# 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

o~ ; Court, 02.
No. 84-1258 |" mee =
APR § 1985
IN THE en | SEA
SUPREME COURT OF THE UNITED an...

OCTOBER TERM, 1984

CHEMICAL BANK AND WASHINGTON PUBLIC
POWER SUPPLY SYSTEM,

Petitioners,
v.

PUBLIC UTILITY DISTRICT NO. 1
OF BENTON COUNTY, WASHINGTON, et ai.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT
OF THE STATE OF WASHINGTON

BRIEF OF THE RESPONDENT CITY OF ELLENSBURG,
WASHINGTON, IN OPPOSITION

Hugo E. Oswald, Jr.*
James A Miller
Margaret A. Pageler

April 5, 1985 JONES, GREY & BAYLEY, PS.
36th Floor
One Union Square
600 University
Seattle, Washington 98101
(206) 624-0900

Counsel for Respondent
City of Ellensburg,

Washington

*Counsel of Record

BEST AVAILABLE COPY (7

QUESTIONS PRESENTED

ie Were purchasers of municipal
bonds issued by the Washington Public
Power Supply System to finance construc-
tion of two electrical power plants
deprived of property without just compen-
sation as a result of the decision of the
Washington Supreme Court holding that
Washington municipalities and _ public
utility districts had no authority to
incur financial obligations with respect
to the plants and that the bondholders
could not require the project participants
to bear the loss of their investments
under equitable theories of raptitutien or
estoppel?

as Did the Supreme Court of the
State of Washington in two reasoned deci-
sions based upon a consistent application

of long-standing Washington state precedent

ii

unconstitutionally deprive bondholders in
public electrical power projects of due
process by holding that Washington munici-
pal corporations and public utility
districts did not have authority to enter
into contracts to purchase electrical

power project capability?

1ii

PARTIES TO THE PROCEEDINGS

The parties to the proceedings set
forth at pages iii-v of the Petition for
Certiorari correctly identify the parties
to this litigation.

This Brief in Opposition to Petition
for Certiorari is submitted by the Respon-
dent City of Ellensburg, Washington, one
of 88 municipalities, public utility
districts, irrigation districts, and rural
electric cooperatives which are parties to
the Participants' Agreement which is the

subject of this litigation.

lv

TABLE OF CONTENTS

QUESTIONS PRESENTED

PARTIES TO THE PROCEEDINGS

TABLE OF AUTHORITIES

OPINIONS BELOW

JURISDICTION

STATEMENT OF THE CASE
Introduction .
Summary of Proceedings
The Participants Did Not
"Repudiate" Their Project
Obligations —_
The Respondent City of
Ellensburg Did Not "Repudiate"

the Participants' Agreement

The Participants Did Not Cause
Termination of WNP 4 and 5

The Participants Have Not
Wrongfully Retained Bondholder
Funds or Assets Me ee

The Decision Below Has Had No
Substantial Effect on the
Municipal Bond Markets

13

17

19

20

Page
REASONS FOR DENYING THE WRIT .... 23
i The Washington Supreme Court's
Decision Is Based Solely Upon
2s ee ne ee er es ey ae
a. The Petitioners Have Not Raised
a Substantial Federal Question
Under the "Takings Clause" ... 30
3. The Petitioners' Assertions
That They Have Been Denied
Due Process Are Without
da a ee
A. The "Control" Issue .... 37
B. Availability of
_ Declaratory ore
ACEIGR -. » 2 i. + =», ee
es Recusal of Washington
Supreme Court Justices .. 41

CONCIAIOIGN wk ke A ee ae ee Se

vi

TABLE OF AUTHORITIES

CASES: Page

Armstrong v. United States, 364
U.S. 40 (1960)............ 36

Board of Commissioners v. All
Taxpayers, Property Owners,
and Citizens, 360 So. 2d 863
(La. 1978) a a

27

Borgens v. Eliensburg,
Kittitas County Superior Court
Cause No. 23263 ......... . .11,15

Chehalis County v. Hutcheson, 21
Wash. 82, 57 Pac. 341 (1899) .... 34

Chemical Bank v. Washington

Public Power Supply System,

99 Wn.2d 772, 33 P.2d 329

(1983) ("Chemical Bank I") ... . . passim

Chemical Bank v. Washington Public
Power Supply System, 102 Wn.2d
874, 691 P.2d 524 (1984)
- ("Chemical Bank II") ...... . . passim

Chemical Bank and Washington Public
Power Supply System v. Asson, 670
P.2d 839 (Idaho 1983), cert. den.,
U.S. , 105 Ss. Ct. 219
2)” 5 rr ra a ee er eee * ey

vil

Columbia Rural Electric Assoc., Inc.
v. Washington Public Power Supply —
System, Lewis County, Washington,
Superior Court Cause No. 40202
(1982)

DeFazio v. Washington Public Power
Supp LY System, 296 Ore. 550, 679

Pia 2eae tameen « ss es ee lt
Frank v. Cody, 572 P.2d 1106 (Wyoming
1977) ye ee ee ee ee

Great Northern Railway Co. v.
Sunburst Oil & Refining € Co., 287
U.S. 358 (1932) —

Herb v. Pitcairn, 324 U.S. 117

(1954)

Hortonville Joint School District
No. 1 v. Hortonville Education
Association, 426 U.S. 482 (1976)

