Natl. Gas Dist. v. Sevier Co. Utility

• Court: Court of Appeals of Tennessee
• Decided: July 13, 1999
• Docket: 03A01-9902-CH-00077
• Status: Published

Opinion

IN THE COURT OF APPEALS OF TENNESSEE FILED AT KNOXVILLE July 13, 1999

Cecil Crowson, Jr. Appellate C ourt Clerk

NAT IONA L GA S DIS TRIB UTO RS, ) C/A NO. 03A01-9902-CH-00077 ) Plaintiff-A ppellant, ) SEVIER CHANCERY ) v. ) HON . TEL FOR D E. F ORG ETY , JR., ) CHANCELLOR SEVIER COUNTY UTILITY ) DIST RICT of Sev ier Cou nty, ) Tennessee, ) ) Defendant-Appellee. ) ) and ) ) PAU L G. SU MM ERS , Atto rney ) General and Reporter for the State of ) Tennessee, ) AFFIRMED ) AND Intervening Defendant-Appellee. ) REMANDED

DONALD K. VOWELL , VOWELL & ASSOCIATES , Knoxville, for Plaintiff- Appellan t.

ROB ERT E. CO OPE R, JR., a nd W . SCO TT SI MS, B ASS , BER RY & SIMS , PLC ., Nashville, and RONALD E. SHARP, SHARP & RIPLEY, Sevierville, for Defendant-Appellee.

PAU L G. S UM MER S, Atto rney Ge neral an d Rep orter, MIKE E. MOO RE, Solicitor General, and JAN ET M . KLE INFE LTE R, Sen ior Cou nsel, Fin ancial D ivision, N ashville , for Intervening Defendant-Appellee.

O P I N IO N

Franks, J.

Plaintiff app eals from a T.R.C.P . 12.02(6), dism issal of its com plaint.

Plaintiff’s prin cipal place o f business is in Knox ville, Tenne ssee, and it

sells and distrib utes propa ne in Sevie r County, Te nnessee. D efendan t is a utility district cr eated p ursuan t to the T enness ee Utility D istrict La w of 1 937.

Initially, plaintiff alleged that the Utility District Law of 1937 did not

allow defendant to sell propane, and sought a permanent injunction enjoining

defenda nt from m arketing an d selling pro pane to its cu stomers, or f rom eng aging in

other unauthorized, unlawful or ultra vires activities.

Subsequently, plaintiff amended its complaint to allege that after the

original complaint was filed, defendant proceeded to contact certain members of the

Tennessee General Assembly and cause those members to assist in enacting a law that

would free the defendants from liability. The law which was enacted by the General

Assembly, amended the Utility District Law of 1937, and added a new subsection

which states:

Any district pro viding pro pane gas service on A pril 15, 1998 , is empow ered to prov ide such se rvice within the county or c ounties in which it is providing service on that date without any further proceedin gs before or approv als of any cou nty executive, th e utility management review board or any other person or agency; provided, the authorization contained in this subsection shall not preclude any other person, firm or corporation, public or private, from furnishing propane gas service within the a rea served by the district.

Tenn . Code Ann. § 7-82-3 02(j) (19 98).

Plaintiff’s amended complaint stated the statute is impermissible under

Article I, § 8 a nd Article II, § 8 of the T ennessee Constitution , and the 5th and 14th

Amendments to the United States Constitution.

It specifically alleged that the statute would operate to suspend the

general law for the benefit of seven favored utility districts, thereby giving them a

special privilege to sell propane, w hich is not available to the other utility districts. It

stated that the amendment creates two classes of propane dealers, with one being

granted special privileges and the other not. It also averred that the amendment places

a special burden on private propane dealers doing business in territories of the seven

favored utility districts that is not placed on propane dealers doing business in the rest

2 of the State , because th ose dealers must com pete with a n entity that does not have to

pay certain taxe s and that ca n raise capita l by bond issue s. The Co mplaint alleg es this

treatment creates two classes of propane dealers, one which is exempt from paying

spec ified taxe s, and one wh ich is not, a nd th at thi s classifi catio n is arbitrary,

capricio us and unreas onable .

