Hilco Electric Cooperative v. Midlothian Butane Gas Co.

111 S.W.3d 75, 46 Tex. Sup. Ct. J. 909, 2003 Tex. LEXIS 109, 2002 WL 32126133

• Court: Texas Supreme Court
• Decided: July 3, 2003
• Docket: 01-0336
• Status: Published

Opinions

Justice JEFFERSON

delivered the opinion of the Court,

in which Chief Justice PHILLIPS, Justice ENOCH, Justice OWEN, Justice O’NEILL, Justice SCHNEIDER, Justice SMITH, and Justice WAINWRIGHT joined.

The primary issue in this case is whether the Electric Cooperative Corporation Act (“ECCA”), particularly as amended in 1997 by House Bill 3203, Act of May 24, 1997, 75th Leg., R.S., ch. 904, § 4, 1997 Tex. Gen. Laws 2847, 2849-50 (“H.B. 3203”), allows a nonprofit electric cooperative to create and own a for-profit subsidiary propane business. See Tex. Util.Code § 161.001-.254. The district court granted summary judgment declaring that HILCO Electric Cooperative, Inc. could create and own HILCO United Services, Inc., which does for-profit business as HILCO Propane. The court of appeals reversed and remanded, holding that the ECCA prohibits electric cooperatives from creating and owning such companies. 43 S.W.3d 677, 678, 681. Although we disagree with the breadth of the court of appeals’ holding, we affirm its judgment.

We hold that the HILCO companies failed to establish conclusively that the creation and ownership of a for-profit propane business furthered a proper purpose for a cooperative created under the ECCA. Accordingly, the court of appeals correctly reversed the trial court’s summary judgment for the HILCO companies. We also hold, however, that the ECCA entitles an electric cooperative to create and own a for-profit company if necessary, convenient, or appropriate to effectuate the Act’s permitted purposes: rural electrification or purposes like those listed in article 1396-2.01(A) of the Non-Profit Act.

I

Background

The Texas Legislature enacted the ECCA in 1937 to promote rural electrification through the creation of electric cooperatives. State ex rel S.W. Gas & Elec. Co. v. Upshur Rural Elec. Coop. Corp., 156 Tex. 633, 298 S.W.2d 805, 807 (1957). HILCO Electric was formed under the ECCA to engage in rural electrification and currently provides electricity to rural cooperative members in Hill County, Dallas County, Ellis County, and McLennan County. HILCO Electric also owns one-hundred percent of the shares of HILCO Propane, a Texas corporation that sells and delivers propane gas to the general public for a profit.

Midlothian Butane Gas Company, Inc., Rodney R. Jenkins, Lynn B. Gray, Sam Crain, Don Duke, and David R. Heald (collectively, “Midlothian”), and a number of other companies and individuals sued HILCO Electric and HILCO Propane. All of the present plaintiffs are HILCO Electric members,¹ and some are propane dealers who compete with HILCO Propane. Midlothian sought a judgment (1) declaring that neither HILCO Electric nor HILCO Propane had the statutory authority to engage in the propane sales business and (2) permanently enjoining both HIL-CO companies from selling and distributing propane. The HILCO companies responded that state law, including the ECCA, as amended in 1997 by H.B. 3203, authorized HILCO Electric to create and own a for-profit company such as HILCO Propane.

Midlothian moved for summary judgment. The HILCO companies responded and filed a cross-motion for summary judgment. The district court denied Mid-lothian’s motion for summary judgment and granted the HILCO companies’ cross-motion, declaring that “Texas law, including the ECCA and H.B. 3203, permits HILCO Electric Cooperative, Inc. to create and own for-profit corporations, including HILCO United Services, Inc., d/b/a HILCO Propane,” and that H.B. 3203 did not violate the one-subject rule of article III, section 35 of the Texas Constitution.

On appeal, the court addressed the question of “whether an electric cooperative company can create and own a ‘for-profit’ company” under the ECCA. 43 S.W.3d at 678. The court held that “electric cooperatives are prohibited from creating and owning for-profit companies.” Id. The court of appeals reversed the trial court’s judgment and remanded the cause to that court for further proceedings. Id. at 678, 681. Because of the court of appeals’ disposition of the statutory construetion issue, it did not reach the constitutional question. Id. at 681 n. 3.