In re New Mexico Natural Gas Anti-
trust Litigation, 620 F.2d 794, 796
(10th Cir. 1980) . :

Johnson v. Piedmont Municipal
Power Agency, 287 S.E.2d 476
(S.C. 1982) eo ee %

Nelson, et al., v. Ellensburg,
Kittitas County Superior Court
Cause No. 23398 ‘ar

Penfold v. Fall River Rural Electric
Cooperative, Inc., Teton County,

Idaho, District Court Cause No. 1915
(1982) ees SG ae

Page

11

ll

28

29

28

43

27

16

11

vili
Penn Central Transportation Co.
v. City of New York, 438 U.S. 104
(1978) er ay ay ee ee oe ee ee

State ex rel. Grimes, County
Taxpayers Association v. Texas
Municipal Power Agency, 565 S.W.2d
258 (Tex. Civ. App. 1978)

State ex rel. Mitchell v. Silkeston,

555 S.W.2d 281 (Mo. 1977)

State ex rel. O'Connell v. Engen,
60 Wn.2d 52, 371 P.2d 638 (1962

State v. O'Connell, 83 Wn.2d 797,
523 P.2d 872 (1974) area

Town of Othello v. Harder, 46 Wash.
747, 284 P.2d 1099 (Wash. 1955)

United States v. Will, 449 U.S. 200
(1980) Shee ee eee. Se ae

Webbs! Fabulous Pharmacies, Inc.
v. Beckwith, 449 U.S. 155 (1980)

CONSTITUTIONAL PROVISIONS

U.S. Const. Amend. V, cl. 4

Wash. Const. art. I, § 1, art. XI,
§ 10 . A et oe a ea
STATUTES

28 U.S.C. § 455

Page

31

28

27

35

26

44

31

30

26

-42,43

1x

28 U.S.C. § 1257

Wash. Rev. Code § 7.24

Wash. Rev. Code § 7.25

Wash. Rev. Code § 35.92.050
RULES

Sup. Ct. R. 27.3

OTHER AUTHORITIES:

Trautman, Legislative Control of

Municipal Corporations in Washington,
38 Wash. L. Rev. 743 (1963)

"1983: The Year of Default: 'Barefoot
Among the Barracudas'," The Weekly
(Seattle, Washington), December 19,
fee. «ss ee ee ee ee ee ee

26

22

No. 84-1258

IN THE
SUPREME COURT OF THE UNITED STATES
October Term 1984

CHEMICAL BANK AND WASHINGTON PUBLIC
POWER SUPPLY SYSTEM,

Petitioners,
a

PUBLIC UTILITY DISTRICT NO. 1
OF BENTON COUNTY, WASHINGTON, et al.,

Respondents.

ON PETITION FOR A WRIT OF
CERTIORARI TO THE SUPREME COURT
OF THE STATE OF WASHINGTON

BRIEF OF THE RESPONDENT CITY OF
ELLENSBURG, WASHINGTON, IN OPPOSITION

Respondent City of Ellensburg, Wash-
ington, respectfully prays that this Court
deny the Petition for Certiorari submitted

by Chemical Bank and the Washington Public

Power Supply System seeking review of the
decision of the Supreme Court of the State

of Washington in Chemical Bank v. Washington

Public Power Supply System, 102 Wn.2d 874,

691 P.2d 524 (1984) ("Chemical Bank II"),
Appendix A to the Petition for Certiorari.
Respondent City of Ellensburg also
respectfully prays that this Court deny
the Petition for Certiorari submitted by
Petitioners Fredric Haberman, Claude
Purvis, Nerow Cheng, Ted R. Pape, Audrey L.
Moss, and John H. Biggs seeking review of
that portion of Chemical Bank II denying
their motion to intervene in Chemical

Bank 11.-

1 Although the Haberman petitioners have asked
the Court to consider their Petition for
Certiorari only if certiorari is granted in
the primary case, No. 84-1258, Respondent
City of Ellensburg respectfully prays that
this Court deny the Haberman Petition for
Certiorari, regardless of the disposition of
the present case, on the grounds that no
substantial federal question is presented by
Haberman. The City of Ellensburg adopts and
incorporates by reference the Brief of
Washington Public Utilities Group in Opposi-
tion to Petition for Certiorari filed in
No. 84-1414.

3

OPINIONS BELOW

The recitation at pages 1-2 of the
Petition for Certiorari is a generally
accurate summary of the proceedings below.

JURISDICTION

The Respondent City of Ellensburg
disagrees with the statement of jurisdiction
at page 2 of the Petition. Certiorari
will be granted to review the decision of
a state's highest court only where (1) the
state court decision does not rest on
state law grounds adequate to sustain the
decision; (2) the federal questions for
which review is sought have been duly
raised and adjudicated before the state
court and are substantial; and (3) there
are special and important reasons compel-
ling this Court's review of the case.

Herb v. Pitcairn, 324 U.S. 117 (1954); 28

U.S.C. § 1257; Sup. Ct. R. 17.1.
Despite the Petitioners' best efforts

to couch its Gissatisfaction with the

decision below in language resembling that
of federal constitutional issues properly
within this Court's jurisdiction to con-
Sider, no federal question of substance is
presented by this case. The decision
below is based squarely on an application
of Washington state law.

