Opposition Brief — Chemical Bank v. Public Utility District No. 1

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A FILED

S APR 5 1985

No. 84-1258

i. STEVAS.

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

CHEMICAL BANK AND

WASHINGTON PUBLIC POWER SUPPLY SYSTEM,

Petitioners,

PUBLIC UTILITY District No. 1

OF BENTON COUNTY, WASHINGTON, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

Washington Supreme Court

j —_——___

BRIEF OF PUBLIC UTILITY DISTRICT NO. 1 OF

SNOHOMISH COUNTY, WASHINGTON, IN OPPOSITION

TERENCE L. MUNDORF *

DAVID R. RILEY

THE WILLIAMS, NOVACK & HANSEN

LAW FIRM

900 Wall Street Building

P. O. Box 1077

Everett, Washington 98206

(206) 259-4141

Attorneys for Respondent

Public Utility District No. 1

of Snohomish County, Washington

* Counsel of Record

SaaS LS OE PITT TES

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON. D.C. 20001 s)

QUESTIONS PRESENTED

1. Whether the Takings Clause requires a state su-

preme court to interpret state statutes and an unambig-

uous contract in conformity with the expectations of the

bondholders?

2. Whether the Due Process Clause prohibits a state

court from determining as matters of law the interpre-

tation of the terms of an unambiguous contract and the

availability of certain equitable remedies?

TABLE OF CONTENTS

Cg go | rae

II I MI ss occas casnncncenssssnncnnscavnscnsnsense

Introduction

a sconesnuwiesaessacmvacnna

Proceedings Below

RELATED LITIGATION

I. This Decision Does Not Present A Takings

II.

Il.

Clause Question

No Constitutionally Recognized Property

Interest Is Involved

No Taking For Government Use Has

as nisleasinphdnesontones

The Takings Clause Does Not Require State

Law To Conform To The Litigants’ Expec-

Cee cs ctuashenioebesssonn

The Decision Below Is Consistent With

Established Precedent

This Case Does Not Present A Contract Clause

Question

No Substantial Procedural Due Process Ques-

tion Is Presented

TABL® OF CONTENTS—Continued

A. The Issue Of The Participants’ Control Of

The Projects Was Properly Decided As A

I elas esssmnnnebedeiahalen

B. The Availability Of Equitable Remedies Was

Properly Decided As A Question Of Law.......

IV. The Due Process Clause Does Not Require Cer-

tain Justices’ To Disqualify Themselves ..............

STUNT sicseensoscocssapissnnnisicinilesestaeanmsatesiionhtanipnnebitnkiniiiese

Page

an cen

TABLE OF AUTHORITIES

Cases: Page

Andrus v. Allard, 444 U.S. 51 (1979) -........0.0...... 138, 14, 16

Arbogast v. West Port, 18 Wn. App. 4, 567 P.2d

Ie TEED icscssiciateninnithinprebelieaiabadetie atlas il atl, 25

Asson v. City of Burley, 105 Idaho 432, 670 P.2d

839 (1983), cert. denied, 105 S. Ct. 219 (1984)... 18

Black v. Cutter Laboratories, 351 U.S. 292 (1956).. 11

Camp v. Board of Pub. Inst., 368 U.S. 278 (1961).. 26

Chemical Bank v. Public Utility District No. 1 of

Benton County, Washington, et al., C83-1080

EAUUIIED siccesaselebteocecsethiicioalosebviaee hea iion anes Mech Ueoreh tases 10

Chemical Bank v. Washington Public Power Supply

System, No. 82-2-06840-3 (Superior Ct. King

CR, TIED» sissies dnneisncninsintaiustadassinleimagzcdaiamimasanianadiamaass 6, 8

Chemical Bank v. Washington Public Power Supply

System, 99 Wn.2d 772, 666 P.2d 329 (1983) ......... passim

Chemical Bank v. Washington Public Power Supply

System, 102 Wn.2d 874, 691 P.2d 524 (1984)....passim

Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 266

EIT scshiccnniiictciseanasndtepuiibanssesencuiciieteetag tea aeeiiaeli aaa tielaliecnadtieai 12

Chicago, B. & Q. Co. v. Illinois, 200 U.S. 516

| SEER a OnE ne or erener nse eee POEM EY Wh Deemer aN 12

Codd v. Velger, 429 U.S. 624 (1977) -............e. 22, 25

Columbia Railway Gas & E. Co. v. South Carolina,

Sr i ae 21

Conn. St. Dept. of Public Works v. Dept. of Health,

Education & Welfare, 448 F.2d 209 (2nd Cir.

| SER Ee ree ne ance eee TNL eee Nhat 22

Dixon v. Duffy, 342 U.S. 33 (1951) .............222..2.....-- 11

Finch v. Matthews, 74 Wn.2d 161, 443 P.2d 833

SR Ae Da Rr Ate ee COR ee 25

Goldblatt v. Hempstead, 369 U.S. 590 (1962) ......... 12, 15

Grannis v. Ordean, 234 U.S. 385 (1914) -....0002020... 21

Gryger v. Burke, 334 U.S. 728, reh’g denied, 355

8 Re eae 27

Haberman, et al. v. Washington Public Power Sup-

ply System, et al., No. 84-2-06452-8 (Superior

Court for King County, Washington) ................. 10

Hadacheck v. Sebastian, 239 U.S. 394 (1915) ......... 15

Herb v. Pitcairn, 324 U.S. 117 (1954) ........002.2222... 11, 26

TABLE OF AUTHORITIES—Continued

Hoffer, et al. v. State of Washington, et al., No.

84-2-16459-0 (1984) Superior Court for King

ea ceuneneniuedieiceuiakbenesias

Hughes v. Washington, 389 U.S. 290 (1967) ...........

In re New Mexico Natural Gas Antitrust Litiga-

Sg Bt RRS mee em

In re Washington Public Power Supply System

Securities Litigation, MDL-551 (1983) -.....00........

Jacob Ruppert, Inc. v. Caffey, 251 U.S. 264 (1962)..

Kaiser Aetna v. United States, 444 U.S. 164

DUIIIET ix icsaseeonidonatejnsiapenissrintnciaaaiaeuiatedgetnanaelaapaena 13,

Kelly v. Aetna Cas. & Surety Co., 100 Wn.2d 401,

a I We IIIED is cxsincusnnascenvansebenededsinnidiaaeninanconas

Kremer v. Chemical Construction Corp., 456 U.S.

TINT MII. i cancbtieasinohinnactadeeiniopheibebiiahianladcmhicanaetenaias

Long Island Water Supply Co. v. Brooklyn, 166

SY CIID siveenvestonnsveningauvincsanccuaccuineesalaniionmais

Loretto v. Teleprompter Manhattan CATV, 458

Satie EIT. UA RENIN ‘nssvsnictnnsnscecnsesounentingidceiehaananlaneanietediaaeiaiclite

M.G.1.C. Indemnity Corp. v. Public Utility District

No. 1 of Benton County, Washington, et al., C84-

SUI SII oon ahead acdeidalaucaniaanensieliadnnetitanies

Mullane v. Central Hanover Bank and Trust Co.,

SE ERs MEINE. SUITED cccsnsiccnssessstlenhoviaicindasdeeniasadiaaliiaaeinlaanetis

New Orleans Debenture Redemption Co. v. Lowisi-

Tee ey I ED sdidctciucnssacestencsdseeensvonaaenes

New Orleans Public Services v. United Gas Pipe

Line, 719 F.2d 733 (5th Cir. 1983) .......................

