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Capital Credit Litigation Update: Court Affirms Dismissal of Capital Credits Lawsuit

In a previous post, we discussed litigation against cooperatives involving their capital credit practices.  That post contains a link to a summary discussing specific cases.  One of those cases involved Carroll Electric Cooperative Corporation, an Arkansas electric cooperative.  Earlier this month, the Supreme Court of Arkansas affirmed a lower court’s dismissal of the case.

Background

The case is a typical capital credits lawsuit in which current and former cooperative members alleged, among other things, that the cooperative refused to retire capital credits, refused to distribute capital credits from the generation and transmission cooperative (commonly known as a G&T cooperative), and that the board of directors engaged in various wrongdoings.  The cooperative answered by asserting various defenses and, importantly, refuting the court’s jurisdiction.

Exclusive Jurisdiction

The cooperative argued that the Arkansas public service commission had exclusive jurisdiction to hear the matter.  The plaintiffs responded that their complaint was based on a private right found in the common law of contracts, torts, or property.  The court rejected this argument because the plaintiffs’ complaint was, in essence, based on alleged violations of the Arkansas electric cooperative enabling act (i.e., failure to pay capital credits on a reasonable and systematic basis).  The court concluded that the public service commission had exclusive jurisdiction over the matter.

Out-Of-State Former Members

The plaintiffs also argued that the non-resident former members’ claims were not subject to the jurisdiction of the Arkansas public service commission.  The court rejected this argument because, despite being non-residents of Arkansas, the complaint was based on Arkansas law, specifically the Arkansas electric cooperative enabling statute.

Implications

The case has important, but potentially limited, ramifications for electric cooperatives.  Many electric cooperatives will prefer that their state public service commission  resolve capital credit disputes because public service commissions typically understand the financial needs and restrictions of an electric utility.  The case may have limited applicability in states with laws that substantively differ from Arkansas.  For example, some electric cooperative enabling acts do not address capital credits to the same degree as Arkansas.  Other states’ public service commissions do not regulate, or have only limited jurisdiction over, electric cooperatives.

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