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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1985
- **Citation:** 471 U.S. 1075

## Text

Office - Supreme Court, U.S.
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,
V.

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

A.

B.

C.

D.

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

20

21

iv
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

vV

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

vi

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

11
15, 20

27

10
15

15, 16

23

10
21, 22

15

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

15

21
, 19, 20
passim

passim
20

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.

2

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-

3

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.

4

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%.

5

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.

6

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-

7

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).

8

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).

9

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

10

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.

11

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,

12

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

13

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.

14

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-

15

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-

16

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

17

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.

18

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.

19

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.

20

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.

21

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-

a

22

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-

23

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.

24

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
their © sle as participants.

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.).

25

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

26

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 “

27

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.

28

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_2098%3A14. Public record. Not legal advice.