Further, there are no special and
important reasons compelling this Court's
review. Contrary to the assertions of
Petitioners and the amici, this case has
had no significant effect on the national
municipal bond markets or on the ability
of municipalities in the Pacific Northwest
to raise funds through municipal bond
offerings.

STATEMENT OF THE CASE

Introduction

The Statement of the Case contained
in the Petition for Certiorari does not
accurately characterize either the proceed-

ings below or the facts of this case.

For example, contrary to Petitioners'
very first assertion in their Statement of
the Case, this case does not arise from a
municipal bond default. The default by
the Petitioner Washington Public Power
Supply System (the "Supply System") on
municipal bonds it issued to construct two
nuclear power plants, WNP 4 and 5, occurred
as a consequence of the holdings in this
case. The default occurred during the
pendency of this case and as a result of
decisions in this case and in related
cases which hold that the Participants'
Agreement between the Supply System and
the 88 participants who had contracted to
purchase portions of the electrical power
capability of WNP 4 and 5 were not enforce-
able.

Similar mischaracterizations of
pertinent facts occur in other parts of
the Petition. These inaccurate statements

are the result of the Petitioners' attempt

to cast this case, decided solely on state
law grounds, as one involving substantial
issues of federal law.

Summary of Procedings

Construction of WNP 4 and 5 was
commenced by the Supply System in 1977
after it sold varying portions of the
electrical power capability of the projects
to each of 88 consumer-owned utilities
pursuant to the terms of the Participants'
Agreement dated July 14, 1976. Under the
Participants' Agreement, the 88 partici-
pants each agreed to pay the Supply System
for a specified portion of the project
capability of WNP 4 and 5 without regard
for whether the plants ever produced any
power (the "hell or high water" or "dry
hole" provisions of the Participants'
Agreement).

Construction of WNP 4 and 5 was
funded by the Supply System's sale of 14

issues of municipal bonds between March,

1977, and April, 1981. Because of delays,
cost increases, and escalating interest
rates--factors which plagued the whole
nuclear industry in the late 1970's--it
became increasingly difficult to finance
the projects. Further, as projected costs
escalated, it became clear that the regional
market for power would not materialize.
See Petition at 7.

On January 22, 1982, with the concur-
rence of the participants, the Supply
System terminated WNP 4 and 5. In May,
1982, Petitioner Chemical Bank, the bond-
holders' trustee, commenced this suit in
the Superior Court for King County, Wash-
ington, seeking to determine the WNP 4 and
5 participants' obligations of the 88
participants to make payments to the
Supply System pursuant to the terms of the
Participants' Agreement.

On June 15, 1983, the Washington
Supreme Court issued its first decision in

this suit, Chemical Bank v. Washington

Public Power Supply System, 99 Wn.2d 772,

666 P.2d 329 (1983) ("Chemical Bank I"),
Appendix B to the Petition for Certiorari.
The Washington court ruled in Chemical
Bank I that the Participants' Agreement

was ultra vires and therefore unenforceable

with respect to the Washington municipali-
ties and PUDs and remanded the case to the
trial court for further proceedings. On
July 22, 1983, the Supply System defaulted
on the bonds it had issued to finance
construction of WNP 4 and 5.

On remand following the decision in
Chemical Bank I, the trial court ruled
that the Participants' Agreement was also
unenforceable with respect to the Oregon
and Idaho participants and Washington
cooperatives based upon a frustration of
purpose theory and denied Chemical Bank's
claims that the Participants' Agreement
should be enforced against the partici-

pants on equitable grounds. The Washing-

ton Supreme Court affirmed these rulings
in Chemical Bank II, in which it also
confirmed its ruling in Chemical Bank I
that the Participants' Agreement was ultra
vires with respect to the Washington

municipal participants.

The Participants Did Not
"Repudiate" Their Project
Obligations.

Petitioners' repeated assertions that
the participants repudiated their obliga-
tions to the Supply System under the
Participants' Agreement, Petition at 3, 4,
and 8, are incorrect.

The participants are a widely diverse
group of consumer-owned utilities. The 88
participants include 9 Washington cities
(one of which is the Respondent City of
Ellensburg), 19 Washington Public Utility
Districts ("PUDs"), 1 Washington irrigation
district, 7 Oregon cities, 4 Oregon PUDs,
5 Idaho cities, and 43 rural electric

cooperatives.

10

The responses of the participants to
the termination of WNP 4 and 5 were the
result of independent judgments made by
the elected officers and managers of each
participant. These judgments were based
upon each participant's analysis of its
obligations under the Participants' Agree-
ment and its constitutional and statutory
obligations to its constituents and rate-
payers.

Upon the termination of WNP 4 and 5
in January, 1982, many participants raised
their electrical rates to enable them to
pay their obligations to the Supply System
under the Participants' Agreement. A nunm-
ber of participants were taken to court by
groups of ratepayers who challenged the
validity of the Participants' Agreement

and sought to enjoin any rate increases

ll

implemented to pay for the terminated
projects.

The participants are all required by
law to manage their electric utilities in
the interests of their ratepayers. The
specific powers and authority of the 88
participants vary widely. Some partici-
pants sought judicial determination of
their obligations under the Participants'

3

Agreement;~ others supported the Agreement

against challenge by the ratepayers.