Nueces County Drainage & Conservation District

No. 2 v. Bevly, 519 S.W.2d 938 (Tex. 1975) .........

Omnia Commercial Co. v. United States, 261 U.S.

Be TITY <i cciuch-onssssaccesueadildibasalcidiabiabieieaehaiaisiaaanlibceiaibaapioes

O’Neil v. Northern Colorado Irrigation Co., 242

SUIS AEE MAIEINIED <scssisconknsisereneuneecenmndeciiaienmdaiaanianiniaeianit

Osborne, Tremper & Co. v. King County, 76 Wash.

eg recs

Penn Central Transportation Co. v. New York, 438

Bee Be QU WED erneeecnssnarescevsnmcsinsiantnsnnveinasennibeini 12,

Page

15, 20

15, 16

21, 22

13, 16

vii

TABLE OF AUTHORITIES—Continued

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393

SRR SENSIS Tan erence ene P AEN gen eM NS

Ruckleshaus v. Monsanto Co., 81 L.Ed.2d 815

TRS cl SI aE EN ET AR SOOT

State v. Pullman, 23 Wash. 583, 63 P. 265 (1900) ....

State ex rel. Craig v. Newport, 70 Wash. 286, 126

RARER IRS Rat Ne oe

Terrace v. Thompson, 263 U.S. 197 (1928) ............

Tidal Oil Co. v. Flanagan, 263 U.S. 444 (1924)........

United States v. Causby, 328 U.S. 256 (1946) .........

United States v. Willow River Power Co., 324 U.S.

RR ES ete Se RE RD Re AO

United States Trust v. New Jersey, 431 U.S. 1

cele ieinie

Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S.

a lak eritc i aeieks acl lasbeceanainl 14

Constitutional Provisions and Statutes:

Ce a ssacans waishunitamepleenl

if By Ue AS | enone

ee I I i I a a ccncenenssimsnnnnsannnonns

Other Authorities:

en ide aiaaanhanbeneniies

1981 Wash. Laws, ch. 3, § 2 (1st Ex. Sess.) ..........

1983 Wash. Laws, ch. 3, § 3 (1st Ex. Sess.) —..........

J. Nowak, Constitutional Law, Ch. 15, p. 556 (2nd

I a a ei

Arlon R. Tussing, The Demand for Electricity and

the Threat of Utility ‘Death Spirals’ in the Pa-

cific Northwest, presented to the Northwest

Public Power Assoc., July 20, 1983 _....................

Page

, 19, 20

passim

IN THE

Suprenw Court of the United States

OCTOBER TERM, 1984

No. 84-1258

CHEMICAL BANK AND

WASHINGTON PUBLIC POWER SUPPLY SYSTEM,

. Petitioners,

PUBLIC UTILITY DISTRICT No. 1

OF BENTON COUNTY, WASHINGTON, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

Washington Supreme Court

BRIEF OF PUBLIC UTILITY DISTRICT NO. 1 OF

SNOHOMISH COUNTY, WASHINGTON, IN OPPOSITION

Respondent Public Utility District No. 1 of Snohomish

County, Washington (“District”), respectfully prays that

the Court deny the Petition for a Writ of Certiorari

(“Petition”) to the Washington Supreme Court submitted

by Chemical Bank and the Washington Public Power

Supply System (“Supply System”).

OPINIONS BELOW

The District accepts the statement of the proceedings

below at pages 1-2 of the Petition.

STATEMENT OF THE CASE

Introduction

This case arises out of the default of the Supply Sys-

tem on municipal bonds which it issued to finance the

construction of two nuclear power plants known as

Projects 4 and 5 (“Projects”). Chemical Bank, as trustee

for the Projects’ bondholders, brought a declaratory judg-

ment action to determine the validity of the contractual

obligations between the Supply System and all the par-

ticipants in the Projects.

This action posed a unique question of statutory inter-

pretation not previously passed upon by the Washington

Supreme Court: Do the Washington statutes, which cre-

ated and empowered municipal utilities, authorize them

to execute resource acquisition contracts containing an

unconditional payment obligation, but without owner-

ship rights or their equivalent? After exhaustive briefing,

two hearings and extended oral argument covering every

conceivable theory, the Washington Supreme Court con-

cluded that as a matter of state law, Washington munici-

pal utilities were not so empowered, and that such a con-

tract was substantively ultra vires. This decision was

based upon state law, interpreted a contract which all

parties conceded was clear and unambiguous, and was

rendered in the normal course of a judicial proceeding.

Background

The utilities in the Pacific Northwest have traditionally

relied upon electric energy produced by the region’s

hydroelectric generating resources, which is distributed

primarily by the Bonneville Power Administration (“Bon-

neville”), a federal power marketing agency. All of the

publie utility participants in the Projects depended upon

power purchased from Bonneville to meet some or all of

their customers’ needs.

During the 1960’s, the region experienced a period of

sustained and substantial growth. Power demand fore-

casts prepared by Bonneville and others predicted that

by the early 1980’s, the region’s hydroelectric resources

would be unable to meet projected needs. These predic-

tions were underscored by the termination of Bonneville’s

power supply contracts with the region’s investor owned

utilities due to projected shortages. Public utilities were

warned that unless resources were built, there would not

be sufficient power to meet their customers’ needs.

Under Bonneville’s leadership, a plan was formulated

to deal with this predicted power deficit. It called for the

construction of a large number of thermal generating

projects. Individua) utilities were incapable of sponsor-

ing these thermal projects, due to their high capital costs.

The Supply System was identified as an organization

which could finance and construct a number of large

nuclear plants, since it had prior resource construction

experience, and was a separate municipal corporation

with the authority to issue bonds in its own name.

The Supply System initiated the regional construction

program by executing “Net Billing Agreements” with

public and investor owned utilities, and Bonneville for

participation in Projects 1, 2 and 3. These ayreements

contained the net billing financing mechanism which pro-

vided the participating utility with a credit against their

payment obligation equal to their Bonneville power bill.

This arrangement provided a Bonneville guarantee for

the payment of the bonds for these projects. The Supply

System issued bonds in its own name and began con-

struction of these plants.

While Projects 1, 2 and 3 were under construction,

Bonneville informally advised its public utility customers

that unless additional generating resources were built,

it would invoke its contractual right to ration energy

deliveries. This prompted regional utilities to search for

an alternate financing mechanism for additional plants,

since a Treasury ruling had made the net billing mecha-

nism unavailable.

