United States v. Acadiana Treatment

• Court: Court of Appeals for the Fifth Circuit
• Decided: May 4, 2000
• Docket: 99-30476
• Status: Unpublished

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 99-30476 _____________________

UNITED STATES OF AMERICA;

Plaintiff - Appellee

STATE OF LOUISIANA, on behalf of Department of Environmental Quality

Intervenor Plaintiff - Appellee

v.

ACADIANA TREATMENT SYSTEMS INC; ET AL

Defendants

MICHAEL M JOHNSON

Appellant

_________________________________________________________________

Appeal from the United States District Court for the Western District of Louisiana (98-CV-687) _________________________________________________________________

May 3, 2000

Before KING, Chief Judge, and REAVLEY and STEWART, Circuit Judges.

KING, Chief Judge:*

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. Appellant Michael M. Johnson appeals from the district

court’s judgment appointing a receiver of Johnson Properties,

Inc. Appellant argues that the receivership constitutes a taking

of private property without just compensation, and that the

district court improperly granted the receivership control over

out-of-state subsidiaries of Johnson Properties, Inc. For the

reasons stated below, we DISMISS the appeal.

I. BACKGROUND AND PROCEDURAL HISTORY

Appellant Michael M. Johnson (“Johnson”) is the vice-

president and chairman of the board of Johnson Properties, Inc.

(“JPI”), a Mississippi corporation. Johnson is also the sole

shareholder of JPI. JPI has approximately sixty subsidiaries,

which are primarily engaged in the water and sewage treatment

industry and own approximately two hundred and thirty sewage

treatment plants (“STPs”) in Louisiana, North Carolina, South

Carolina, Tennessee, Pennsylvania, and Mississippi. At issue in

this case is one such subsidiary, Acadiana Treatment Systems,

Inc. (“ATS”). ATS, a Louisiana corporation, owns 116 STPs

located in Louisiana.

On January 16, 1998, the United States, acting at the

request of the United States Environmental Protection Agency (the

“EPA”), filed suit against JPI, ATS, and Darren K. Johnson (the

general manager of ATS) in the United States District Court for

the Middle District of Louisiana (the “enforcement action”). The

complaint alleged that ATS’ Louisiana STPs had violated Section

2 301(a) of the Clean Water Act (the “CWA”), see 33 U.S.C.

§ 1311(a), and certain terms, conditions, and limitations of the

National Pollutant Discharge Elimination Systems permits issued

to ATS pursuant to Section 402 of the CWA, see 33 U.S.C. § 1342.

On April 16, 1998, the district court transferred the action

sua sponte to the Western District of Louisiana. On May 15,

1998, the United States filed an amended complaint, which added

other JPI subsidiaries as defendants.1 On May 27, 1998, the

State of Louisiana, on behalf of the Department of Environmental

Quality, filed a motion to intervene as a plaintiff. The

district court granted the motion on May 29, 1998. The State of

Louisiana’s complaint in intervention alleged claims under the

Louisiana Environmental Quality Act, see LA. REV. STAT. ANN.

§ 30:2001 (West 1998), in addition to the federal claims

originally brought by the United States.

The parties entered into settlement negotiations, and

ultimately, a consent decree was entered by the district court on

July 31, 1998. The decree stated that the defendants, as well as

“their officers, agents, successors, assigns, and all persons

acting on their behalf,” were bound by its terms. The decree

1 The United States added as defendants Acadia Woods Add. # 2 Sewer Co., ATS Utilities, Inc., Beaujolais Sewerage Service Corp., Brandywine Sanitation Corp., Cedar Bend Villas Sewer Co., Inc., Community Sewerage Service, Inc., Green Briar Sewer Co., Inc., Hunstock Hills Sewer Co., Inc., Pointe Coupee Sewerage, Inc., Rigolets Utilities, Inc., Seashore Utilities of Louisiana, Inc., Tara Development Corp., Thoroughbred Park Service Corp., Timberley Terrace Sewerage, Inc., Tri-B Sanitation Corp., Twelve Cedars Sanitation Corp., and Williams & Ingram Sewerage Co., Inc. (together with JPI and ATI, “the defendants”).

3 provided, inter alia, that the defendants were to comply with

“federal and state rules and regulations governing generation,

treatment, storage and disposal of pollutants, including sewage

treated at the STPs.”2 The decree specified that the defendants

were to immediately perform a number of compliance measures, and

established a time frame for the performance of additional

measures and for the completion of an audit. The decree also

stipulated certain penalties in the event that the defendants

violated the terms of the decree. It further provided that the

district court retained jurisdiction of the matter “until further

order of the Court or until termination of [the] Consent Decree.”