2 E.g., Borgens v. City of Ellensburg, Kittitas
County, Washington Superior Court Cause
No. 23263 (filed May 26, 1982); Asson v. Cit
of Burley, 105 Idaho 432, 670 P.2d 839 (1983),
cert. den., 105 S. Ct. 219 (1984) (filed
August 11, 1982); Penfold v. Fall River Rural
Electric Cooperative, Inc., Teton County,
Idaho District Court Cause No. 1915 (filed
April 7, 1982); DeFazio v. Washington Public
Power Supply System, 296 Ore. 55°, 679 P.2d
1316 (19 filed February 22, 1982).

3 E.g., Columbia Rural Electric Assoc., Inc. v.
Washington Public Power Supply System, Lewis
County, Washington, Superior Court Cause
No. 40202 (filed April 23, 1982). The inde-
pendence of the participants' actions is
further illustrated by the varying responses
of the participants to the Petition for
Certiorari herein. The participants are not
a single united group in this case.

12

When Chemical Bank brought this
action in Washington state court to enforce
the Participants' Agreement, many parti-
cipants chose to require Chemical Bank to
prove that the Participents' Agreement was
enforceable in order to avoid challenges
by ratepayers that payments made by parti-
cipants to finance WNP 4 and 5 were ultra
vires or otherwise improper. The decision
of many of the participants to require
Chemical Bank to satisfy its burden of
proof in the litigation it commenced was
not compelled by improper motives. Most
participants are obligated to spend funds
only as authorized by existing law. The
participants, like Chemical Bank, were
anxious to obtain a judicial declaration
of their obligations under the Participants'

Agreement.

13

The Respondent City of
Ellensburg Did Not "Repudiate"
the Participants' Agreement.

The City of Ellensburg, Washington,
is a third-class city with a population of
approximately 12,000. Like all Washington
cities, its municipal authcrity is limited
to that granted by the Washington state
constitution and by the Washington legis-
lature. Ellensburg operates municipally-
owned natural gas and electrical utilities
distribution systems. It does not own any
electrical generating facilities and is
dependent upon the Bonneville Power Admin-
istration for its supply of electricity.

As a municipal entity, Ellensburg is
charged by Washington state law with
management of its electrical utility in
the best interests of its ratepayers.
Payment of funds by Ellensburg to satisfy

unenforceable, invalid, or ultra vires

obligations would not only breach the

city's duty to its constituents, but also

14

could subjeci its officials to personal
liability for the wrongful expenditure of

municipal or ratepayers' funds. See State

ex rel. O'Connell v. Engen, 60 Wn.2d 52,

371 P.2d 638 (1962).

Termination of WNP 4 and 5 in January,
1982, meant that Ellensburg's obligations
to the Supply System under the Participants'
Agreement could not be funded from the
sale of electrical power produced by the
projects. On February 24, 1982, Ellens-
burg began consideration of a 37% increase
in its electrical rates primarily to pay
Ellensburg's share of the costs of WNP 4
and 5. This increase was adopted on
April 19, 1982, as City Ordinance No. 3351.

On May 26, 1982, certain Ellensburg
electrical power ratepayers brought suit
in the Superior Court for Kittitas County,
Washington, to enjoin the collection of

the rate increase on the ground that

15

Ellensburg's obligations under the Parti-
Cipants' Agreement was invalid and unen-

forceable. Borgens v. Ellensburg, Kittitas

County Superior Court Cause No. 23263.
Ellensburg moved for dismissal of the
ratepayers' suit on the grounds that the
same issues were pending before the King
County Superior Court in the suit commenced
by Chemical Bank on May 18, 1982. The
ratepayers' lawsuit was dismissed to
permit the King County Superior Court to
decide all issues related to enforcement
of the Participants' Agreement, .ncluding
those related to Ellensburg.

During the pendency of Chemical
Bank's suit before the Washington state
trial and appellate courts, Ellensburg
continued to collect the electrical utility
surcharge implemented to pay its share of
the WNP 4 and 5 costs pursuant to the

Participants' Agreements despite continued

16

ratepayer opposition. + Ellensburg placed
the funds collected from its rate increase
in a special account and later transferred
them to an escrow established by the King
County Superior Court judge.

Ellensburg acted to assure that it
could satisfy its obligations under its
Participant's Agreement if they were
adjudicated to be proper. At the same
time, Ellensburg required Chemical Bank to
prove that the city's obligations under
the Participants' Agreement were enforceable
to protect the city from allegations by
its ratepayers that the Participants'

Agreement was ultra vires or otherwise

unenforceable.

4 Ellensburg's imposition of the 37% rate
surcharge and the purpose for which the
surcharge was imposed were a matter of record
in Chemical Bank's lawsuit as early as
September, 1982. Indeed, in September, 1982,
the Supply System intervened on the side of
Ellensburg to help defend against a second
ratepayer suit seeking to enjoin Ellensburg's
collection of the surcharge. Nelson v.
Ellensburg, Kittitas County Superior Court
Cause No. 23398.

17

Ellensburg and the other WNP 4 and 5
participants have not acted out of selfish-
ness or obstinancy in seeking to obtain
judicial determination of their obligations
under the Participants' Agreement. Peti-
tioners have wrongly characterized the
actions of the various participants as an
improper "repudiation" of lawful obligations
in an attempt to portray the participants
as having “unclean hands" and to conceal
from this Court the extensive efforts the
participants took to resolve the serious
legal problems they confronted upon termin-

ation of WNP 4 and 5.