This search became urgent in June, 1976, when Bonne-

ville issued its Notice of Insufficiency. This action gave

Bonneville the contractual right to ration energy deliv-

eries to its public utility customers. At this time, drafts

of the Participants’ Agreement (“Agreement”) for the

Projects were being circulated. With the Notice of In-

sufficiency, the Agreement was focused upon as the only

readily available financing scheme for the two additional

nuclear plants purportedly needed to avoid energy ration-

ing and curtailment.

In this energy crisis climate, and at the urging of

Bonneville, 88 of the region’s public utilities executed the

Agreement with the Supply System. The Agreement im-

posed an unconditional payment obligation in exchange

for a conditional right to receive power. Upon execution

of these Agreements, the Supply System issued bonds in

its own name and commenced construction of the Projects.

This history of these Projects is a chronicle of the

problems which beset the nuclear construction industry.

Original cost estimates and construction schedules turned

out to be grossly in error. Construction delays due to

Nuclear Regulatory Commission (“NRC”) regulation

changes and labor problems, combined with double digit

inflation and spiraling interest costs, caused the financing

demands to increase dramatically. Further, the predicted

energy deficit failed to appear, as demand for electricity

decreased sharply due to a severe national recession, and

substantial wholesale electric rate increases.’

These factors, which were beyond the control of the

participants and the bondholders, resulted in a construc-

tion slow down of the Projects. Under these trying cir-

cumstances, rather than repudiating their obligations, 66

participants assumed additional financial burdens by lend-

ing the Supply System $60 million to preserve the Proj-

1 Between 1979 and 1984, the wholesale electric rates of the public

utility participants in the Projects increased by over 520%.

ects assets, and to retain the NRC licenses. Neverthe

less, the demand for electricity remained low, making the

need for the Projects questionable, and financing at rea-

sonable rates became impossible to obtain. On January

22, 1982, the Supply System decided to terminate the

Projects.

Under the Agreement, the first payment to the Supply

System by the Participants was due one year after termi-

nation. Had the participants insisted on this contractual

right, the lack of cash flow could have lead to an uncon-

trolled termination of the Projects. Once again, there

was no wholesale repudiation by the participants of their

obligations. Rather, 42 participants loaned an additional

$7.8 million to the Supply System to cover the contrac-

tual gap between termination and the first payment

required by the Agreement. These loans permitted the

orderly termination of the Projects, avoiding a Supply

System bankruptcy which would have imperiled the bonds

of Projects 1, 2 and 3.’

Proceedings Below

In May, 1982, prior to the first participant payment

required by the Agreement, Chemical Bank filed a declar-

2To date, the Supply System has refused to repay the $67.8

million which was loaned to it by the various participants. To

obtain payment from the Supply System, the participants have

filed actions in various superior courts in W-ehington. See, for

example, Public Utility District No. 1 of Clallam County v. Wash-

ington Public Power Supply System, King County Superior Court

Cause No. 83-2-12412-3; Public Utility District No. 1 of Snohomish

County v. Washington Public Power Supply System, Lewis County

Superior Court Cause No. 83-2-00499-1; Public Utility District

No. 1 of Franklin County v. Washington Public Power Supply

System, Benton County Superior Court Cause No. 83-2-00715-9.

These and other actions resulted in judgments in favor of the

participants. The Supply System sought and obtained review of

these judgments in a consolidated appeal to the Washington Su-

preme Court. Public Utility District No. 1 of Lewis County, et al.

v. Washington Public Power Supply System, Cause No. 50238-2.

Oral argument was heard March 20, 1985, and a final decision is

pending.

atory judgment action in the Superior Court of King

County, Washington, seeking a declaration that the

Agreement was valid and binding, and that the uncondi-

tional payment obligation was enforceable against all

participants. On July 20, 1982, Chemical Bank and the

Supply System moved for summary judgment, alleging

that there were no disputed material facts, that the

Agreement was clear and unambiguous, and that as a

matter of Washington law the participants had the statu-

tory authority to execute a contract containing an un-

conditional payment obligation. The trial court ruled for

Chemical Bank and the Supply System. Chemical Bank

v. Washington Public Power Supply System, No. 82-2-

06840-3, Slip Op. at 3-4 (Super. Ct. King County, Nov.

16, 1982). Order on Motions for Summary Judgment

(Appendix E at 3). Expedited appeal to the Washing-

ton Supreme Court was sought and obtained.

During the pendency of this matter, rather than re-

pudiate their obligations, the participants requested and

the court established an escrow account for the deposit of

payments required by the Agreement. Over $27.7 million

was deposited into this account during the litigation. In

addition, numerous participants, representing over 96%

of the Projects shares subscribed by Washington munici-

pal corporations, raised their retail rates to ensure their

ability to meet their obligations under the Agreement.

These actions were taken in spite of the concerns over the

possibility of a rate “death spiral”,® and serious ratepayer

opposition.*

3The magnitude of the rate increases suffered by the public

utility customers during this period led to serious scholarly consid-

eration of whether these utilities were entering a “death spiral’,

an economic condition in which costs can never be covered because

sales decrease faster than rates can be increased. See, “The De-

mand for Electricity and the Threat of Utility ‘Death Spirals’ in

the Pacific Northwest,” Arlon R. Tussing, presented to the North-

west Public Power Assoc., July 20, 1983.

4The District, one of the largest participants in the Projects,

raised it retail electric rates on March 23, 1983, to generate reve-

The issue presented on appeal was whether state law

permitted public utilities to execute a contract containing

an unconditional payment obligation for generating facili-

ties which they did not own, and from which they had

only a conditional right to receive electricity. This was

the first time this question of state law had been pre-

sented to any Washington appellate court. In a compre-

hensive decision, the Washington Supreme Court reviewed

all of the pertinent statutes, and analyzed in detail the

provisions of the Agreement. The court concluded that

Washington municipal utilities are creatures of statute,

possessing only those powers expressly granted to them or

necessarily implied. Chemical Bank v. WPPSS, 99 Wn.2d

772, 782, 666 P.2d 329 (1983) (Appendix B at 10)

(“Chem Bank I”). The court noted that it had pre-

viously approved municipal utility participation in con-

tracts containing an unconditional promise to pay, but

only when the municipal utility had an actual ownership

interest in the project. Chem Bank I, 99 Wn.2d at 785

(Appendix B at 12). The court recognized that legal

control of a project could be tantamount to ownership,

and that the amount of control exercised by the partici-

pants was established by the terms of the Agreement.

Chem Bank I, 99 Wn.2d at 787 (Appendix B at 14).

After careful review and analysis, the court concluded

that as a matter of law the unambiguous terms of the

Agreement did not vest the participants with an owner-

ship interest in the plants, nor did it contractually grant

them control sufficient to be considered tantamount to

ownership. Chem Bank I, 99 Wn.2d at 787 (Appendix B

at 14). The court decided that under applicable Wash-

ington state law, absent ownership or control tantamount

nues to meet its obligations under the Partiicpants Agreement.

This action was immediately met by a lawsuit, filed by a group of

the District’s ratepayers, which sought to enjoin this rate increase.