In December 1998, contractors employed by the EPA and by the

Louisiana Department of Environmental Quality inspected 73 of the

Louisiana STPs owned by the defendants. The inspectors found 661

violations of the consent decree, including the continued release

of raw sewage and sewage sludge into the environment. None of

the inspected STPs was found to be in compliance with the terms

of the consent decree. Consequently, on February 8, 1999, the

United States and the State of Louisiana filed a motion with the

district court requesting the appointment of a receiver to

operate the STPs.

On March 12, 1999, JPI filed a petition for Chapter 11

bankruptcy protection in the Middle District of Louisiana. JPI

also filed an application for a supplemental stay with regard to

2 The consent decree listed 179 Louisiana STPs owned by the defendants.

4 itself and the other defendants in the enforcement action. The

bankruptcy court initially granted the stay. After a conference

with the parties to the enforcement action, however, the

bankruptcy judge concluded that 11 U.S.C. § 362(B)(4) exempted

the enforcement action from the automatic stay provision. The

defendants then noticed a joint motion for stay in the district

court on March 15, 1999. The district court denied the motion,

and the defendants subsequently petitioned this court for a writ

of mandamus. We denied the defendants’ petition on March 18,

1999. See In re Johnson Properties, Inc., No. 99-30264 (5th Cir.

1999) (order denying petition for writ of mandamus).

The district court conducted a hearing on the motion to

appoint a receiver from March 15, 1999 to March 19, 1999. On

March 22, 1999, the district court issued a memorandum ruling and

judgment. The judgment had several components. First, the

district court appointed Martin A. Schott as receiver of JPI, its

assets, and all its subsidiary corporations, including but not

limited to the subsidiaries that were defendants to the

enforcement action. The court also granted the receiver broad

powers to perform all acts necessary to achieve compliance with

the consent decree, including the authority to sell corporate

property and to manage, control, and deal with “all items,

assets, properties, contracts, and other matters incident to the

Receiver’s responsibilities.” Furthermore, the judgment ordered

that

Michael Johnson . . . [is] hereby enjoined, restrained and prohibited from going onto property belonging to

5 defendants or from having any contact with defendants’ employees or employees of any entity doing business with, or performing maintenance or any remedial measures to the facilities owned or operated by the defendants, without the prior approval of the Receiver, . . . or from interfering in any way with the Receiver in the discharge of his duties. . . .

In addition, the district court ordered Michael Johnson to

“cooperate and assist the Receiver in any way that [the Receiver]

deems appropriate.”

The district court declared that its judgment constituted a

final judgment under Federal Rule of Civil Procedure 54(b), but

retained jurisdiction for the purposes of enforcing the

provisions of the judgment. Johnson timely appeals.

II. DISCUSSION

For the first time on appeal, Johnson claims that (1) the

order appointing a receiver confers powers of such scope as to

constitute a taking of private property without just

compensation; and (2) the district court abused its discretion by

granting the receiver control over out-of-state subsidiaries and

their assets.

Before addressing the merits of Johnson’s claims, however,

we must consider whether Johnson, the sole shareholder of JPI,

has standing to urge on appeal the issues set out in his brief.3

See Lang v. French, 154 F.3d 217, 222 & n.28 (5th Cir. 1998)

3 The United States maintains that Johnson has standing to appeal because the district court’s order directly affected him. Despite the apparent lack of dispute, we examine the basis of our appellate jurisdiction sua sponte. See Borne v. A&P Boat Rentals, 755 F.2d 1131, 1133 (5th Cir. 1985).

6 (citations omitted). “The inquiry as to whether a particular

[litigant] has standing has two components, involving ‘both

constitutional limitations on federal-court jurisdiction and

prudential limitations on its exercise.’” Association of

Community Orgs. v. Fowler, 178 F.3d 350, 356 (5th Cir. 1999)

(citing Warth v. Seldin, 422 U.S. 490, 498 (1975)).

To establish standing under Article III, § 2 of the

Constitution, Johnson must show (1) an injury in fact (2) that is

fairly traceable to the challenged act and (3) that is likely to

be redressed by the requested remedy. See Davis v. East Baton

Rouge Parish School Bd., 78 F.3d 920, 926 (5th Cir. 1996)

(citations omitted). In addition, federal courts have restricted

the exercise of their jurisdiction based on certain prudential

limitations, including the principle that “a litigant must assert

his or her own legal rights and interests, and cannot rest a

claim to relief on the legal rights or interests of third

parties.” Powers v. Ohio, 499 U.S. 400, 410 (1990). Closely

related to this principle is the equitable restriction against

shareholder suits to redress injuries to a corporation. See

Franchise Tax Bd. of Cal. v. Alcan Aluminum, 493 U.S. 331, 336

(1989) (citations omitted). A shareholder may only bring an

action to enforce the rights of a corporation when either (1)

“the corporation’s management has refused to pursue the same

action for reasons other than good-faith business judgment,” or

(2) the shareholder has a “direct, personal interest” in the

action, “independent of [his] status as shareholder[].” Id. at

7 336-37; see also Stevens v. Lowder, 643 F.2d 1078, 1080 (5th Cir.