The Participants Did Not Cause
Termination of WNP 4 and 5.

Petitioners assert that termination
of WNP 4 and 5 was "an eventuality that
participants could control," Petition
at 6, and that "their disapprovals of

project financing plans in i981 spelled

18

the projects' certain demise," Petition
at 7. Yet Petitioners acknowledge that
the projects were planned to avert a
projected power shortfall in the region
and that by mid-1981 "the projected energy
demand had not materialized." Petition
at 7.

Reduced electrical demand in the
Pacific Northwest was an occurrence the
participants could not control. By 1981,
revised projections of the region's elec-
trical demand made further construction of
WNP 4 and 5 no longer feasible, as Peti-
tioners acknowledge. The participants’
concurrence in the Supply System's decision
to terminate WNP 4 and 5 in 1982 was a
responsible effort to limit the impact of
the decision made in the mid-1970's to

construct the two plants.

19

The Participants Have Not
Wrongfully Retained Bondholder
Funds or Assets.

Petitioners repeatedly assert that
the participants have "refused to return
any portion of the bondholders' funds."
Petition at 4, 8. This allegation is
unfounded and seriously misleading.

No portion of the bondholders' funds
has gone to any participant. All the
proceeds of sales of the WNP 4 and 5 bonds
issued by the Supply System were paid to
the Supply System which is a Washington
municipal corporation separate from the
participants, formed under Washington
statute, RCW 43.52.

The cash assets remaining in the
Supply System's possession at the time of
default (approximately $25 million), as
well as the physical assets of WNP 4 and
5, have been delivered by the Supply
System to Chemical Bank, as trustee for

the bondholders. If those funds and

20

assets have not been returned to the
bondholders, it is because Chemical Bank
has retained them, not because the parti-

cipants have them.

The Decision Below Has Had
No Substantial Effect on the
Municipal Bond Markets.

In an apparent attempt to cloak this
case with the "special and important
reasons" this Court requires of cases it
will review by writ of certiorari, peti-
tioners and the amici have presented the
court with an extremely exaggerated picture
of the effect of the decision below on the
national municipal bond market. However,
despite widespread initial predictions
that the Supply System's default would
seriously disrupt the municipal bond
market and cause bond offerings by Pacific
Northwest municipalities to be shunned or

marketable only with burdensome interest

21

"pnenalties," the default has had no such
effects.

Shortly after the default in July,
1983, the Port of Tacoma, Washington, sold
$26 million in municipal bonds to finance
port improvements; Pierce County, Washing-
ton, the State of Oregon, and the Lake
Washington, Washington School District
also successfully sold relatively small
municipal bond issues. It has been esti-
mated that these entities may have paid
0.25 to 0.50 percent in interest above
what would have been required in the
absence of the default. In August, 1983,
the State of Washington successfully made
a general obligation bond offering in
which it was estimated its interest
"penalty" was 0.46 to 0.50 percent. Ina
later bond sale by the state, the esti-
mated "penalty" dropped to 0.25 percent.
In November, 1983, the Snohomish County
PUD, the utility which had the largest

22

participant's share of WNP 4 and 5, 13.051
percent, successfully made a $200 million
bond offering for which it was estimated
it paid an interest "penalty" resulting
from the Supply System's default of about
0.6 percent.>

Those who purchased WNP 4 and 5 bonds
sought an attractive tax-free investment.
These investors incurred investment risks
in purchasing these bonds, one of which
was that the WNP 4 and 5 participants had
exceeded their lawful authority in enter-
ing into the Participants' Agreement.
Unfortunately, the risks inherent in that
investment were realized and the bondholders
have incurred financial losses as a result

of the Supply System's default. This

5 The statistical data in this paragraph are
taken from: "1983: The Year of Default:
‘Barefoot Among the Barracudas'," The Weekly
(Seattle, Washington), December 19, 1984.

23

alone, however, does not render this case
one suitable for this court's review.
Further, the minimal and diminishing
effect on the municipal bond markets, even
for WNP 4 and 5 participants, belies the
claims by Petitioners and amici that the
Supply System's default has seriously
disrupted the municipal bond markets.
Petitioners' assertions notwithstanding,
there are no special and important reasons
justifying this Court's review of this

case.

REASONS FOR DENYING THE WRIT

The Writ should be denied for the
reason that the decision below is based
solely on issues of state law. Despite
petitioners' best efforts to weave a
federal constitutional argument from a
unique combination of the Takings and Due
Process Clauses of the federal constitu-

tion, the essence of their Petition simply

24

is that they believe that the Washington
Supreme Court wrongly decided this case
and that this Court should exercise its
discretionary jurisdiction to reverse the
decision of the Washington court based on
Washington law.

The policies embodied in the concept
of federalism, the statutes governing this
Court's jurisdiction, and this court's own
rules wisely preclude this Court's review
of this case because it was decided solely
upon state law grounds and does not violate

any federal constitutional rights of the

Petitioners.

io The Washington Supreme Court's
Decision is Based Solely Upon
State Law.