See, Fair Use of Snohomish Energy, et al. v. Commissioners of

Snohomish County PUD No. 1, et al., No. 83-2-01076-2 (Snohomish

County Superior Court, March 23, 1983).

to ownership, municipal utilities lacked the statutory au-

thority to contractually undertake an unconditional pay-

ment obligation. The court held the contract to be sub-

stantively ultra vires, and remanded the matter to the

trial court. Chem Bank I, 99 Wn.2d at 799 (Appendix

B at 37).

On remand, Chemical and the Supply System asserted

numerous theories to sustain recovery, including restitu-

tion, equitable estoppel and some constitutional claims.

Once again, there was extensive briefing and oral argu-

ment. Based upon abundant Washington precedent, the

trial court concluded that as a matter of law equitable

theories were not available to enforce a substantively

ultra vires contract. Chemical Bank v. WPPSS, No. 82-

2-06840-3 (Super Ct. King County, August 11, 1983) Or-

der and Judgment. (Appendix D). To do so would strip

the public of the protection provided by the ultra vires

doctrine by holding them financially responsible for un-

authorized actions, and render legislative limits on mu-

nicipal authority functionally meaningless.

As to the remaining participants which were not Wash-

ington municipalities, the court considered the issues of

mutual mistake and frustration of purpose. After careful

consideration and analysis, the trial court concluded that

the basic purpose, the very heart of the Agreement, had

been frustrated because virtually none of its provisions

could function properly with 70% of the participants

statutorily barred from the Agreement. Further, after

the declaration of default and acceleration, Chemical Bank

could seize the Projects’ assets. The trial court decided

that under these drastically altered circumstances, the en-

tire purpose of the Agreement had been frustrated, and

that as a matter of law the remaining participants

should be released. Chemical Bank v. WPPSS, No. 82-

2-06840-3 (Super. ,Ct. King County, August 11, 1983)

Order and Judgment (Appendix D).

On their second appeal to the Washington Supreme

Court, Chemical Bank and the Supply System raised and

briefed a variety of arguments, including restitution,

equitable estoppel, unjust enrichment and a constitu-

tional theory drawing on the Due Process, Contract and

Takings Clauses. Once again, each of these issues was

analyzed in detail. The Washington Supreme Court con-

curred with the trial court that Washington law pro-

hibited reliance on equitable estoppel, since such a ruling

would functionally eliminate the ultra vires doctrine from

municipal law. The court also concluded that restitution

was inapplicable as a matter of law, because Washington

precedent prohibits restitution against a municipal cor-

poration where the contract is substantively, as opposed

to procedurally, ultra vires. Chemical Bank v. WPPSS,

102 Wn.2d 874, 910, 691 P.2d 524, 544 (1984). (Ap-

pendix A at 37) (“Chem Bank II’’). In this case, since

the municipal utilities lacked the authority they sought to

exercise, the contract was substantively ultra vires, ren-

dering restitution unavailable.

The court also addressed the constitutional allegations,

which amounted to the assertion that the federal con-

stitution required the Washington Supreme Court to in-

terpret state law in a manner consistent with bondholder

expectations. The court concluded that the Contract

Clause was not applicable, because no contract came into

being. Chem Bank II, 102 Wn.2d at 912-13 (Appendix

A at 39). The court held that the Due Process Clause

cannot be interpreted to prohibit state courts from de-

claring the law, nor from declaring contracts void when

they exceed it. Jd. As to the Takings Clause, the court

noted that the case primarily relied upon by Chemical

Bank to support its Takings Clause claim dealt with the

use of real property, not a judicial ruling on the nature

of state law. Jd. Chemical Bank and the Supply System

cited no case to support the proposition that the judicial

resolution of a state law question of first impression vio-

lates the Takings Clause merely because it is contrary

to the expectations of one of the litigants. The Court

affirmed the decision of the trial court. Chem Bank I],

102 Wn.2d at 913 (Appendix A at 39).

RELATED LITIGATION

Chemical Bank, the bondholders, and various insurance

carriers are actively pursuing multiple remedies in state

and federal litigation. In the United States District

Court for the Western District of Washington, three sep-

arate actions have been filed: Chemical Bank v. Public

Utility District No. 1 of Benton County, Washington,

et al., C83-1080 (1983) ; In re Washington Public Power

Supply System Securities Litigation, MDL-551 (1983) ;

and M.G.I.C. Indemnity Corp. v. Public Utility District

No. 1 of Benton County, Washington, et al., C84-690

(1984). These actions have been consolidated, and they

allege violations of federal and state securities laws,

negligence, negligent misrepresentations, and common law

fraud. In addition to the participants in the Projects,

the Supply System, and its Board of Directors, these

suits also name as defendants the experts upon whom

the bondholders allegedly relied. The Chemical Bank

action is on behalf of all current bondholders, while MDL-

551 is a class action on behalf of all individuals, invest-

ment and insurance companies which purchased bonds of

the Projects from 1977 to January 22, 1982. These mat-

ters are well into the discovery process, and a trial date

has been scheduled.

Bondholders are also pursuing a variety of remedies in

state court actions, including Haberman, et al., v. Washing-

5 These experts include Blyth Eastman (the Supply System’s

financial adviser); Merrill, Lynch, Pierce, Fenner and Smith,

Salomon Brothers, Smith Barney, and Prudential-Bache (lead

underwriters for Project 4 and 5 bond issues); R. W. Beck (con-

sulting engineer); Ebasco Services and United Engineers & Con-

structors (architects-engineers) ; Wood & Dawson and Houghton,

Cluck, Coughlin & Riley (Supply System bond counsel and special

counsel, respectively) ; and the Bonneville Power Administration.

ton Public Power Supply System, et al., No. 84-2-06452-8

(1984) (Superior Court for King County, Washington)

and Hoffer, et al. v. State of Washington, et al., No. 84-

2-16459-0 (1984) (Superior Court for King County,

Washington). These suits name many of the same de-

fendants as the federal actions, and also Ernst & Whin-

ney, the Supply System’s auditor, and the State of Wash-

ington. They rely on state securities laws, misrepresenta-

tion, negligence and various equitable theories.

These federal and state actions provide Chemical Bank

and the bondholders with other forums in which to liti-

gate their alleged negligence, reliance and other claims.

REASONS FOR DENYING THE WRIT

Review will not be granted for judgments of state su-

preme courts which rest on adequate non-federal grounds.

Herb v. Pitcairn, 324 U.S. 117 (1954). To afford a hasis

for review, a substantial federal question must be pre-

sented. Dixon v. Duffy, 342 U.S. 33 (1951). No substan-

tial federal question is presented where a state court de-

cision can be interpreted as construing a local contract

under local law. Black v. Cutter Laboratories, 351 U.S.

292 (1956). These principles should be applied in the

instant case to deny the requested Writ.

This case presents nothing more novel than a state

supreme court declaring the meaning of a state statute,

and interpreting the unambiguous terms of a contract

between the participants and the Supply System. No

abrupt change to well-established precedent took place,

only the judicious answer to a question of first impres-

sion concerning the statutory authority of municipal

corporations.

