# United States v. Rural Electric Convenience Cooperative Co.

> Court of Appeals for the Seventh Circuit · March 15, 1991 · 922 F.2d 429

URL: https://www.frixlaw.com/law-library/cases/9481166

## Case

- **Full name:** UNITED STATES of America, Plaintiff-Appellant, v. RURAL ELECTRIC CONVENIENCE COOPERATIVE CO., Defendant-Appellee
- **Court:** Court of Appeals for the Seventh Circuit
- **Decided:** March 15, 1991
- **Citations:** 922 F.2d 429; 1991 WL 2613
- **Precedential status:** Published
- **Opinion:** Concurring in part by Easterbrook
- **Judges:** Flaum, Easterbrook, Kanne
- **Cited by:** 71 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9481166

## How later opinions describe it (automated extraction)

- rejecting the government’s assertion of “a right to an exclusive federal forum” and holding, based on Bank of New York, that “the presence of federal regulatory interests should not serve to extinguish the state courts’ power to adjudicate federal claims, particularly when que…
- holding that jurisdictional bar or sovereign immunity operates when suit threatens to impose upon United States liability for money damages or some form of coercive injunctive relief

## Opinion text

EASTERBROOK, Circuit Judge,
concurring in part and dissenting in part.
Fallout from federal bailouts belongs in federal court. That is the judgment of Congress, reflected in the jurisdictional rules that govern litigation in the wake of bank failures. E.g., 12 U.S.C. § 1819 (a) Fourth, as amended by § 209 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. 101-73, 103 Stat. 216. See also 12 U.S.C. § 1441a(a)(ll), (Z)(l), (i)(3), § 1730(k)(l), § 1818(i)(l); FSLIC v. Ticktin, 490 U.S. 82 , 109 S.Ct. 1626 , 104 L.Ed.2d 73 (1989). The Western Illinois Power Cooperative was not a bank, and the Rural Electrification Administration is not the Resolution Trust Corporation, but this is a bailout all the same. The REA guaranteed substantial indebtedness of WIPCO and Rural Electric Convenience Cooperative, one of its members; the Treasury has a substantial exposure, and the REA could have taken WIP-CO over. As the price of forbearance, the REA insisted that WIPCO merge with Soy-land, the equivalent of the “purchase and assumption” transaction that is the staple of the banking repertory. RECC wants to use this as the lever to escape its obligation to buy power — an obligation that (with similar obligations from other customers) is the financial base of the REA’s loans. The requirements contract for power is to the REA as the bank’s portfolio of loans is to the Resolution Trust Corporation and the FDIC. RECC understandably thinks its best shot of cancelling its obligations lies in state court; the REA understandably wants to be in federal court. As the dispute involves public rights, we ought not apply the common law standards that make it hard for private plaintiffs to obtain in-junctive relief. FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020 (7th Cir.1988); FTC v. Elders Grain, Inc., 868 F.2d 901 (7th Cir.1988); SEC v. Unifund SAL, 910 F.2d 1028 (2d Cir.1990). See also *441 Douglas Laycock, The Death of the Irreparable Injury Rule, 103 Harv.L.Rev. 687, 714-16 (1990), demonstrating that the prevention of multiple litigation is an exception to the traditional formula even in private cases.
That cases affecting the federal purse belong in federal court is the implication of the strings attached to consents that allow litigation against the United States. Usually one must sue the United States in federal court or not at all. E.g., 5 U.S.C. § 702 (waiving sovereign immunity in in-junctive actions, but only in federal court); 28 U.S.C. § 2409a (allowing actions to quiet title in property in which the United States claims an interest other than a security interest, limited by 28 U.S.C. § 1402 (d) to district court). When a statute allows litigation in state court, as 28 U.S.C. § 2410 does in some quiet title actions, the United States has a corresponding right to remove. See 28 U.S.C. § 1442 . Indeed, there may be a general right of removal, encompassing this case, under 28 U.S.C. § 1441 (c), which allows any suit that could have been filed in federal court to be removed to federal court even if only a single slice (the portion in which the United States defends its interest) is within federal jurisdiction. I therefore begin from a different perspective than do my colleagues. They observe that 28 U.S.C. § 1345 , which allows the United States to sue, does not establish exclusive federal jurisdiction; I start with the fact that the Congress routinely assures the United States a federal forum when it allows or requires the government to litigate. There are exceptions, e.g., 43 U.S.C. § 666 , the basis of Colorado River Water Conservation District v. United States, 424 U.S. 800 , 96 S.Ct. 1236 , 47 L.Ed.2d 483 (1976), but the norm supplies the perspective from which to assess the government’s request for an injunction against the state litigation. When the case affects the fisc, “[i]t is altogether fitting that the sovereign should insist that such issues be decided by its own courts.” Henry J. Friendly, Federal Jurisdiction: A General View 10 (1973).