The Washington Supreme Court decision
declaring the Participants' Agreement to
be unenforceable is based solely upon
state law. The determinative element of

the decisions in both Chemical Bank I and

25

Chemical Bank II is the court's careful
analysis of the statutory authority of
Washington state municipalities and PUDs
to enter into the Participants' Agreement.
This issue directly involved 28 of the 88
participants in WNP 4 and 5: 9 Washington
cities, including the City of Ellensburg,
and 19 Washington PUD's (collectively the
"Washington municipal participants").
Following its analysis of the author-
ity of the Washington municipalities
and PUD's, the court concluded that the
Washington municipal participants did not
have authority to incur the obligations
imposed by the Participants' Agreement.
Consequently, the Participants' Agreement
was declared to be void and unenforceable
against the Washington municipal partici-

pants under the ultra vires doctrine

26

applicable to Washington municipal corpo-
rations. °®
Under Washington state law, the rule
that express statutory authority must be
found for municipal action arises from the
fact that Washington municipal corporations
are creatures of the sovereign state.
Wash. Const. art. I, § 1, art. XI, § 10.
"A [Washington state] municipal corpora-
tion, being but a creature of che state,
derives its existence, powers, and duties,
from the legislative body of the state."
Town of Othello v. Harder, 46 Wash. 747,
284 P.2d 1099 (Wash. 1955). This rule is

one of long standing in Washington State.

See generally Trautman, Legislative Control

6 Although the court continued its analysis in
Chemical Bank II] to determine the effect on
the other participants of its decision regard-
ing the Washington municipal participants,
that part of the court's decision does not
affect the instant Respondent City of Ellens-
burg and will not be addressed here.

27

of Municipal Corporations in Washington,

38 Wash. L. Rev. 743 (1963).

The enforceability of municipal
contracts containing "hell or high water"
or “dry hole" provisions similar to those
in the Participants' Agreement, in which
the extent of a municipality's obligation
is not dependent upon the success of a
project, has been considered by a number
of state ccurts. In each such case, the
applicable state statutory and constitu-
tional principles have been analyzed to
determine the powers and authorities of
local municipalities in the respective
state.

Contracts containing "hell or high
water" or “dry hole" provisions have been
held te be enforceable in Board of Commis-

sioners v. All Taxpayers, Property Owners,

and Citizens, 360 So. 2d 863 (La. 1978);

State ex rel. Mitchell v. Silkeston, 555

S.W.2d 281 (Mo. 1977); Johnson v. Piecmont

28

Municipal Power Agency, 287 S.E.2d 476

(S.C. 1982); State ex rel. Grimes, County

Taxpayers Association v. Texas Municipal

Power Agency, 565 S.W.2d 258 (Tex. Civ.
App. 1976); and Frank v. Cody, 572 P.2d
1106 (Wyoming 1977). Similar contracts
have been held to be unenforceable in

Chemical Bank and Washington Public Power

Supply System vv. Asson, 670 P.2d 839
(Idaho 1983), cert. den., U.S.

__, - 105 &. Ct. 219 (1964), as well as
in Chemical Bank I and II.

This Court has consistently held that
it will not review state court decisions
which rest on independent and adequate
state law grounds and that it will accept
the interpretation of state law by a

state's highest court. E.g., Hortonville

Joint School District No. 1 v. Hortonville

Education Association, 426 U.S. 482 (1976).

Principles of federalism and comity pre-

clude this court's reviewing decisions

29

grounded in state law, even if this court
might have reached different results on

the state law issues. Great Northern

Railway Co. v. Sunburst Oil & Refining

Co., 287 U.S. 358 (1932).

If the Court should grant certiorari
in this case, it would open its doors to
certiorari petitions in every decision by
state courts of last resort in which the
enforceability under state law of municipal
obligations is at issue. To do this would
radically change the roie of this Court in
matters of local financial control.

The validity of the Participants’
Agreement, like that of other municipal
obligations, is properly an issue to be
determined by the respective state courts
and not by this Court. This Court should
not grant certiorari in this case and
thereby intrude into matters of local
government traditionally reserved for

local control.

30

2. The Petitioners Have Not
Raised a Substantial Federal
Question Under the "Takings
Clause."

The Petitioners argue that the Takings
Clause (U.S. Const. amend. V, cl. 4) has
been violated by the Washington court's
decision. First, no unconstitutional
taking of private property has occurred in
this case. This case simply involves a
state court's determination of the validity
and enforceability of certain municipal
contracts. Further, the participants have
not effected an unconstitutional taking of
the bondholders' property. This is demon-
strated by the fact that no participant
has ever received any property of the
bondholders or assets purchased from
proceeds of the bonds as a consequence of

the Participants' Agreement or the sale ‘of

31

bonds by the Supply System. /

Toe constitute a compensable taking,
there must be an invasion of existing
private property rights by a governmental
entity which causes a diminution in those

rights. See Webbs' Fabulous Pharmacies,

Inc. v. Beckwith, 449 U.S. 155 (1980);

Penn Central Transportation Co. v. City of

New York, 438 U.S. 104 (1978).

