• Georgia Court of Appeals Affirms Dismissal of Georgia Patronage Capital Lawsuits
  • June 14, 2017 | Authors: Thomas M. Byrne; James A. Orr; Tracey K. Ledbetter
  • Law Firm: Eversheds Sutherland (US) LLP - Atlanta Office
  • The Georgia Court of Appeals has affirmed the dismissal of two class action patronage capital lawsuits against Oglethorpe Power Corporation, Georgia Transmission Corporation (GTC), and certain distribution electric membership corporations (EMCs). In its June 9, 2017 decision, the court held that the plaintiffs lacked standing to sue Oglethorpe and GTC, and that their claims also failed on the merits.

    The plaintiffs had asserted claims against both the distribution EMCs of which they were members and Oglethorpe Power and GTC, which provide wholesale generation and transmission services, respectively, to the distribution EMCs. In one lawsuit, former members of the distribution EMCs claimed that the defendants were required to distribute patronage capital when a customer terminated service, or alternatively, on a revolving cycle of no more than 13 years. In the other lawsuit, current members of the distribution EMCs claimed that the defendants were under a duty to retire patronage capital on some periodic basis. As reported in a prior Legal Alert, the trial court dismissed both complaints.

    In its comprehensive decision, the Court of Appeals rejected the plaintiffs’ claims on multiple grounds. Significantly, the court concluded that Oglethorpe, GTC, and the distribution EMCs had no obligation under the EMC Act to retire patronage capital on any particular schedule. The court found that the plaintiffs’ contention that the EMC enabling act required an EMC to refund patronage capital “on some sort of reasonable, rotating basis” prior to dissolution was “belied by the plain language of that statute.” Rather, the statute expressly permits EMCs to accumulate funds beyond those necessary for costs and operating expenses in order to maintain reasonable reserves and a reasonable capital structure. The statute also requires EMCs to establish bylaws containing provisions regarding the accounting for, allocation, assignment, and disposition of revenues, but “it sets forth no mandates as to the substance of those provisions.” The court therefore could not require a particular schedule for refunding patronage capital, since no such schedule appears in the statutory text.

    The court found that no provision of the EMCs’ bylaws required a refund of patronage capital prior to dissolution, and rejected the notion that “cooperative principles” could create such an obligation: “[T]he specific provisions in the EMCs’ bylaws granting the board of directors the discretion to refund patronage capital prior to dissolution if it chooses to do so controls over any general promise in the bylaws to operate pursuant to ‘cooperative principles.’” Thus, where an EMC’s bylaws provide for retirement of patronage capital only at dissolution of the cooperative or at other times within the discretion of the board, neither the EMC Act nor cooperative principles require the cooperative to refund patronage capital at any time prior to dissolution.

    The Court of Appeals also found that the plaintiffs lacked standing to sue Oglethorpe and GTC. The court held that the plaintiffs had no privity of contract with those defendants, since the distribution EMCs themselves, and not their individual customers, are the sole members of Oglethorpe and GTC. The court also rejected other legal theories by which the plaintiffs sought to establish standing to sue Oglethorpe and GTC, including conspiracy, agency, and third-party-beneficiary theories. Finally, there was no standing to bring a claim for violation of the Georgia EMC Act because the statute provides no private right of action.

    For all of these reasons, and because certain claims were barred by the statute of limitations, the court affirmed dismissal of all of the plaintiffs’ claims—violation of the EMC enabling act, breach of contract, unjust enrichment, money had and received, conversion, breach of the implied obligation of good faith, and conspiracy.