No substantial federal question has been raised in this

matter upon which certiorari can be granted. Petition-

ers have attempted to manufacture a constitutional claim

by alleging a contract repudiation where none occurred,

and by asserting that a state supreme court ruling vio-

lates their constitutional rights because it is contrary to

their expectations. In essence, Petitioners ask this Court

to review and overturn a state supreme court ruling in-

terpreting state law in which no federal question arose.

They seek the wrong remedy from the wrong court. Pe-

titioners’ remedy lies in state and federal court litiga-

tion, rather than attempting to convert their alleged re-

liance, negligence, and other claims into a substantial

federal question.

I. This Decision Does Not Present a Takings Clause

Question

The Takings Clause (U.S. Const. Amend. V, cl. 4) is

applicable to the states through the operation of the Due

Process Clause (U.S. Const. Amend. XIV, $1, cl. 3).

Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 226 (1897).

The Takings Clause is not read literally to compel com-

pensation for every government action which infringes

on a property interest, but depends upon the facts and

circumstances of each particular case. Goldblatt v. Hemp-

stead, 369 U.S. 590 (1962). Although the Court has de-

veloped formulas and factors which can be used in a

variety of situations, there is no abstract or fixed point

at which judicial intervention under the Takings Clause

becomes appropriate. Penn Central Transportation Co.

v. New York, 488 U.S. 104 (1978). Resolution of Tak-

ings Clause questions “. . . ultimately calls as much for

the exercise of judgment as for the application of logic.”

Andrus v. Allard, 444 U.S. 51, 65 (1979). To raise a

Takings Clause question, something more than the inci-

dental injury to a property interest resulting from the

exercise of lawful government authority must be demon-

strated. Chicago, B. & Q. R. Co. v. Illinois, 200 U.S. 561

(1906). The complaining party must establish a consti-

tutionally recognized property interest, and demonstrate

that it has been taken or appropriated for government

use without compensation. Neither criteria are satisfied

in this case.

A. No Constitutionally Recognized Property Interest

Is Involved

The Court has established that contracts can consti-

tute “property” under the Takings Clause. Long Island

Water Supply Co. v. Brooklyn, 166 U.S. 685 (1897).

However, “. . . not all economic interests are ‘property

rights’; only those economic advantages are ‘rights’ which

have the law back of them . . .” are entitled to constitu-

tional protection. United States v. Willow River Power

Co., 324 U.S. 499, 502 (1945). The Court has been

quick to find a constitutionally cognizable property in-

terest when the government has appropriated real prop-

erty to its own use. Penn Central Transportation Co. v.

New York City, 438 U.S. 104 (1978); Kaiser Aetna v.

United States, 444 U.S. 164 (1979).

In contrast, the Court has been understandably reluc-

tant to find a property interest in anticipated profits or

future earnings.

[L]oss of future profits—unaccompanied by

any physical property restriction—provides a slen-

der reed upon which to rest a takings claim. .. .

Further, perhaps because of its very uncertainty,

the interest in anticipated gains has traditionally

been viewed as less compelling than other property-

related interests.

Andrus v. Allard, 444 U.S. 51, 66 (1979).

In this case, no “property right” cognizable under the

Takings Clause was appropriated for government use.

As the Washington Supreme Court noted, when a munic-

ipal corporation “. . . acts beyond its specific statutory

authority, no contract obligation is created.” Chem

Bank II, 102 Wn.2d at 912 (Appendix A at 39). The

ultra vires Agreement vested no property right in the

Petitioners.

Further, the ability of the bondholders to enforce an

unconditional payment obligation against municipal cor-

porations, by virtue of the wltra vires Agreement to

which they were not parties, is not a right that had

“| the law back of them.” United States v. Willow

River Power Co., 324 U.S. 499, 502 (1945). As the

Washington Supreme Court noted, no Washington deci-

sion had ever “. . . found authority for a project in

which the participants did not have an ownership in-

terest.” Chem Bank I, 99 Wn.2d at 785 (Appendix B at

12). At best, Petitioners had an “interest in anticipated

gains” based upon their expectation of the participants’

statutory authority. As the Washington Supreme Court

observed, “. . . the record indicates that from the outset

of the projects there were questions about the statutory

authority of some 16 participants ... .” Chem Bank I,

99 Wn.2d at 796 (Appendix B at 23).

As this Court has repeatedly recognized, “. . . a mere

unilateral expectation . . . is not a property interest

entitled to protection.” Webb’s Fabulous Pharmacies v.

Beckwith, 449 U.S. 155, 161 (1980). Petitioners’ uni-

lateral expectation that Washington law authorized the

participants to execute an agreement containing an un-

conditional payment obligation without any ownership

interest is not a property interest cognizable under the

Taking Clause.

B. No Taking For Government Use Has Occurred

To posit a substantial question under the Takings

Clause, Petitioners must demonstrate that a “taking” of

their property interest has occurred. Under the Takings

Clause, every “. . . reduction in the value of property is

not necessarily equated with a taking.” Andrus v. Al-

lard, 444 U.S. 51, 66 (1979). Even the total destruc-

tion of the value of the property interest does not auto-

matically compel the conclusion that a compensable tak-

ing has occurred. Goldblatt v. Hempstead, 369 U.S. 590

(1962); Jacob Ruppert, Inc. v. Caffey, 251 U.S. 264

(1920). Hadacheck v. Sebastian, 239 U.S. 394 (1915).

Diminution in value has never been the sole litmus test.

A more sophisticated analysis has been employed to as-

certain whether there was a direct appropriation for

government use, or merely a consequential injury due to

the exercise of lawful power. It has long been recog-

nized that “. . . for consequential loss or injury result-

ing from lawful governmental action, the law affords no

remedy. The character of the power exercised is not

material.” Omnia Commercial Co. v. United States, 261

U.S. 502, 510 (1922).

In this case, there was no direct appropriation of a

property interest for government use. There has been no

expropriation of real property, (Hughes v. Washington,

389 U.S. 290 (1967) ); no intrusion by governmental use,

(Kaiser-Aetna v. United States, 444 U.S. 164 (1919));

no regulation so onerous as to constitute a taking. Penn-

sylvania Coal Co. v. Mahon, 260 U.S. 393 (1922). All

that has occurred is the lawful exercise by a state court

of its power and duty to interpret state law at the re-

quest of the Petitioners. As this Court has recognized, the

exercise of such authority does not constitute a “taking”

merely because a contract upon which parties may have

relied is declared null and void. New Orleans Debenture

Redemption Co. v. Louisiana, 180 U.S. 320 (1901). Any

damage which the Petitioners may have suffered is con-

sequential to the exercise of lawful judicial authority,

and does not amount to a taking for government use

under the Fifth Amendment. Omnia Commercial Co. v.

United States, 261 U.S. 502 (1922).

C. The Takings Clause Does Not Require State Law

To Conform To The Litigants’ Expectations

In a number of cases where a property interest has

been injured by government regulatory or legislative ac-

tion, the Court has Jooked at three indicia to determine if

a compensable taking has occurred: the character of the

governmental action; the economic impact of the action;

and the reasonableness of the investment-backed expecta-

tion. Penn Central Transportation Co. v. New York City,

438 U.S. 104 (1978); Kaiser Aetna v. United States, 444

U.S. 164 (1979). Although the absence of legislative or

regulatory action in the instant matter makes the use of

these criteria inappropriate, nevertheless, their applica-

tion to the facts of this case leads to the conclusion that

no compensable taking has occurred.

