United States: Florida Court Deals Big Blow To Plaintiffs Challenging Rural Electric Cooperatives

Christina M. Schwing is a partner and Laura Beard Renstrom is a litigation attorney in Holland & Knight's Jacksonville office

HIGHLIGHTS:

  • An Oct. 7, 2016, ruling by a Florida Fourteenth Judicial Circuit Court in Gulf County dealt a strong blow to putative class action plaintiffs in patronage capital cases pending statewide.
  • In Brunson v. Gulf Coast Electric Cooperative, Inc., the court granted in part a motion to dismiss filed by Gulf Coast Electric Cooperative Inc., dismissing the plaintiff's claims for unjust enrichment and violations of Florida's Deceptive and Unfair Trade Practices Act (FDUTPA).
  • The FDUTPA claim allows a prevailing party to recover attorneys' fees, meaning that the putative class action plaintiff may be on the hook for the cooperative's fees in preparing its motion to dismiss.

Since April 2014, seven cases have been filed in Florida against rural electric cooperatives regarding the distribution of patronage capital. In each of these putative class action cases, the plaintiff – a customer and member of the cooperative – has claimed that the cooperative violated Section 425.21, Florida Statutes, and breached its bylaws by failing to refund excess revenues to its members on an annual basis.

While these seven cases remain in active litigation, a recent ruling by a Florida Fourteenth Judicial Circuit Court in Gulf County dealt a strong blow to putative class action plaintiffs in patronage capital cases pending statewide. On Oct. 7, 2016, in Brunson v. Gulf Coast Electric Cooperative, Inc., Case No. 2015-CA-000063, the court granted in part a motion to dismiss filed by Gulf Coast Electric Cooperative Inc., dismissing the plaintiff's claims for unjust enrichment and violations of Florida's Deceptive and Unfair Trade Practices Act (FDUTPA). The FDUTPA claim allows a prevailing party to recover attorneys' fees, meaning that the putative class action plaintiff may be on the hook for the cooperative's fees in preparing its motion to dismiss. Fla. Stat. § 521.2105.

Analysis of the Trial Court's Ruling

The plaintiff in Brunson brought five causes of action against the cooperative for declaratory, injunctive and equitable relief (Count I); unjust enrichment (Count II); a violation of Section 425.21, Florida Statutes, which the plaintiff contended constitutes a violation of FDUTPA (Count III); a violation of FDUTPA for a deceptive and unfair scheme (Count IV); and breach of contract (Count V). The plaintiff's complaint centered on allegations that the cooperative violated Section 425.21, Florida Statutes, and breached its bylaws with members by failing to refund excess revenues to its members annually1.

After considering the cooperative's motion to dismiss, the trial court entered an order dismissing the plaintiff's claims for unjust enrichment and violations of FDUTPA (Counts II, III and IV). The court dismissed the unjust enrichment claim, holding that a claim of unjust enrichment cannot survive where an express contract exists between the parties that purportedly governs the same subject matter. Although the parties disputed whether the cooperative breached the bylaws, there was no dispute that the bylaws governed the action. Accordingly, dismissal was proper.

The trial court also dismissed with prejudice plaintiff's claims for violations of FDUTPA. The plaintiff took the position that the cooperative's alleged violation of Section 425.21, Florida Statutes, constituted a violation of FDUTPA, which declares unlawful "[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce." Fla. Stat. §501.204(1). In dismissing these claims, the court first recognized that FDUTPA specifically exempts any "act or practice required or specifically permitted by federal or state law." Fla. Stat. §501.212(1). The court concluded that the conduct alleged in the plaintiff's amended complaint – the failure to properly calculate and refund to members alleged "excess revenues" pursuant to Section 425.21 – relates to an action that is required or permitted by state law. Thus, such alleged wrongdoing cannot legally form the basis of plaintiff's FDUTPA claims.

The court also recognized that FDUTPA claims must involve "trade or commerce," which requires "the advertising, soliciting, providing, offering, or distributing, whether by sale, rental, or otherwise, of any good or service, or any property, whether tangible or intangible, or any other article, commodity, or thing of value, wherever situated." Fla. Stat §§501.204(1); 501.203(8). The court analogized a member's dispute with the cooperative to a dispute between a company and its shareholders regarding distributions, which courts have concluded does not constitute trade or commerce and thus is not covered by FDUTPA. See Rogers v. Cisco Sys., Inc., 268 F.Supp.2d 1305, 1316 (N.D. Fla. 2003). Thus, because the cooperative's actions related to the refund of excess revenues to its members did not constitute "trade or commerce," the claim was legally insufficient.

Finally, the court held that the allegations amounted to an alleged breach of contract, but not the type of wrongdoing that would give rise to a FDUTPA claim. As a matter of law, a breach of contract – even an intentional breach – does not equate to unfair or deceptive conduct.

At the hearing on the cooperative's motion to dismiss, the court cast doubt on several remaining legal issues, including whether there exists a private right of action under Section 425.21 and whether plaintiff's claims are barred in part or in whole by the statute of limitations. The court acknowledged the importance of these case-critical issues, but declined to consider them at the motion to dismiss phase.

Ruling Could Have Far-Reaching Impact in Electric Cooperative Cases

Interestingly, less than one month after the court's oral ruling on the motion to dismiss and before the court entered an order on the motion to dismiss, the plaintiffs dismissed the remaining counts (Counts I and V), signaling a possible desire to avoid further adverse rulings by the trial court while an appellate challenge is lodged. Nonetheless, the Brunson ruling is an important victory for electric cooperatives defending against patronage capital class actions nationwide and especially in Florida. The court's well-reasoned analysis is expected to be studied, cited and hopefully adopted by judges in other cases pending throughout the state and even outside of Florida. Further, as the prevailing party, the cooperative is now entitled to seek to recover its attorneys' fees and costs against the plaintiff.

Footnotes

1 The lawsuits' underlying premise that the cooperatives have earned and retained "excess revenue" under the governing statute is strongly disputed by the cooperatives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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