We granted HILCO’s petition for review to determine whether the ECCA permits an electric cooperative to engage in a for-profit business without regard to the purposes for which the cooperative exercises its powers. 45 Tex. Sup.Ct. J. 306 (January 10, 2002).

II

Discussion

The parties’ dispute centers on the purposes and powers specified in the ECCA, as amended by H.B. 3203. The HILCO companies assert that, because the amendment expanded the purposes for which electric cooperatives could be organized, such cooperatives may create and own for-profit subsidiaries like HILCO Propane, as long as such ownership furthers “any lawful purpose.” Midlothian contends that H.B. 3203 did not expand electric cooperatives’ purposes and powers beyond permitting them to use unclaimed funds for certain charitable or nonprofit purposes. Alternatively, Midlothian asserts that, if H.B. 3203 enlarged electric cooperatives’ purposes and powers, then the bill unconstitutionally encompassed more than one subject. Tex. Const, art. Ill, § 35.

A

The ECCA

The powers of electric cooperatives are solely “derived from, and therefore measured by, the Act which created them.” Upshur Rural Elec. Coop. Corp., 298 . The ECCA states that the act “is complete in itself and is controlling.” Tex. Util.Code § 161.005. To frame the parties’ arguments, then, we briefly review the ECCA’s provisions establishing electric cooperative corporations’ purposes and powers in the original 1987 Act and in H.B. 3203.

Section 3 of the 1937 ECCA, entitled “Purpose,” provided that electric cooperatives could be organized “for the purpose of engaging in rural electrification.” Act of March 30, 1937, 45th Leg., R.S., ch. 86, § 3, 1937 Tex. Gen. Laws 161, 162. Section 4 granted electric cooperatives certain powers, including the right to purchase and own “any and all real and personal property,” and “all powers as may be necessary, convenient, or appropriate to effectuate the purpose for which the corporation is organized.” Id. § 4,1937 Tex. Gen. Laws at 637. In 1957, the Legislature amended slightly the “Purpose” provision but still authorized ECCA cooperatives “to engage in rural electrification.” Act of May 8, 1957, 55th Leg., R.S., ch. 290, § 3, 1957 Tex. Gen. Laws 692, 692.

These statutes were published as article 1528b of the Texas Revised Civil Statutes. They were repealed in 1997 when the Legislature promulgated the Texas Utilities Code. Act of May 8, 1997, 75th Leg., ch. 166, § 9, 1997 Tex. Gen. Laws 713, 1018. The statute codifying the Utilities Code does not contain an express statement of the purposes for which an electric cooperative may be organized, but, generally, codification intends no substantive change. Id. § 1, 1997 Tex. Gen. Laws at 715. Consequently, under the statute codifying the Texas Utilities Code, rural electrification remained the only purpose for which an electric cooperative could be organized.

B

House Bill 3203

The same Legislature that repealed article 1528b of Texas Revised Civil Statutes passed H.B. 3203, entitled “AN ACT relating to the disposition of unclaimed funds by nonprofit cooperative corporations.” Act of May 24, 1997, 75th Leg., R.S., ch. 904, § 4, 1997 Tex. Gen. Laws 2847, 2849-50.² Prior to H.B. 3203, electric cooperatives and other nonprofit corporations were required to forward unclaimed funds to the State Treasurer (now the Comptroller). See Tex. PROP.Code § 74.301. H.B. 3203 amended the Property Code to grant specified nonprofit corporations the express power to use unclaimed funds for rural scholarship and rural economic development purposes. H.B. 3203, §§ 2-6. Apparently to facilitate that goal, H.B. 3203 also amended the Agriculture Code, the Texas Non-Profit Corporation Act, and the Cooperative Association Act to give the nonprofit corporations governed by those acts the power to “deliver money to a scholarship fund for rural students.” Tex. AgRic. Code § 51.004(a)(6); Tex.Rev.Civ. Stat. Ann. arts. 1396-2.02(18); 1396-50.01, § 6(5).