Regarding the character of the government action, “a

taking may more readily be found when the interference

with property can be characterized as a physical invasion

by government. . .” Loretto v. Teleprompter Manhattan

CATV, 458 U.S. 419, 426 (1982). In this matter, there

was a judicial interpretation of state law which declared

a contract null and void. No property was invaded for

government use; no pre-existing rights were appropriated.

Rather, after the normal course of judicial process, the

Washington Supreme Court answered a state law ques-

tion of first impression. No decision of this Court has

been cited for the proposition that the discharge by a

state supreme court of its judicial function of interpreting

state law constitutes a compensable taking under the Fifth

Amendment. To find a compensable taking each time a

state court interprets state law in a manner that impinges

on a contract would “. . . effectively compel the govern-

ment to regulate by purchase.” Andrus v. Allard, 444

U.S. 51, 65 (1979).

As for the economic impact of the government action

in this case, to date it cannot be stated with finality that

the Petitioners have suffered any economic impact. Al-

though they have lost one “strand” of their bundle of

property rights, the ability to rely on payment under the

terms of the ultra vires Agreement, they still have nu-

merous alternative forums and remedies through which

they can, and presently are attempting to, obtain return

of their investment. Until these remedies are exhausted,

it cannot be stated with certainty that the Petitioners

have suffered any economic impact.°

Finally, the Petitioners’ investment-backed expectation

that all 88 participants had legal authority to make an

unconditional promise to pay was not reasonable. As the

Washington Supreme Court noted, “. . . from the outset

of the projects there were questions about the statutory

authority of some 16 participants . . .” to execute the

Agreement. Chem Bank I, 99 Wn.2d at 796 (Appendix

B at 23). In every Official Statement of each Bond Issue

for the Projects, the Supply System’s bond counsel would

only warrant that 72 of the 88 participants had the legal

authority to execute the Agreement. Petitioners were

thus on notice that there were serious questions regard-

ing the legal authority of some of the participants. In

the face of this information, the Petitioners cannot now

claim a reasonable investment-backed expectation that

all participants possessed the requisite legal authority.

® Petitioners and certain amici have suggested that this decision

by the Washington Supreme Court has thrown the municipal bond

market into chaos and disarray, and that only intervention by this

Court can avert calamity. See, Petition for Writ of Certiorari, p. 9;

Brief of Amicus Solomon Brothers, et al., p. 3. These assertions

are flatly contradicted by the facts. Since the Washington Supreme

Court issued its decision, Washington public utilities have either

issued or participated in the issuance of municipal bonds worth in

excess of $487 million. In addition, two of the largest public utili-

ties in Washington have subsequently issued or participated in the

issuance of substantial bond offerings to finance the construction

of generating resources. The District, the largest participant in

the Projects, sold bonds worth $241.6 million to finance the Sultan

Hydroelectric Project. The City of Seattle, which is a member of

the Supply System, has participated in the issuance of bonds worth

$104 million to finance the Lucky Peak Project. The sale of bond

issues of this magnitude, subsequent to the decision in this case,

hardly depicts a municipal bond market in the throes of chaos.

Possession of this type of knowledge “. . . disposes of the

taking question .. .” Ruckelshaus v. Monsanto Co., 81

L. Ed. 2d 815 (1984).

In essence, Petitioners argue that any judicial decision

which is contrary to the “unilateral expectation” of an

investor constitutes a “taking” under the Fifth Amend-

ment. Under Petitioners’ approach, any litigant who

could allege that their investment expectation was upset

by a judicial decision, even in the absence of any support-

ing precedent, would have an actionable claim under the

Takings Clause. Not only would such an approach se-

verely limit the ability of the state judiciary to interpret

state law, but it also would entitle every disgruntled con-

tract litigant to a Writ of Certiorari to this Court.

The Takings Clause has never stood for the proposition

that the ability of the judiciary to declare the law is

limited by the expectations of the parties, be they in-

vestors or otherwise. “. . . [T]he construction of a stat-

ute does not take a party’s property without due process

simpty because it takes him by surprise, . . .” O’Neil v.

Northern Colorado Irrigation Co., 242 U.S. 20, 26 (1916).

Petitioners ask this Court to hold that they have a vested

property interest in the law as they expected it to be, and

to reverse the state court decision because it conflicts with

their expectations. Such an approach would be «nprece-

dented, and require this Court to step well beyond its

jurisdiction.

This court is without authority to review and revise

the construction affixed to a state statute as to a

state matter by a court of last resort of the state.

Terrace v. Thompson, 263 U.S. 197, 224 (1923).

This Court has already considered and rejected virtu-

ally identical Takings Clause arguments previously as-

serted by these same Petitioners as a basis for the exer-

cise of this Court’s jurisdiction. Asson v. City of Burley,

105 Idaho 432, 670 P.2d 839 (1983) (Appendix I), cert.

denied, 105 S. Ct. 219 (1984). The same result should

obtain this case.

D. The Decision Below Is Consistent With Established

Precedent

Petitioners have attempted to manufacture a conflict

between the decision in this case and prior holdings of

this Court by relying upon selected quotes from concurring

opinions and cases which are clearly distinguishable. The

cases relied upon by Petitioners provide no basis for issu-

ing a Writ of Certiorari.

Petitioners place primary reliance on Webb’s Fabulous

Pharmacies v. Beckwith, 449 U.S. 155 (1980). This case

involved a state law which required court clerks to invest

money paid into the court for interpleader actions, and tc

retain any interest income. In essence, this statute ap-

propriated to the county the use of private funds during

the litigation. In sustaining this statute, the court below

overruled a long established general rule that interest on

interpleaded funds is allocated to the ultimate owners.

On appeal, this decision was reversed. In a narrow hold-

ing limited to the facts of the case, this Court ruled that

a statute which appropriated to the county the use of pri-

vate funds as the price for gaining access to the judicial

system offended the Fifth Amendment. The Court analo-

gized the operation of this statute to the appropriation of

real property for government use found objectionable in

United States v. Causby, 328 U.S. 256 (1946).

The case at bar presents a wholely different situation.

Here there is no state statute requiring litigants to con-

tribute their interest earnings to the state in order to

seek judicial redress. Nor does it involve a state court

overturning a long established and generally accepted

common law rule. Rather, it involves a state court inter-

preting for the first time a state law in order to answer

a question never before posed to the Washington courts.

There has been no “assumption of ownership” by legisla-

tive action which the Court found offensive in the Webb

case.

The other case relied upon by the Petitioners lends even

less support to their position. Hughes v. Washington, 389

U.S. 290 (1967) presented this Court with the question of

whether state or federal law controlled title to accretions.

The Court held that title to accretions along navigable

waterways is controlled by federal rather than state law.

The majority decision found no Takings Clause issue.

Because of this, Petitioners are forced to rely upon lan-

guage extracted from a concurring opinion to the effect

that a sudden change in the well-established common law

by a state court may constitute a “taking.”

