts that attribute MPC's refund plan to the State under either the state compulsion or nexus test, the Court finds that MPC is not a state actor.
B. Property Interest Under the Due Process Clause
The next issue is whether ratepayers have a property interest in the refund protected by the Due Process Clause.
The Due Process Clause "protects only against a deprivation of liberty or property interests." Wells Fargo Armored Service Corp. v. Georgia Public Service Comm'n, 547 F.2d 938, 940 (5th Cir. 1977). To establish a Due Process violation, a plaintiff must establish a denial of a constitutionally-protected property right. See Bryan v. City of Madison, Miss., 213 F.3d 267, 274 (5th Cir. 2000). Because the Constitution does not create property interests, such a showing "must be made by reference to state law." Id.; see also Schaper v. City of Huntsville, 813 F.2d 709, 718 (5th Cir. 1987).
Plaintiffs reject the notion that they have a constitutionally-protected property right to a particular utility rate. Docket No. 84 at 26. Rather, they assert that ratepayers who receive refunds per a Commission-issued Order "have a constitutionally protected right in receiving interest on the illegally collected 'mirror CWIP' surcharge at the lawful rate." Id. (emphasis added).
MPC sets forth two reasons why there is no constitutionally-protected right to such interest. First, it claims that the refunds themselves are utility rates. Docket No. 79 at 17. To MPC, "advocating for a different interest rate than what was approved by the Commission is no different from arguing the utility rate approved to effectuate the refund was too low." Id. Second, MPC says, any "claim to interest takes the same character as the principal from which such interest derives." Id. Stated differently, if a utility rate itself is not a constitutionally-protected right, then any interest associated with that utility rate is also not protected. Id. at 17-18.
The analysis begins by reviewing the specific Mississippi laws Plaintiffs rely on to establish a protected property interest. Mississippi Code §§ 77-3-39(12) provides as follows:
Should the final judicial determination of an appeal of a commission's final order rendered pursuant to subsection (9) hereof result in a schedule of rates less than what the commission allowed, the commission shall by order require the refund to customers of any amounts collected by a utility under bond, or other arrangements, during the appellate process which the courts found to be in excess of the amounts that should have been allowed by the commission in its final order. Such refunds shall be made in full, including interest at the lawful rate and shall be made within ninety (90) days after such final judicial determination. In lieu of payment, the utility may credit the service account with the amount due under this subsection if the consumer entitled to the refund is, at that time, a consumer of the utility.Mississippi Code §§ 75-17-1(1) continues:
The legal rate of interest on all notes, accounts and contracts shall be eight percent (8%) per annum, calculated according to the actuarial method, but contracts may be made, in writing, for payment of a finance charge as otherwise provided by this section or as otherwise authorized by law.
Plaintiffs claim that these statutes "provide the source of the ratepayers' entitlement interest at the lawful rate, not [Mississippi Power's] 'average weighted cost of capital.' " Docket No. 84 at 26.
The Court is not convinced that these statutes create a property right to receive interest on an unlawful utility rate. Rather, the statutes function by regulating the conduct of public utilities. See Crosby v. City of Jackson, 813 F. Supp. 476, 478 (S.D. Miss. 1993). There exists no language in either statute that expressly creates any entitlement "that extends to a particular class of individuals." Id. The simple fact that a state law exists "does not necessarily create an interest protectable by the Due Process Clause, and that therefore, a state does not necessarily violate the Constitution every time it violates one of its rules." Riccio v. County of Fairfax, Va., 907 F.2d 1459, 1466 (4th Cir. 1990) (citing Olim v. Wakinekona, 461 U.S. 238, 249-50, 103 S.Ct. 1741, 75 L.Ed.2d 813 (1983)); see also Garraghty v. Com. of Va., Dept. of Corrections, 52 F.3d 1274, 1285 (4th Cir. 1995) (recognizing that "the mere fact that a state agency violates its own procedures does not ipso facto mean that it has contravened federal due process requirements").
Therefore, because Mississippi law has not created a protected property interest in a specific utility rate, or interest rate, Plaintiffs' Due Process rights have not been violated.
IV. Conclusion
In sum, the Court finds that Plaintiffs have not sufficiently stated a claim upon which relief can be granted. Accordingly, the Motion to Dismiss is granted. Plaintiffs have preserved their arguments for further review. A separate Final Judgment shall issue.
SO ORDERED, this the 15th day of March, 2023.