Opposition Brief — Southwestern Bell Telephone Co. v. Oklahoma Corp. Commission

’

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| aus 12 1998

OFFICE OF THE GLERK

No. 94-73

In The

Supreme Court of the United States

October Term, 1994

.

SOUTHWESTERN BELL TELEPHONE COMPANY,

Petitioner,

OKLAHOMA CORPORATION COMMISSION,

Respondent.

»

On Petition For Writ Of Certiorari

To The Supreme Court Of Oklahoma

. 3

BRIEF IN OPPOSITION :

.

L. Harotp LEVINSON LAWRENCE R. EDMISON {

School of Law Counsel of Record :

Vanderbilt University Lestre Witson Pepper

Nashville, TN 37240 MariBeTH D. SNAPP :

Phone: (615) 322-2540 MicHaet L. DecKER 4

ee Oklahoma Corporation

Lee, Cotuns & FiELDs Commission

: 2101 North Lincoln Blvd.

818 N.W. 63rd Jim Thorpe Buildin

Oklahoma City, OK 73116 P B:

Phone: (405) 848-1983 Room 400

Oklahoma City, OK 73105

Phone: (405) 521-2255

Attorneys for Respondent

Dated: August 12, 1994

we eee

ooo

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

ah ot

~ BEST AVAILABLE COPY imma

QUESTIONS PRESENTED

(1) Whether a state court’s decision to deny recusal

of an elected commissioner in a pending state ratemaking

proceeding is ineligible for review by this Court, because

the decision is not a final order; and

(2) Whether a state court complies with due process

when the court denies a utility’s petition to recuse a

commissioner in a pending ratemaking proceeding, but

will provide the utility with an opportunity, after the

commission issues its rate order, for the court’s review in

its independent judgment to determine whether the rate

order is confiscatory and whether the utility was denied

the right to make a fair presentation of its case.