1981) (per curiam); Gregory v. Mitchell, 634 F.2d 199, 202 (5th

Cir. 1981).

Johnson has alleged two separate injuries. In connection

with his takings claim, he contends that he will be permanently

deprived of property because the receiver will sell some of JPI’s

subsidiaries’ assets in order to finance the process of bringing

the STPs into compliance with the terms of the consent decree.

Next, Johnson asserts that the public served by JPI’s water and

sewage facilities outside Louisiana will be placed “at undeserved

risk for irreparable harm” because the district court granted the

receiver authority over non-Louisiana JPI subsidiaries. Johnson

does not define the nature of this harm, but states in his reply

brief that non-Louisiana taxpayers will be unjustly forced to pay

for the cleanup of Louisiana STPs.

These purported injuries are insufficient to confer standing

to assert on appeal the issues that Johnson addresses in his

brief. Johnson cannot complain that he will be injured because

some of the subsidiaries’ assets may be sold by the receiver. It

is a well-established principle of corporate law that corporate

assets belong to the corporation, not to the shareholder. See

Sun Towers v. Heckler, 725 F.2d 315, 331 (5th Cir. 1984); Engel

v. Teleprompter Corp., 703 F.2d 127, 131 (5th Cir. 1983)

(subsidiary corporation is legal entity separate from its

shareholders). Thus, the injury asserted by Johnson actually

8 inheres in the corporation.4 We have held that, in general,

“diminution in value of the corporate assets is insufficient

direct harm to give the shareholder standing . . . in his own

right.” Stevens, 643 F.2d at 1080; see also Gregory, 634 F.2d at

202 (loss in value of stock is not a sufficiently direct injury

to confer standing). However, we have not addressed the question

whether a shareholder has standing to allege a taking of

corporate assets. The Federal Circuit, which has, has only

exercised jurisdiction over a derivative action asserting a

takings claim when the action could be construed “as filed by a

sole shareholder on behalf of a corporation alleging that

compensation to the corporation will result in a surplus in which

the shareholder possesses a direct interest.” California Housing

Sec., Inc. v. United States, 959 F.2d 955, 957 n.2 (Fed. Cir.

1992) (shareholders had right to post-liquidation surplus under

12 U.S.C. § 1821(d)(11)(B)); see also First Hartford Corp.

4 Because JPI has filed for bankruptcy, the bankruptcy trustee alone has standing to pursue a cause of action to enforce JPI’s rights. See 11 U.S.C. § 541(a). Although not before us, we are deeply concerned about the fact that JPI has both a trustee and a receiver appointed by and responsive to different courts. We understand that, to some extent at least, that situation is a result of the timing of the respective motions to appoint a trustee and a receiver. Given the fact that the bankruptcy court possesses exclusive jurisdiction of all the debtor’s property and given the extremely broad powers of a trustee in a Chapter 11 case, however, it is unclear why a receiver continues to be necessary, and the possibility of conflict in the two roles suggests that it may unduly complicate matters. The fact that one person wears two hats, which apparently gave some comfort to the district court, may not prevent those complications. Our concerns as to whether both these appointments were necessary or appropriate and should be continued are, however, of no consequence to our standing analysis.

9 Pension Plan & Trust v. United States, 194 F.3d 1279, 1288 (Fed.

Cir. 1999) (same); Branch v. United States, 69 F.3d 1571, 1574-75

(Fed. Cir. 1995) (trustee in bankruptcy had right to recover

assets). We are not persuaded that Johnson has alleged such an

interest here. As a result, we find that Johnson lacks standing

to bring a takings claim or to assert one on appeal.

Furthermore, Johnson’s conclusory assertions that the

receiver’s control over JPI’s non-Louisiana subsidiaries will

cause “irreparable harm” to the public utterly fail to meet the

requirements for Article III standing. See Lujan v. Defenders of

Wildlife, 504 U.S. 555, 560 (1992) (citations omitted) (stating

that Article III requires an “injury in fact,” defined as an

intrusion upon a legally protected interest that is (1) concrete

and particularized, and (2) actual or imminent, rather than

conjectural or hypothetical). Moreover, Johnson clearly lacks

standing to bring a claim on behalf of non-Louisiana taxpayers.

See Warth, 422 U.S. at 502. In short, Johnson has no standing to

bring either of the claims presented or to assert them on appeal.

We therefore have no jurisdiction to hear his appeal. See

Nevares v. San Marcos Consol. Indep. Sch. Dist., 111 F.3d 25, 26

(5th Cir. 1997).

III. CONCLUSION

For the foregoing reasons, we DISMISS the instant appeal.