Even assuming, arguendo, that the selected quote from

a concurring opinion correctly states the law, it has no

application to the case at bar. In contrast to the Hughes

case, the decision in this matter does not deprive anyone

of an interest in real property, nor does it reverse a long

established common law rule governing real property in-

terests. At most, the decision in this case interpreted a

state law provision in order to provide an answer to a

question which had never before been posed. Neither the

Hughes case, nor any other decision of this Court, stands

for the proposition that the Takings Clause prohibits state

courts from interpreting state statutes to answer ques-

tions of first impression.

II. This Case Does Not Present A Contract Clause

Question

Amicus Public Securities Association assert that the

decision in this case abridged contractual rights, in viola-

tion of the Contract Clause. (U.S. Const. Art. I. § 10, cl.

1). Brief in Support of Petition, pp. 16-19. Amicus

argues that the same considerations underpin both the

Due Process and Contract Clauses, and both should be

applied to this case. This argument is devoid of merit.

The decisions of this Court have established beyond ar-

gument that the Contract Clause, by its plain language,

“. . . is directed only against impairment by legislation,

and not by judgments of courts.” Tidal Oil Co. v. Flana-

gan, 263 U.S. 444, 448 (1924). It has been made

abundantly clear that “. . . the constitution affords no

protection as against an impairment [of contract] by

judicial decision.” Columbia Railway Gas & E. Co. v.

South Carolina, 261 U.S. 236, 244 (1923). Were this not

so, the state judiciary could be rendered impotent by the

mere expedient of executing a contract.

Contrary to the assertions of amicus, this rule of law is

not subject to exception when the state’s own contract is

involved. As this court made clear in United States Trust

v. New Jersey, 431 U.S. 1 (1977), strict scrutiny will be

employed when a state abrogates its own contract by leg-

islation. However, no level of scrutiny under the Contract

Clause, strict or otherwise, will be applied to judicial

decisions which impair contractual rights. This case pre-

sents no Contract Clause question.

III. No Substantial Procedural Due Process Question Is

Presented

The Due Process Clause requires that litigants be af-

forded notice and an opportunity to be heard at a mean-

ingful time and place. Mullane v. Central Hanover Bank

and Trust Co., 339 U.S. 306 (1950). The Due Process

Clause neither guarantees that the law will be interpreted

in conformance with the Petitioners’ expectations, nor that

a particular result will be assured. The Due Process

Clause requires only that the parties be given a fair

chance to state their case. Grannis v. Ordean, 234 U.S.

385 (1914).

The record of this case amply demonstrates that Peti-

tioners were given numerous opportunities to brief and

argue every conceivable theory before the trial court and

the Washington Supreme Court. Further, the record es-

tablishes that Petitioners took advantage of every oppor-

tunity presented to vigorously press their case. The re-

quirements of the Due Process Clause were more than

satisfied.

A. The Issue Of The Participants’ Controi Of The

Projects Was Properly Decided As A Matter Of

Law

It is well settled that due process is a flexible concept

adopted to the circumstances of each individual case.

Kremer v. Chemical Construction Corp., 456 U.S. 461,

482-83 (1982). The Due Process Clause requires an op-

portunity for “. . . a hearing appropriate to the nature

of the case’. Mullane v. Central Hanover Bank and

Trust Co., 339 U.S. 306, 313 (1950). The type of hear-

ing appropriate to a particular case is largely depend-

ent on the nature of the issues involved. An evidentiary

hearing is not required in a case involving exclusively

legal issues. Codd v. Velger, 429 U.S. 624 (1977) (per

curiam); J. Nowak, Constitutional Law, Ch. 15, p. 556

(2nd Ed. 1983).

Due process is not an unvarying standard; what

process is due always depends upon the interest ef-

fected. The only issues at the hearing were ones of

law. .. In such circumstances due process does not

require a full evidentiary hearing but only adequate

opportunity for argument. . .. (Emphasis added. )

Conn. St. Dept. of Public Works v. Dept. of Health, Edu-

cation & Welfare, 448 F.2d 209, 212 (2nd Cir. 1971).

In this case, the Washington Supreme Court noted

that it had “. . . never found authority for a project in

which the participants did not he** an ownership inter-

est.” Chem Bank I, 99 Wn.2d at 785 (Appendix B at

12). However, the court recognized that control of the

Projects could be equivalent to ownership. In order to

give every conceivable benefit of the doubt to the Peti-

tioners, the court examined the Agreement “. . . to deter-

mine whether the participants retained sufficient inter-

est.” Chem Bank I, 99 Wn.26 at 787 (Appendix B at

14). The court reviewed the operation of the unam-

biguous terms of the Agreement, and concluded as a

matter of iaw that it did not grant the participants con-

trol of the Projects equivalent to ownership. Id.

This interpretation of the contractual language in-

volved a question of law, and did not raise any factual

issues. As the Washington Supreme Court noted, under

Washington law, this issue was properly resolved as a

matter of law. Chem Bank II, 102 Wn.2d at 894 (Ap-

pendix A at 20), citing Kelly v. Aetna Cas. & Surety Co.,

100 Wn.2d 401, 670 P.2d 267 (1983). Accordingly, the

Washington Supreme Court’s consideration of this issue

on at least two separate occasions afforded the Peti-

tioners a hearing appropriate to the nature of the issue

and fully satisfied the demands of due process."

The Petitioners attempt to circumvent this rule of law

by arguing that since several participants were Supply

System members, a factual question was raised requir-

ing an evidentiary hearing.* This argument seriously

misconstrues the Washington Supreme Court’s decision

on the control issue.

The question posed to the Washington Supreme Court

was whether the Agreement granted the participants

“. . . Sufficient control over the project to constitute the

equivalent of ownership.” Chem Bank I, 99 Wn.2d at

787 (Appendix B at 14). To determine the statutory

™ The issue of the control retained by the participants over the

Projects under the Participants’ Agreement was addressed in both

decisions of the court, as well as in the Petitioner’s unsuccessful

motion for reconsideration after the June, 1983, decision.

8 This is in direct conflict to the position previously taken by the

Petitioners. In the tria! court proceedings, the Petitioners moved

for summary judgment on the basis that all issues could be resolved

on purely legal grounds.

validity of this contract, the court properly focused its

attention on the terms and conditions of the Agreement.

As the court recognized, it was only by analyzing the

terms of the Agreement that it could determine the

degree of control, if any, exercised by the utilities in

There are a number of other pertinent factors which

support the Washington Supreme Court’s focus on the

Agreement in resolving the control issue. The Court’s

purpose in analyzing this issue was to determine whether

the participants had statutory authority when they ex-

ecuted the Agreement in 1976. Some of the participants

did not become Supply System members until after the

Agreements were executed, and the majority of the par-

ticipants never became Supply System members. Since

it is the utility’s authority at the time the Agreement

was signed which was critical, the court had to focus on

the authority each utility possessed as a participant un-

der the Agreement at the time of execution, regardless

of any collateral status as a Supply System member.