After the statute came under attack, the Attorney General was permitted

to intervene, and defendant again moved to dismiss the amended complaint. The

motion was granted by the Trial Judge and this appeal ensued.

Whether the complaint was properly dismissed for failure to state a

claim upon which relief can be granted, essentially presents two questions:

1. Whether plaintiff has standing to challenge the statute, and 2. If plaintiff has

standing, whether the complaint states a claim for relief.

We are re quired to co nstrue the alle gations of th e compla int in

plaintiff’s favor, and accept the allegations of fact as true. However, inferences to be

drawn f rom the fa cts or legal co nclusions se t forth in the c omplaint a re not require d to

be take n as true . Riggs v. Burson, 941 S .W.2d 44, 47- 48 (Te nn. 199 7), cert. denied

118 S. Ct. 444 (19 97).

There are twenty-one u tility districts in Tennessee, of w hich seven we re

providing propane service on April 15, 1998, including defendant. T.C.A. §7-82-

302(j) (199 8), applies to se ven utility districts and either divides utility districts into

two groups, one which can lawfully sell propane and one which cannot; or divides

utility districts into two groups, one which can lawfully sell propane without going

through the approval process set out in the statue, and one which must get prior

approva l before sellin g propan e. Either classif ication is a class ification am ong utility

districts, w hich the defen dant, w e conc lude, do es not h ave stan ding to challen ge.

Standing is a judge-made doctrine “used to refuse to determine the

3 merits of a legal controversy irrespective of its correctness where the party advancing

it is not properly situated to prosecute the action.” Knierim v. Leatherwood, 542

S.W.2d 806, 808 (Tenn. 1976). To establish standing, a party must show:

(1) that it sustained a distinct and palpable injury, (2) that the injury was caused by the challenged conduct, and (3) that the injury is apt to be redressed by a remedy that the court is prepared to give.

Metro. A ir Researc h Testing A uth., Inc. v. M etro. Gov. o f Nashville, 842 S.W.2d 611,

615 (Tenn. A pp. 1992) (citing Allen v. Wright, 468 U.S. 737, 752 104 S. Ct. 3315,

3325, 82 L. Ed. 2d. 5 56 (1984 ); Morristown Emergency & Rescue Squad, Inc. v.

Volunteer Dev. Co., 793 S .W.2d 262, 26 3 (Ten n. App . 1990) ). See also P rice v. State,

806 S.W .2d 179, 18 1 (Tenn. 1 991); Davis v. Allen, 307 S.W.2d 800 (Tenn. App.

1957) perm. to app. denied. Even if a s tatute is unco nstitutional,

only those w ho have a right to raise a q uestion of its u nconstitution ality may invoke the aid of the courts to have it judicially set aside, and the constitutionality of a legislative act is open to attack by those persons whose rights are affected thereby. Before a law can be assailed by any person on the ground that it is unconstitutional, he must show that he has an interest in the question in that the enforcement of the law would be an infringement on his rights. Assailants must therefore show the applicability of th e statute to them and that the y are thereby injuriou sly affected.

Parks v. Alexander, 608 S.W.2d 88 1, 885 (Tenn. A pp. 1980) (quoting 16 Am. Jur. 2d

Constitutional Law § 188 (1979)).

Plaintiff argues that the classifications among utility districts are a

violation of due process and equal protection under United States and Tennessee

Constitution s. It states that it is injured because it is f orced to co mpete w ith utility

districts that have a substantial advantage because they do not pay taxes, among other

things. Thus, its injury is due to having to compete for business with utility districts,

not due to either some utility districts being allowed to sell propane and some not, or

some districts being allowed to sell propane without going through the approval

process, and some not. As such, it cannot establish the causal element of standing,

4 therefore it ca nnot challe nge the am endmen t because it trea ts utility districts

diff eren tly.

