The opinion of the court was delivered by: MCLAUGHLIN
On October 3, 1950, Kansas City Power & Light Company, of Kansas City, Missouri, and nine other privately-owned electric-utility corporations,
doing business in and about the State of Missouri, joined as plaintiffs in filing suit in the United States District Court for the District of Columbia for injunctive, declaratory and other relief against certain officials of the United States Government responsible for the administration of the Rural Electrification Act of 1936, as amended,
7 U.S.C.A. § . 901 et seq., and Section 5 of the Flood Control Act of 1944, as amended,
16 U.S.C.A. § . 825s.
Plaintiffs, holders of non-exclusive franchises, engaged in the business of generating, transmitting, distributing and selling electric power and energy at wholesale and retail to consumers in their respective territories, base their right to relief upon alleged violations of specific statutory provisions of the RE Act, supra, and the Flood Control Act, supra, by the Secretary of Agriculture and the Administrator of the Rural Electrification Administration (an agency of the Department of Agriculture
), and by the Secretary of the Interior and the Administrator of Southwestern Power Administration (an agency of the Department of the Interior
). The Secretary of the Treasury who also joined as a proper but not necessary party defendant.
Jurisdiction of the Court was invoked under the Court's general equity powers, under the Administrative Procedure Act, 5 U.S.C.A. § . § .1001-1009, and under the Declaratory Judgments Act, 28 U.S.C. § . § . 2201, 2202. Plaintiffs also pleaded the requisite jurisdictional amount.
It is alleged in the complaint that defendants
, acting pursuant to a confederated plan, had conspired in concert with each other and with others, unknown to plaintiffs, to enter into a system of contracts between the United States and five federated rural electric cooperatives to enable SPA to acquire by the use of REA funds, without Congressional authorization and in violation of the law, steam or thermal generating capacity and transmission lines which would allegedly duplicate plaintiffs' facilities and thereby deprive plaintiffs of existing and potential customers and being destructive competition to the plaintiff utilities and other privately-owned utilities operating in and adjacent to what is known as the Southwestern Power Area.
The complaint further alleges that defendants, as part of the conspiracy, had executed or were about to execute several contracts in each of which the Government (as represented by REA or by SPA) was or would be named as one party to the contract and one of the above-mentioned five federated rural electric co-operatives, namely, N.W. Electric Power Cooperative, Inc., Central Electric Power Cooperative, Sho-Me Power Corporation, KAMO Electric Cooperative, Inc., or M & A Electric Power Cooperative
, was, or would be, named as the other party to the contract.
The federated cooperatives are privately owned corporations whose members consist of smaller rural electric distribution cooperatives. They are independent corporations organized under the laws of their respective States to enable the rural residents they serve to secure electric service as intended under the provisions of the RE Act. It is asserted by plaintiffs that the federated cooperatives are merely 'paper organizations'.
Plaintiffs' position is that defendants, through the REA and SPA, have conspired and combined to misuse their powers under the guise of the law and are merely using the cooperatives as conduits or nominees in an effort to build and to utilize a competing or public power generating and transmission system duplicating plaintiffs' facilities and invading plaintiffs' territories. This invasion, they assert, constitutes unlawful competition by defendants which has caused irreparable injury to plaintiffs jointly and severally.
Defendants seasonably moved to dismiss the complaint on the basic premise that plaintiffs had no standing to bring suit because no justiciable issue was presented to the Court. In making this motion, defendants relied strongly on the rule announced in Alabama Power Co. v. Ickes, 1938, 302 U.S. 464, 58 S. Ct. 300, 82 L. Ed. 374. However, this branch of the Court then sitting in the Motions Division found that the petition raised the issue as to whether the sales and loans complained of and sought to be enjoined were sales and loans for an unlawful purpose in violation of the aforesaid statutes and denied the defendants' motion. The determination of the question of plaintiffs' special interests under the Declaratory Judgments Act and the Administrative Procedure Act was reserved to abide the presentation of evidence at the trial.
Answering, defendants then entered a general denial to all allegations of the complaint except the execution of the challenged contracts and formal allegations, and averred that all of the actions complained of were lawful and were taken pursuant to and in conformity with statutory authorization.
Later, another Judge of this Court heard and denied a motion by defendants for summary judgment. Subsequently, the case was specially assigned to this branch of the Court for the hearing of all motions, and for pre-trial and trial.
During an oral hearing of motions by plaintiffs and defendants for the production of documents under Rule 34 of the Federal Rules of Civil Procedure, 28 U.S.C. the desirability of a separate trail to determine the legality or illegality of the several contracts in the controversy, became apparent. In accordance with the provisions of Rules 42(b) of the Rules of Civil Procedure such separate trial was ordered, and has been held. This opinion is rendered with respect to the issue therein involved.
The contracts challenged, individually and as part of one of the five systems of contracts, are of three basic types, respectively denominated, (1) loan agreements or contracts, (2) lease-option contracts, and (3) power contracts. All agreements in a system were made in reference to one another.
By the terms of the loan contracts executed in the name of the United States by the REA, funds are to be advanced to the respective federated cooperatives for the construction of generating and transmission facilities (steam or diesel generating plants, transmission lines and related electrical facilities) e.g. see Plaintiffs' Exhibit 5 REA-NW Loan Contracts.
The loan agreements provide that before any funds are advanced to the respective cooperatives they must enter into the second type of agreement
, namely the lease contract, with SPA, calling for the leasing to SPA for a period of 40 years of the transmission facilities to be constructed from the funds advanced. By the lease contracts SPA obtains control of the facilities for the 40-year period, and agrees to pay all costs of operation, maintenance, repair and capital replacements, as well as the amortization payments on the loans.
Plaintiffs contended that the contracts constitute the basis for a scheme or device by which defendants have endeavored to carry out an illegal plan.
In directing that a separate trail should be held for the purpose of determining the validity of the REA loans to the various federal cooperatives and the validity of the lease and power interchange agreements between the cooperatives and the SPA, the Court on May 19, 1952, entered an order containing the following:
'It is Ordered and Directed
'That a separate trial of this cause be first had on the issue of the legality or illegality of said contracts.
'Delineation of the Issue: The Court desiring to clarify the issue and the scope of testimony and other evidence admissible upon the separate trial in so far as may be reasonably and fairly possible in advance of trial, and being fully advised in the premises;
'That no testimony or other evidence shall be received at the separate trial except testimony and other evidence which is relevant to the issue of the legality or illegality of one or more of the contracts in which the Government (as represented by REA or by SPA) is named as one party to the contract and N.W. Electric Power Cooperative, Inc., Central Electric Power Cooperative, Sho-me Power Corporation, KAMO Electric Cooperative, Inc., or M & A Electric Power Cooperative, Inc., is named as the other party to the contract.'
Following the pre-trial conference on June 16, 1952, an order was entered in which it was stated that the following contentions of plaintiffs 'may be within the scope of the issue to be determined' at the separate trial:
'A. Plaintiffs contend that each of the contracts in which one of said cooperatives is named as one party and the Government (as represented by REA) is named as the other party, violate the Rural Electrification Act of 1936, as amended (hereafter called the 'RE Act') in one or more of the following respects:
'1. Said contracts severally provide or make available REA funds for the construction of electric facilities to serve persons in rural areas who, at the respective times when said contracts were severally negotiated and executed, were ...