In this case, the value of the bond-
holders' investments was affected by a

reasoned judicial determination, based

7

This case involves only the enforceability of
the Participants’ Agreement. As is briefly refer-
enced by Petitioners, Petition at 13-14, extensive
litigation independent from this case related to
the Supply System's default on the WNP 4 and 5
bonds presently is pending in both federal and
State courts. Claims brought on behalf of the
bondholders based on securities fraud, misrepre-
sentation, negligence and other grounds against
the Supply System, the participants, bond counsel,
underwriters, attorneys for the Supply System and
participants, contractors and others remain to be
determined. The Washington Supreme Court's deci-
sions in Chemical Bank I and II have not left the
bondholders without avenues of redress for their
investments in the Supply System.

a2

upon a consistent application of Washington
state law, that the Washington municipal
participants had no authority to enter
into the Participants' Agreement. The
Washington court's decision was that the
Participants' Agreement was invalid ab
initio with respect to the Washington
municipal participants. To accept Peti-
tioners' Takings Clause arguments would
require this Court to abolish the long-
standing doctrine in Washington State that
acts of political subdivisions of the
state are limited by the authority granted
to the subdivisions by the state.

The Petitioners' contentions notwith-
standing, the Washington Supreme Court has
not “engaged in... . retroactive munipu-
lations of state law to 'transform private
property into public property without
compensation'." Petition at 18. Although

the validity of municipal obligations

33

precisely like those created by the Parti-
Cipants' Agreement had not previously been
adjudicated by the Washington Supreme
Court, the court applied existing Washing-
ton state law in a reasoned manner to
determine whether the Washington parti-
Cipants had authority to enter the Parti-
Cipants' Agreement. The decision of the
Washington court as to the municipal
authority of the Washington participants
did not overrule a single prior decision.
The Washington court's denial of
restitution to the bond holders does not
constitute an unconstitutional "taking."
The participants, including Respondent
City of Ellensburg, have not themselves
received any benefits from the bondholders'
investments. The Supply System sold the
WNP 4 and 5 bonds, and the proceeds there-
from were paid directly to the Supply
System which is a separate municipal

corporation formed pursuant to Washington

34

statute. None of the proceeds from the
bond sales have been paid to any partici-
pant. See Chemical Bank II, Appendix A
at 38.

Because the participants have received
no bond proceeds or assets, there is no
meaningful or practical way to require
restitution of the bondholders' funds by
the participants without indirectly requir-
ing performance of obligations which the
Washington municipal participants were
without authority to undertake. It has
long been the law in Washington that ultra
vires municipal contracts cannot be
enforced indirectly on equitable theories
where a municipality had no legal power or

authority to make the contract. Chehalis

County v. Hutcheson, 21 Wash. 82, 57 Pac.

341 (1899).
Under Washington law, when a govern-
mental entity acts beyond its power and

enters into an unenforceable contract, the

35

courts will not require the costs of that
contract to be passed on to the citizens
unless the citizens have derived a tangible
benefit from the contract. State v.

O'Connell, 83 Wn.2d 797, 523 P.2da 872

(1974). Denial of restitutionary relief
is a direct consequence of application of

the ultra vires doctrine, the very purpose

of which is to protect the public or other
municipal constituents from unauthorized
actions by municipal officials. State v.

O'Connell, supra.

In summary, any losses which have
been incurred by the WNP 4 and 5 bondholders
were not a result of any governmental
taking, but were an incidental consequence
of the Washington Supreme Court's determin-

ation of the ultra vires character of the

Participants' Agreement. A loss in value
to property which occurs as a mere consequen-

tial incidence of valid governmental

36

action undertaken in the pursuit of sub-
stantial and important public ends is not

a taking. See Armstrong v. United States,

364 U.S. 40 (1960).

3. The Petitioners' Assertions
That They Have Been Denied
Due Process Are Without
Substance.

Petitioners attempt to meet this
Court's strict standards for certiorari
review by asserting that the decision
below denied them due process or fair
procedure in violation of the United
States Constitution. Petitioners point to
the three aspects of the decision which
they claim violated their federal due
process rights: (1) the lack of a full
evidentiary hearing on the issue of whether
the participants "controlled" the Supply
System; (2) the reference by the Washington
court to the Petitioners' opportunity to

seek a judicial declaration of the validity

37

of the Participants' Agreement prior to
sale of bonds for WNP 4 and 5 by the

Supply System; and (3) the fact that

certain justices of the Washington Supreme
Court whom Petitioners claim had indirect
interests in this litigation participated
in the decision in this case. None of the
Petitioners' contentions raises a substan-
tial federal due process issue reviewable

by this Court.

A. The "Control" Issue.

The Petitioners make much of their
claim that their due process rights were
violated because they were denied a factual
hearing on the issue of the participants’
"control" of WNP 4 and 5. This claim is
without merit.

In Chemical Bank I, the Washington
Supreme Court properly held as a matter of
law that RCW 35.92.0050 requires Washington

municipalities to have an ownership interest

38

in electrical generation facilities with
respect to which the municipalities incur
financial obligations. "[T]his court has
never found authority for a project in

which the participants did not have an

ownership interest." Appendix B at 12.

It is undisputed that the partici-
pants did not have an ownership interest
in WNP 4 and 5. However, rather than
simply concluding that the absence of an
ownership interest precluded enforcement
of the Participants' Agreement as to the
Washington municipal participants, as
would have been required by existing
Washington law, the court in Chemical
Bank I examined the extent of the partici-
pants' control of the projects to determine
whether it was sufficient "to constitute
the equivalent of an ownership interest,"
such that the "ownership" requirement of
RCW 35.92.050 might be satisfied. Appen-

dix B at 14. After examining the Partici-

39

pants' Agreement and the record in detail,
the court concluded that the participants
did not have sufficient control of the
projects to constitute the equivalent of
ownership and, therefore, that the lack of
an ownership interest by the participants
in WNP 4 and 5 could not be remedied by
resort to the "control" analysis.
Petitioners' federal due _ process
rights were not violated by the fact that
the Court went beyond its initial determin-
ation, unchallenged by Petitioners, that
as a matter of law the participants’
interests in WNP 4 and 5 lack several
important indicia of ownership to analyze
the "ownership" requirement of RCW 35.92.050.
This aspect of the court's decision was an
attempt to find some basis, albeit not
supported by Washington precedent, to
uphold the Participants' Agreement.