With respect to electric cooperative corporations, H.B. 3203 amended the “powers” provision of the ECCA to give them the power:

[T]o do and perform, either for itself or its members, or for any other corporation organized under this Act, or for the members thereof, any and all acts and things, and to have and exercise any and all powers as may be necessary, convenient, or appropriate to effectuate the purpose for which the corporation is organized, including other or additional purposes benefitting members and nonmembers, whether directly or through affiliates, described in Section A, Article 2.01, Texas Non-Profit Corporation Act (Article 1396-2.01, Vernon’s Texas Civil Statutes).

H.B. 3203, § 4 (emphasis in original to indicate additions)(now codified at Tex. Util.Code § 161.121(10)).³ Section A of article 2.01 of the Non-Profit Act provides:

Except as hereinafter in this Article expressly excluded herefrom, non-profit corporations may be organized under this Act for any lawful purpose or purposes, which purposes shall be fully stated in the articles of incorporation. Such purpose or purposes may include, without being limited to, any one or more of the following: charitable, benevolent, religious, eleemosynary, patriotic, civic, missionary, educational, scientific, social, fraternal, athletic, aesthetic, agricultural and horticultural; and the conduct of professional, commercial, industrial, or trade associations; and animal husbandry. Subject to the provisions of Chapter 2, Title 83, of the Revised Civil Statutes of Texas, 1925, and of such Chapter or any part thereof as it may hereafter be amended, a corporation may be organized under this Act if any one or more of its purposes for the conduct of its affairs in this State is to organize laborers, working men, or wage earners to protect themselves in their various pursuits.

Tex.Rev.Civ. Stat. Ann. art. 1396-2.01(A) (footnote omitted).

The HILCO companies argue that because H.B. 3203, section 4 refers to article 1396-2.01(A) of the Non-Profit Act, and that statute provides that corporations organized under the Non-Profit Act may be organized for “any lawful purpose,” then electric cooperatives may also be organized for any lawful purpose, notwithstanding the more restrictive enumeration of purposes at the heart of section 2.01(A). To decide this issue, we must examine H.B. 3203 more closely.

Although stated in terms of powers, H.B. 3203, section 4 extends electric cooperatives’ permissible purposes to those “described in Section A, Article 2.01, Texas Non-Profit Act.” The purposes “described in Section A” include a general classification — “any lawful purpose” — followed by a list of twenty-one specific, permitted purposes: “charitable, benevolent, religious, eleemosynary, patriotic, civic, missionary, educational, scientific, social, fraternal, athletic, aesthetic, agricultural and horticultural; and the conduct of professional, commercial, industrial, or trade associations; and animal husbandry,” as well as “organizing] laborers, working men, or wage earners to protect themselves in their various pursuits.” Tex.Rev.Civ, Stat. Ann. art. 1396-2.01(A). This list of permissible purposes comports with H.B. 3203’s express intent to promote rural educational opportunities and rural economic development.⁴

If, as the HILCO companies contend, the Legislature’s objective was to allow electric cooperatives to engage in “any lawful purpose,” the Legislature could have easily said so in H.B. 3203, section 4 itself. Because it did not do so, we reject the HILCO companies’ contention that section 2.01 (A)’s reference to “any lawful purpose” establishes' the Legislature’s intent to expand infinitely the purposes for which electric cooperatives can be organized. Instead, we apply the rule of ejusdem generis, which provides that when words of a general nature are used in connection with the designation of particular objects or classes of persons or things, the meaning of the general words will be restricted to the particular designation. Carr v. Rogers, 383 S.W.2d 383, 387 (Tex.1964); see also Cleveland v. United States, 329 U.S. 14, 18, 67 S.Ct. 13, 91 L.Ed. 12 (1946) (“Under the ejusdem gen-eris rule of construction, the general words are confined to the class and may not be used to enlarge it.”). Thus, we hold that the phrase “any lawful purpose,” in the context of the ECCA’s reference to section 2.01(A), is limited to purposes similar in kind or class to the twenty-one identified categories.⁵

This interpretation is consistent with the language of H.B. 3203. We find no indication that the Legislature intended to expand the purposes for which a corporation may be organized under the ECCA from “rural electrication” to “any lawful purpose” that fertile minds can fathom. H.B. 3203 amended the ECCA’s powers provision to allow an electric cooperative to use its powers to effectuate those purposes described in section 2.01(A) of the NonProfit Act. The expansion of electric cooperatives’ permissible purposes beyond rural electrification, the listed purposes, and purposes of the same nature as those listed must be achieved through the legislative process and not indirectly by a strained interpretation of the statute’s words. We conclude that under the ECCA, as modified by H.B. 3203, electric cooperatives may be formed for rural electrification purposes and may exercise their powers to effectuate that purpose, the purposes specifically described in the Texas Non-Profit Act, article 1396-2.01(A), and purposes of the same kind or class as those described therein.