Further, any control which the participants may have

exercised by virtue of their Supply System membership

was too transitory to be considered equivalent to an

ownership interest. The rights of Supply System mem-

bers were subject to legislative modification at any time.°

The fact that control incident to Supply System member-

ship could be modified or eradicated at any time ren-

dered it too ephemeral to constitute the equivalent of an

ownership interest.

In view of the foregoing, the Washington Supreme

Court properly limited its focus to the actual language of

the Agreement in resolving the control issue. Accord-

ingly, resolution of the issue as a matter of law in no

way deprived the Petitioners of due process.

® The Washington Legislature has on two occasions modified the

rights of Supply System members. 1981 Wash. Laws, ch. 3, § 2 (1st

Ex. Sess.) ; 1983 Wash. Laws, ch. 3, §3 (1st Ex. Sess.).

B. The Availability Of Equitable Remedies Was Prop-

erly Decided As A Question Of Law

As discussed above, the Due Process Clause does not

require an evidentiary hearing for the adjudication of

issues of law. Codd v. Velger, 429 U.S. 624 (1977) (per

curiam). Accordingly, since the Washington Supreme

Court’s ruling on the inapplicability of equitable reme-

dies was supportable on entirely legal grounds, deciding

this issue as a matter of law did not impinge upon Pe-

titioner’s due process rights.

The Washington Supreme Court’s determination that

the application of equitable remedies was precluded as a

matter of law because the execution of the Agreement

was substantively ultra vires was based on long estab-

lished Washington precedent. Estoppel and other equitable

relief are not available against a governmental entity

for an ultra vires act which is void because it is done

wholly without legal authorization. Finch v. Matthews;

74 Wn.2d 161, 443 P.2d 833 (1968); Arbogast v. West

Port, 18 Wn. App. 4, 567 P.2d 244 (1977). Where a

municipality lacks substantive authority to enter into a

contract, the contract is absolutely null and void, and

there can be no recovery on any equitable theory against

the municipality. See, e.g., Osborne, Tremper & Co. v.

King County, 76 Wash. 277, 285-86, 186 P. 188, 141

(1913) ; State ex rel. Craig v. Newport, 70 Wash. 286,

292-94, 126 P. 637, 640 (1912). The principle is well

settled that one cannot do indirectly what cannot be done

directly, and when there is no power or authority vested

by law in officers or agents, no void act of theirs can be

cured by aid of the doctrine of estoppel. See, State v.

Pullman, 23 Wash. 588, 63 P. 265 (1900).

The court concluded that because the Washington mu-

nicipal utilities lacked the statutory authority to execute

the Agreement, it was substantively ultra vires, and as

a matter of state law “the doctrine of substantively

Cities tase i a

ultra vires activity thus precludes recovery.” Chem

Bank II, 102 Wn.2d at 911 (Appendix A at 38). Be-

cause equitable remedies were precluded as a matter of

law, there were no factual issues relevant to the avail-

ability of equitable remedies. Consequently, the issue was

roperly resolved by the Washington Supreme Court as

a matter of law.

The Petitioners attempt to bolster their Due Process

claim by alleging that the Washington Supreme Court’s

decision on the inapplicability of equitable remedies was

based wholly on their failure to seek a declaratory judg-

ment on the participants’ legal authority. This line of

reasoning is without merit, and seriously misinterprets

the decision in this case.

As the Washington Supreme Court made abundantly

clear, the denial of equitable remedies was based on the

finding that the Washington municipal utilities lacked the

statutory authority to execute the Agreement, and as

a matter of state law that act was substantively ultra

vires, rendering the Agreement void in all respects. It is

well settled that the Supreme Court will not review

judgments of state courts which rest on adequate and

independent state grounds. Herb v. Pitcairn, 324 U.S.

117 (1954); Camp v. Board of Pub. Inst., 368 U.S. 278

(1961). Here, the Washington Supreme Court’s denial

of equitable relief rests firmly on state law, the applica-

tion of the ultra vires doctrine. The court’s aside re-

garding a possible declaratory judgment action was not

crucial to the ultimate holding on this issue, and pro-

vides no legitimate basis for granting Petitioners’ request

for review.

Furthermore, the existence of an indisputable basis

for denying equitable relief under the wltra vires doc-

trine demonstrates that the court’s aside regarding a

possible bondholder declaratory judgment action can

amount to no more than harmless error. Such harmless

a tae

ae a “

error would have to be disregarded by the Supreme

Court if it were actually to rule on Petitioners’ Writ of

Certiorari. 28 U.S.C. § 2111. The court’s aside provides

no basis for granting review, nor does it present a sub-

stantial federal question even if it is assumed, arguendo,

that the court was in error. As this Court has stated:

We cannot treat a mere error of state law, if one

occurred, as a denial of due process; otherwise, every

erroneous decision by a state court on state law would

come here as a federal constitutional question.

Gryger v. Burke, 334 U.S. 728, 721, reh’g denied, 335

U.S. 837 (1948).

IV. The Due Process Clause Does Not Require Certain

Justices’ To Disqualify Themselves

Petitioners contend that they were denied an impar-

tial tribunal because two of the Washington Supreme

Court Justices were customers of one or more of the

participants. This contention is unfounded. A judge’s

incidental, remote or contingent pecuniary interest in

the subject matter of an action, such as that alleged by

Petitioners, is insufficient to mandate disqualification.

See, Nueces County Drainage & Conservation District

No. 2 v. Bevly, 519 S.W.2d 9388, 951-52 (Tex. 1975).

Indeed, the federal courts have specifically recognized

that where a utility is a party, the ratepayer status of

a judge is not disqualifying. See, e.g., New Orleans

Public Services v. United Gas Pipe Line, 719 F.2d 733,

735 (5th Cir. 1983); In re New Mewxico Natural Gas

Antitrust Litigation, 620 F.2d 794 (1980). These legal

authorities are dispositive, and establish that the rate-

payer status of the two Washington Supreme Court

Justices did not mandate their disqualification or intrude

upon Petitioners’ due process right to an impartial tri-

bunal.

CONCLUSION

Petitioners have attempted to manufacture a constiiu-

tional claim where none exists. This is a case of a state

court interpreting state law and the unambiguous terms

of a contract. Although the question presented is one

of first impression, the fact that the answer was con-

trary to the expectations of the Petitioners does not

create a substantial federal question. If Petitioners have

suffered harm by this decision, their remedy lies in pur-

suing negligence and reliance claims in state and federal

courts, which they are currently doing with great vigor.

The decision below was based upon adequate state law

grounds, and no substantial federal questions have been

presented to warrant the exercise of this Court’s juris-

diction. The Petition for a Writ of Certiorari to the

Washington Supreme Court should be denied.

Respectfully submitted this 5th day of April, 1985.

TERENCE L. MUNDORF *

DAVID R. RILEY

THE WILLIAMS, NOVACK & HANSEN

LAW FIRM

900 Wall Street Building

P. O. Box 1077

Everett, Washington 98206

(206) 259-4141

Attorneys for Respondent

Public Utility District No. 1

of Snohomish County, Washington

* Counsel of Record

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.