Further, assuming that "control" alone

40

could substitute for the statutory require-
ment of ownership, the court's interpreta-
tion of the legal effect of the participants’
control of WNP 4 and 5 under the Parti-
cipants' Agreement was a valid exercise of
the court's power to determine questions
of law raised by Petitioners' suit to

enforce the agreement.

B. Availability of Declaratory
Judgment Action.

Petitioners' contention that they
were denied due process as a result of the
Washington court's reference in Chemical
Bank II, Appendix A at 32, to the avail-
ability of a declaratory judgment proceed-
ing to test the enforceability of the
Participants' Agreements prior to the
Supply System's sale of bonds is without
merit. The Washington court's analysis of

the ultra vires nature of the Participants'

Agreements does not depend upon or require

41

the availability of a declaratory judgment
action prior to the sale of the bonds.

The reference, in dictum, by the
Washington court to the possibility that
Petitioners could have sought a declara-
tory judgment does not raise a substantial

federal constitutional issue. ®

C. Recusal of Washington
Supreme Court Justices.

Petitioners' third basis for their

claim that they were denied due process is

8 In addition to a special declaratory procedure
whereby validity of bonds issued by any
municipal corporation may be tested by a
taxpayer lawsuit, RCW Chapter 7.25, Washington
law provides under its general declaratory
judgments statute, RCW Chapter 7.24, that a
person whose rights or legal relations are
atfected by a municipal ordinance or contract
may have the construction or validity of the
ordinance determined. RCW 7.24.020, 7.24.110.
The "justiciable controversy" requirement of
the declaratory judgment statute would almost
certainly have been met if the "test case"
had been brought in 1976 or 1977 in one of
the several districts where environmentalist
groups had already challenged the participation
of local utilities on environmental grounds.

42

their allegation that Washington Supreme
Court justices who were ratepayers of
participants took part in the Washington
court's decisions, thereby denying Peti-
tioners an impartial tribunal. This claim
also fails to raise a substantial federal
constitutional issue.

Petitioners claim that two of the
judges sitting on Chemical Bank I and one
sitting on Chemical Bank II were ratepayers
of WNP 4 and 5 participants who should
have disqualified themselves from this
case. Any interests in this case held by
these justices were remote and indirect,
arising from their status as ratepayers of
the participants. Such remote, indirect
interests do not require a judge to dis-
qualify himself or herself from a case.

In ruling that a federal district
court judge was not required by 28 U.S.C.
§ 455 to disqualify himself from a case

having a potential effect on natural gas

POs A

43

rates in his community, the Tenth Circuit
Court of Appeals noted that "[A] remote,

contingent benefit, such as a possible

beneficial effect on future utility bills,
is not a ‘financial interest' within the
meaning of [28 U.S.C. § 455]" requiring
disqualification from a case. In re New

Mexico Natural Gas Antitrust Litigation,

620 F.2d 794, 796 (10th Cir. 1980). In
reversing the district court's decision
disqualifying himself, the court noted
that no disqualification is required where
a judge's potential interest in a case is
that shared by the judge in common with
the general public.

The interests in this case of the
Washington justices who may have been
ratepayers of participants was that of
members of the general public served by
the participants. Such an indirect interest
does not require disqualification of a

judge.

44

Petitioners' reference to the dis-
qualification of all the federal district
judges in the Western District of Washing-
ton from litigation in the federal courts
related to the Supply System's default on
the WNP 4 and 5 bonds is irrelevant to
their assertions in this case. District
court judges from states other than Wash-
ington were available to hear the cases
involved; only Washington state judges
could hear the appeal in this case.

This Court has acknowledged that the
disqualification of even those judges
having direct pecuniary interests in a
case is not required where such disquali-
fication would interfere with a court's
ability to decide a case. In United
States v. Will, 449 U.S. 200 (1980).
There, this Court held that the common law ©
Rule of Necessity, consistently applied in
both state and federal courts, required
the Court to decide the case despite the
direct financial interests of its Justices,
where the case otherwise could not be

heard.

45

Petitioners were not denied an impar-

tial tribunal in this case.

CONCLUSION

This case does not involve any sub-
stantial federal questions. The Petition
for Certiorari should be denied for the
reasons set forth above.”

RESPECTFULLY SUBMITTED this 5th day

of April, 1985.

Hugo E. Oswald, Jr.*
James A. Miller
Margaret A. Pageler

Jones, Grey & Bayley, P.S.
3600 One Union Square

600 Universit

Seattle, Washington 98101

Counsel for Respondent City
of Ellensburg, Washington

*Counsel of Record

9 Additionally, the Petition for Certiorari
submitted herein by Haberman, et al. should
be denied for the reason that the question
presented there also fails to raise any
substantial federal questions. See footnote 1,

Supra.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_2098%3A15. Public record. Not legal advice.