We disagree, however, with Midlot-hian’s contention and the court of appeals’ interpretation that the limitation on electric cooperatives’ purposes necessarily precludes them from engaging in any for-profit economic endeavor. 43 S.W.3d at 681. The court of appeals’ inquiry did not distinguish between an ECCA corporation’s purposes and the scope of its powers to accomplish those purposes. The ECCA grants electric cooperatives all the powers that are necessary, convenient, or appropriate to accomplish the cooperative’s purposes, whether benefitting members or nonmembers, or whether accomplished directly or through affiliates. Tex. Util. Code § 161.121(10). They may “acquire, own, hold, maintain, exchange or use property or an interest in property, [as] necessary, convenient, or useful.” Id. § 161.121(3). There is nothing in the ECCA that, per se, precludes ownership of an interest in a for-profit enterprise, provided that such activity is necessary, convenient, or appropriate to the cooperative’s authorized purposes.

In their motion for summary judgment, the HILCO companies did not argue that ownership and operation of HILCO Propane was necessary, convenient, or appropriate to rural electrification, those purposes described in article 1396-2.01(A) of the Non-Profit Act, or purposes of the same general nature as those listed. Rather, HILCO sought judgment on the grounds that the ECCA, as amended by H.B. 3203, authorized an electric cooperative “to engage in any lawful activity.” Because the HILCO companies did not establish that the creation and ownership of a for-profit propane business was necessary, convenient, or appropriate to a proper purpose under the ECCA, the case should be remanded.

Accordingly, we affirm the court of appeals’ judgment reversing the trial court’s judgment and remand this case for further proceedings consistent with this opinion. In light of our disposition of the first issue, we do not reach the respondents’ argument that H.B. 3203 violates the Texas Constitution’s one-subject rule.

Justice HECHT filed a concurring opinion.

1 . The ECCA provides:

A person is eligible to become a member of an electric cooperative if the person has a dwelling, structure, apparatus, or point of delivery at which the person does not receive central station service from another source and that is located in an area in which the cooperative is authorized to provide electric energy, and the person:

(1) uses or agrees to use electric energy or the facilities, supplies, equipment, or services furnished by the cooperative at the dwelling, structure, apparatus, or point of delivery; or

(2) is an incorporator of the cooperative.

Tex UtiiXode § 161.065(a).

2 . Although H.B. 3203 purported to amend a repealed statute, such an amendment is considered part of the new code provision. Tex. Gov't Code § 311.031(c).

3 . Two years later, in 1999, the Legislature repealed section 4 of H.B. 3203, effective after the trial court proceeding in this case, and amended the powers provision of section 161.121(10) "to conform to 1997, 75th Leg., ch. 904 § 4.” Act of April 23, 1999, 76th Leg., R.S., ch. 62, § 18.15(a), 1999 Tex. Gen. Laws 391, 391. While the language of the amendment differs slightly from H.B. 3203, the difference does not affect our analysis in this case.

4 . It is clear that the Legislature did not intend to incorporate all of Article 2.01 of the Texas Non-Profit Corporation Act, or otherwise erase the line between electric cooperative corporations and Non-Profit Corporation Act corporations. Under Article 2.01 of the NonProfit Corporation Act, corporations may not conduct their affairs for the purpose of organizing a "Rural Electric Co-operative Corporation." Tex.Rev.Civ. Stat. Ann. art. 1396 2.01(B)(3).

5 . Our construction involves only the effect of H.B. 3203, section 4’s language amending permissible purposes under the ECCA to include only those "other or additional purposes ... described in” section 2.01(A). Thus, our holding should not be read to construe permissible purposes for nonprofit corporations generally under section 2.01(A) alone.