Plaintiff argues, however, that it does have standing because defendant

is engaging in illegal and u nfair com petition and that plaintiff h as been h armed by this

com petit ion. I n sup port of its posi tion, it cites an Alabam a cas e wh ich says, “[ c]lea rly,

the threat of competition is sufficient to provide standing to contest the legality of a

comp etitor’s f acility,” Traders & Farmers Bank of Haleyville v. Central Bank of Ala.,

320 So.2d 638, 641 (Ala. 1975), and a federal case which states, “. . . where, as here,

the threatene d compe tition arises from an allegedly illega l facility, the appellee state

banks have standing . . . .” Whitney Nat. Bank v. Bank of New Orleans, 323 F.2d 290,

300 (D.C. Cir. 1963). While plaintiff may have standing to challenge illegal

competition, it admits that the amendment authorizes defendant to sell propane. As

such, the ac tivity is not illegal, as it is exp licitly authorized b y statute. Plaintiff, to

have standing, must have an interest harmed by the classification of the statute, which

it has no t alleged .

Plaintiff could have standing to challenge any classifications that may

have bee n created b etween p rivate and p ublic propa ne dealers, b ut it failed to state th is

claim beca use, as the T rial Judge fo und, there is a rational basis to allow utility

districts to sell propane. Plaintiff did not allege any intentional discrimination in the

enactmen t of the statute. T he Am endmen t, as applied to p rivate propa ne dealers, is

neutral on its face, and there is no allegation that the statute violates plaintiff’s due

proces s or equ al protec tion.

Plaintiff arg ues the class ifications in the amendm ent violate the 14th

Amendment to the United States Constitution, and Article 1, §8 and Article 11 §8 of

the Ten nessee Cons titution.

The Tennessee Supreme Court has held that the due process guarantees

5 in the 14th Amendment to the United States Constitution and Article 1, § 8 of the

Tennessee Constitution are “synonymous.” Newton v. Cox, 878 S.W.2d 105. 110

(Tenn . 1994) , cert. denied 513 U.S . 869 (199 4); “Unles s a funda mental righ t is

involved, the test for determining whether a statute comports with substantive due

process is whether the legislation bears ‘a reasonable relation to a proper legislative

purpose’ and is ‘neither arbitrary nor discriminatory.’” Newton, 878 S.W.2d at 110

(citing Nebbia v. New York, 291 U.S. 502, 537, 54 S. Ct. 505, 516, 78 L. Ed. 940

(1934); National Railroad Passenger Corp. v. Atchison, Topeka Santa Fe Ry. Co., 470

U.S. 45 1, 105 S . Ct. 144 1, 84 L . Ed. 2d 432 (1 985).

Similarly, while the “equal protection provisions of the Tennessee

Constitution and the Fo urteenth A mendm ent are historic ally and linguistica lly

distinct,” the Fourteenth Amendment and Article 1, § 8 and Article 11, § 8 of the

Tenness ee Cons titution “conf er essentially the sa me protec tion upon the individu als

subject to those provisions.” Tenn. Small Sch. Sys. v. McWherter, 851 S.W.2d 139,

152 (Tenn. 1993) (citations omitted). In analyzing equal protection claims under the

Tennessee Constitution, Tennessee has followed the framework developed by the

United S tates Supre me Cou rt. Id. at 153; Newton v. Cox, 878 S.W.2d 105, 109 (Tenn.

1994) cert. denied 513 U.S . 869 (199 4); State v. Tester, 879 S.W.2d 823, 827-828

(Tenn. 1994).

Both the United States Supreme Court and the Tennessee Supreme

Court utilize three standards of scrutiny in examining equal protection claims,

depen ding on the righ t asserted . Tenn. Small Sch. Sys., 851 S.W.2d at 153 (citing City

of Memphis v. International Brotherhood of Elec. Workers Union, 545 S.W.2d 98, 101

(Tenn. 19 76) (reduc ed scrutiny); Mitchell v. M itchell, 594 S.W.2d 699, 701 (Tenn.

1980) (he ightened sc rutiny); Doe v. N orris, 751 S.W.2d 834, 840 (Tenn. 1988) ( strict

scrutiny)). Equa l protection “r equires strict sc rutiny of a legislativ e classification only

6 when the classification interferes with the exercise of a ‘fundamental right’ (e.g., right

to vote, right of privacy), or operates to the peculiar disadvantage of a ‘suspect class’

(e.g., age or race).” Tester, 879 S.W .2d at 828 (c itations omitted ). Intermedia te

scrutiny only applies when the classification involves a quasi-suspect class, such as

gende r or illegitim acy. Craig v. Boren, 429 U.S. 190, 198-199, 97 S. Ct. 451, 457, 50