If RECC’s suit in state court were nothing but a mundane claim under the corporate law of Illinois, and the United States a curious observer, then the argument for an injunction would be weak. To gather the whole dispute into federal court would be to let the tail wag the dog at the expense of federalism. It might lead to an advisory opinion, avoidable if the state court construes state law in a particular way. From such a perspective it would be important for the district court to decide whether the REA plays a lead or a bit part in this imbroglio. I am satisfied that we know the answer to this question. The REA, thus the Treasury, is the star of this show.
Soyland and WIPCO merged at federal insistence. The REA demanded the merger to improve its chance of collecting a substantial debt. Soyland, WIPCO, and RECC all owe their size and scope (if not their existence) to federal loans and guarantees. Requirements contracts for power lie at the core of the program under the Rural Electrification Act. See Arkansas Electric Cooperative Corp. v. Arkansas Public Service Commission, 461 U.S. 375 , 103 S.Ct. 1905 , 76 L.Ed.2d 1 (1983); Wabash Valley Power Association, Inc. v. REA, 903 F.2d 445 (7th Cir.1990). Electric cooperatives have little capital other than what the federal government furnishes (directly or through guarantees of private loans). Repayment depends on a steady income stream from the sale of electricity. Before it will make or guarantee a loan, the REA insists that the co-op have in hand contracts for the sale of power. Buyers promise to take their requirements from the REA’s borrower, which prevents them from switching sources and leaving the borrower without means to repay. These contracts are subject to the REA’s approval and cannot be cancelled without its consent. The buyers under the contracts also may be co-ops that borrow from the REA and so are twice bound: once as the customer of a G & T co-op, and once as borrower in their own right. Although it is conventional to say that the REA has a security interest in the contracts, it is more accurate to call the REA a third-party beneficiary, possessing the rights of a contracting party. It does not stand to collect *442 receivables after the fashion of a commercial factor; it was present at the creation of these contracts, and the other parties must meet its terms if they are to participate at all.
Involvement of this character means that federal rather than state law governs the validity of the contract. Clearfield Trust Co. v. United States, 318 U.S. 363 , 63 S.Ct. 573 , 87 L.Ed. 838 (1943). If a bank fails and the FDIC or the RTC steps in, federal replaces state law; defenses available under state law vanish. E.g., Langley v. FDIC, 484 U.S. 86 , 108 S.Ct. 396 , 98 L.Ed.2d 340 (1987); D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 456 , 62 S.Ct. 676, 679 , 86 L.Ed. 956 (1942). Any suggestion that the domain of federal law is limited to obligations running directly to the United States was squelched in United States v. Kimbell Foods, Inc., 440 U.S. 715, 726-27 , 99 S.Ct. 1448, 1457-58 , 59 L.Ed.2d 711 (1979), which applied federal law to determine the priority among competing security interests in personal property, when a federal agency held one of the claims. It explained: “federal law governs questions involving the rights of the United States arising under nationwide federal programs.” Id. at 726 , 99 S.Ct. at 1457 . That description fits our case neatly. Even the strongest supporters of federalism believe that courts should use national law to determine the rights and obligations of the national government. See Henry J. Friendly, In Praise of Erie — and of the New Federal Common Law, in Benchmarks 155, 178-85 (1967).
Kimbell reminded us that federal common law tracks state law, if the state law does not discriminate against federal interests. 440 U.S. at 727-33 , 99 S.Ct. at 1457-61 . Perhaps, then, Illinois law will govern this case indirectly. It will do this, however, only after a judge decides that uniform application of its principles will not undercut federal interests. I doubt that Illinois law could satisfy this standard if it creates an entitlement to break the requirements contract that was an essential condition of the federal loans, as opposed to creating only an entitlement to withdraw as a member of the merged entity. Section 1345 allows the United States to obtain from a federal court a decision on this question of federal law.
Whether or not state law applies, my colleagues’ focus on the ability of the United States to intervene in the state case has something of the hypothetical about it. Even if it can intervene, it won’t. Surely the REA has learned from Wabash Valley that if it intervenes it will be bound by the judgment, forfeiting any entitlement to the protection of federal court. 903 F.2d at 455 . State judges, who must run for reelection, cannot fail to consider (if only subconsciously) that victory for RECC will mean lower electric rates locally, at some expense to taxpayers in 49 other states. Having been stung in Wabash Valley, the REA will ask the federal judge to engage in a race with the state judge, seeing who can careen to judgment faster. If Judge Mills disdains the contest, the REA will sit tight, knowing that nothing the state court does can preclude it. If RECC prevails in state court, the REA will ask Judge Mills for a second opinion. Federal oversight of state court judgments in this fashion poses more risks to values of federalism than does an initial federal decision. Worse still, the federal decision could benefit only the REA, for under the Rooker-Feldman doctrine and 28 U.S.C. § 1738 the federal court cannot alter the rights of the private parties. District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 , 103 S.Ct. 1303 , 75 L.Ed.2d 206 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413 , 44 S.Ct. 149 , 68 L.Ed. 362 (1923). The state’s decision will bind Soyland, so a state-federal series creates the possibility of inconsistency that only the Supreme Court could resolve.
Is this risk necessary? Is the potential confusion essential? My colleagues say that the REA is entitled to an injunction against the state proceedings if and only if sovereign immunity precludes its intervention in state court. Whether sovereign immunity applies is a nice question; the majority does a good deal of massaging of the language in cases such as United States v. Alabama, 313 U.S. 274, 282 , 61 S.Ct. 1011, *443 1014 , 85 L.Ed. 1327 (1941) (“A proceeding against property in which the United States has an interest is a suit against the United States.”), to give color to the possibility of a negative answer. I think the color is red (the species is herring) and so express no view on my colleagues’ treatment of the subject. Even if the United States may intervene in state court, state and national interests are better served by quick decision in federal court.
Leiter Minerals, Inc. v. United States, 352 U.S. 220, 226-28 , 77 S.Ct. 287, 291-92 , 1 L.Ed.2d 267 (1957), provides ample support for this conclusion. Limiting Leiter to situations in which the United States cannot intervene in the state case is artificial. The United States argued in Leiter that sovereign immunity blocked intervention as a defendant but conceded that it could have filed its own suit: “The United States, of course, could have filed a separate and independent action, as plaintiff, in the Louisiana state court for Plaquemines Parish to have its title determined, but it did not choose to do this”. Brief for the United States at 14-15, Leiter Minerals, Inc. v. United States, No. 26, October Term, 1956. A new suit could have been consolidated with the pending litigation, a maneuver no different in substance from intervention. Our superiors did not think the ease with which the United States could have put the dispute before the state court mattered. Why then should it matter to us? The Court discussed the possibility that the state action could be revamped even in the absence of the United States to avoid sovereign immunity but remarked: “nevertheless such proceedings could not settle the basic issue in the litigation and might well cause confusion if they resulted in a judgment inconsistent with that subsequently rendered by the federal court.” 352 U.S. at 227 , 77 S.Ct. at 291 .
Leiter held the United States entitled to an injunction consolidating the litigation in federal court, where all parties could contest the issues. In Colorado River, when all parties were present in state court, the Supreme Court held that the litigation should continue there. There is a theme: one case is enough. Everyone is before a federal court, the tribunal most appropriate to the questions presented. So although I agree with the majority that the order denying injunctive relief cannot stand, I disagree with the terms of the remand. Instead of telling the district judge to determine whether sovereign immunity prevents the United States from intervening in state court — a question we could answer ourselves if it were relevant — we should tell the district court to issue the injunction and get on with the merits. It will have to decide the merits sooner or later and should do so sooner, avoiding wasteful duplication and eliminating all possibility of a clash between state and federal judgments.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9481166. Public record. Not legal advice.