L. Ed. 2d 397 (1976). Most often, “the legislative choice is limited to whether the

classifications have a reasonable relationship to a legitimate state interest.” Norris,

751 S.W.2d at 841. The Tennessee Supreme Court said long ago,

If legislation arbitrarily confers upon one class benefits, from which others in a like situation are e xcluded, it is a g rant of a sp ecial right, privilege, or immunity, prohibited by the Constitution, and a denial of the equal protection of the laws to those not included. If the legislation, without good reason and just basis, imposes a burden upon one class which is n ot imposed upon oth ers in like circu mstances or engag ed in the same b usiness, it is a de nial of the eq ual protection of the law s to those subject to the burden and a grant of an immunity to those not subject to it.

State v. Nashville C. & St. L. Ry. Co., 124 Tenn. 1, 135 S.W. 773, 775 (1 911).

However, “[u]nder this standard, if some reasonable basis can be found for the

classification, or if any state of facts may reasonably be conceived to justify it, the

classification will be upheld.” Tenn. Small Sch. Sys., 851 S.W.2d at 153.

The equal protection arguments and the due process arguments can be

dealt with together, because they both require the same analysis. If there is a rational

basis fo r the statu te, and if the statu te is not d iscrimin atory, then it must b e uphe ld.

Here, the trial court specifically found that the legislature had a rational basis for

enacting this legislation. The Court indicated that if it was reasonable to create a

utility district to provide services such as natural gas, water, and sewer, then it was

reason able to a llow ut ility districts to provid e propa ne to its c ustom ers.

Ensuring that the citizens of the state have access to needed utilities, like

natural gas a nd propa ne, is a prope r legislative pu rpose. It is rationa l to allow utility

7 districts to provide propane in addition to other services, and it is rational to allow the

utility districts already prov iding prop ane to con tinue to do so , in order that th eir

customers do not suffer a lapse in service while the districts are getting approval from

the cou nty execu tive.

The amendment, on its face, does not discriminate against any class of

private propane dealers. It applies only to utility districts. The only mention made of

private dealers is the section stating that the amendment will not prevent any other

person or entity from selling propane gas, which does not establish any discrimination

agai nst any person or en tity.

Plaintiff, however, essentially argues the am endment is discriminatory

because the dow nstream effects create a d isparate impact on private pro pane dealers

because th ey are subject to taxation an d other bu rdens wh ich do not a pply to the utility

districts. While violations of equal protection have been found in cases where a

statute is neutral on its face, but has a disparate impact on particular classes, those

cases involve discrimination against suspect or quasi-suspect classes, like race, age, or

gende r. See Yick Wo v. Hopkins, 118 U.S. 355, 6 S . Ct. 1064, 30 L. Ed. 22 0 (1886);

Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U.S. 252, 97 S. Ct. 555,

50 L. Ed . 2d 450 ( 1 977); Personnel Adm’r of Mass. V. Feeney, 442 U.S. 256, 99 S.

Ct. 228 2 60 L . Ed. 2d 870 (1 979).

This case d oes not inv olve a susp ect or quasi-s uspect class , and to

establish any violation of due process or equal protection by the amendment, plaintiff

must show that the Leg islature intend ed to discrim inate agains t such deale rs when it

enacted the amen dment. Plaintiff wou ld be required to illustrate that the Legislature

“selected or reaffirmed a particular course of action at least in part ‘because of ,’ not

merely ‘in spite of,’ its adverse effects on an identifiable group.” Feeney, 442 U.S. at

279, 99 S. Ct. at 2296. Plaintiff’s allegations do not assert that the Legislature enacted

8 this ame ndme nt, at leas t in part, to discrim inate ag ainst priv ate prop ane de alers.

Moreover, discrimination against private propane dealers is not apparent on the face

of the amendment. Accordingly, plaintiff has not stated a claim for violation of due

process or equal protection.

We affirm the judgment of the Trial Court for the foregoing reasons, and

remand with cost of the appeal assessed to plaintiff.

__________________________ Herschel P. Franks, J.

CONCUR:

___________________________ Charles D. Susano, Jr., J.

___________________________ William H. Inman, Sr.J.