Spe Sen baies a \

ii

TABLE OF CONTENTS

Page

EAE Sie. AG ROMANO 65 0S cece cee nessadscee nus Vv

Sima meeys OF TEER CAB. 26... cccccscceccdeeas 1

SUPeaY CP ARGUMENT... 22.2. cwcccscecccncs 6

PRINT 5% 6 eu54b ade eanhe Vad nee unis bese ieee’. 7

I. THE STATE COURT’S DECISION IS NOT A

FINAL ORDER AND THEREFORE DOES NOT

QUALIFY FOR REVIEW BY THIS COURT... 7

A. The Oklahoma Supreme Court’s decision

is not eligible for review under the finality

doctrine as it is applied to a decision of |

the highest court of a state ............. 7

B. Finality cases involving appeals within the

federal court system do not apply....... 10

C. Finality cases involving writs of prohibi-

eg Pree rote rr rere 11

D. SWB will not suffer irreparable harm if

this Court denies certiorari at the present

stage of the proceedings ................ 12

Il. THE STATE COURT’S DISCUSSION OF THE

RULE OF NECESSITY IS ONLY ADVISORY

AND IS THEREFORE NOT REVIEWABLE BY

Se EE Sbn sd 00.0s Heo FRA chase SR Eawepece,. 13

II. THE STATE COURT’S DECISION DOES NOT

CONFLICT WITH ANY OF THIS COURT’S

DECISIONS, AND DOES NOT SIGNIFI-

CANTLY CONFLICT WITH DECISIONS OF

hep 2 Be Bet 6) ee 13

a

ili

TABLE OF CONTENTS - Continued

Page

A. The state court’s decision does not conflict

with any of this Court’s precedents ..... 14

1. Ratemaking is legislative in nature .. 14

2. Procedural due process, as developed

in adjudicative proceedings, does not

necessarily apply in non-adjudicative

REN A Pie ne 14

3. The due process rights of regulated

parties to ratemaking are satisfied by

judicial review, in the independent

judgment of the state court, of (1) the

rate order, to protect against the impo-

sition of an unreasonable or confisca-

tory rate, and (2) the fundamental

fairness of the proceedings, to guaran-

tee that the utility has a proper oppor-

tunity to create a fair record of its case

during the ratemaking proceeding... 15

4. The Federal Administrative Procedure

Act does not require application of a

judicial standard for ratemaking..... 18

5. The rule of necessity is correctly stated

in the Oklahoma Supreme Court’s

ee ne 18

B. Conflicts with other state courts are not

sufficiently significant to justify the grant

a 19

IV. THE STATE COURT HAS CORRECTLY

DECIDED THE FEDERAL CONSTITU-

i Liu akgn noses ide eeihen sae ae 21

iv

TABLE OF CONTENTS - Continued

Page

A. The state court properly held that rate-

making is legislative, and the court ade-

quately protected the due process rights

OF We a Fi neh Cea diss cee ca ss 21

B. Assuming due process requires ratemak-

ing to be characterized as something other

than legislative, the state court committed

PI IN sos oi Ma path dae aes kaa 22

1. If individualized ratemaking is

Ns is SN ONE i aes hed bce sss 22

2. If individualized ratemaking is adjudi-

SURE SA NO on boos Sess pees cies 23

IE ol poke bah ad oh dis ee Rie Ok es 25

TABLE OF AUTHORITIES

Page

CASES

Aetna Life Insurance Co. v. Lavoie, 475 U.S. 813

eee ere res ine ae sta pe sies eran e ke 5 23, 24

Association of National Advertisers, Inc. v. Federal

Trade Comm’n., 627 F.2d 1151 (D.C. Cir. 1979),

cunt, meme, AEF IS. FES AI ak a ose sa ah hic cies 23

Bandini Petroleum Co. v. Superior Court of California,

ee See ae SE cs Fao 6 bees § EP eedndee 11, 12

Bi-Metallic Investment Co. v. State Bd. of Equaliza-

Me Be a rn ee 17

Black v. Cutter Laboratories, 351 U.S. 292 (1956) ...... 13

Board of Education of City of Los Angeles v. Superior

Court of California, 448 U.S. 1343 (1980) ........... 11

Business and Professional People for the Public Inter-

est v. Barnich, 614 N.E.2d 341 (Ill. App. Ct. 1993) .... 20

Cities Service Gas Co. v. Peerless Oil & Gas Co., 340

I I a an NG ee 16

Concrete Pipe and Products v. Construction Laborers

Pension Trust, 113 S.Ct. 2264 (1993) .............. 15

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 (1975)

bbs Odd ees aed ee ies i ee et 7, 8, 9, 10

Fisher v. District Court, 424 U.S. 382 (1976)....... a: i

Gibson v. Berryhill, 411 U.S. 564 (1973)............ 11, 24

Goodyear Atomic Corp. v. Miller, 486 U.S. 174 (1988) .... 10

vi

TABLE OF AUTHORITIES - Continued

Page

Gulf States Utilities Company v. Louisiana Public

Service Commission, 578 So.2d 71 (La. 1991)........ 21

Hammerstein v. Superior Court of California, 341 U.S.

ML GRR + uh nda ates e eee alds Cedeewdbie sone. 11

Henry v. Southwestern Bell Tel. Co., 825 P.2d 1305

(Cola. DUR sik eae laser ree tee kep heeesns ns 17

Herb v. Pitcairn, 324. U.S. U7 CISEB) «0 ccc cuecvceess 13

Hortonville Joint School District v. Hortonville Educa-

tion Association, 426 U.S. 482 (1976)............... 25

Earle M. Jorgensen Co. v. City of Seattle, 665 P.2d

pre | RS Oy ee a re 21

Liljeberg v. Health Services Acquisition Corp., 486

OS. OU I orien te Ne aiantn ea ie ano 8s 24

Liteky v. United States, 114 S. Ct. 1147 (1994)........ 24

Londoner v. Denver, 210 U.S. 373 (1908).............. 17

Madruga v. Superior Court of California, 346 U.S. 556

(IOGEP s.« «00s. bck dabei hb ae ae pirate Wididied +4 0 11

In Re Murchison, 349 U.S. 133 (1955) ................ 24

New Orleans Public Service, Inc. v. Council of New

Orleans, 491 U.S. 350 (1989)........ aay 0 eae nee 14

North Dakota State Bd. of Pharmacy v. Snyder’s Drug

Stovwe, Gent. GHG UB. TE GIGI oc oc ce secscccccces. 8

Northwestern Bell Telephone Co. v. Stofferahn, 461

WU VULAe Ra GN. GE 60 6 kd dence daceccbves es 19, 23

Ohio Bell Tel. Co. v. Public Utilities Comm’‘n., 301

Se, Re ree ey ere 16, 22

14

Prentis v. Atlantic Coast Line, 211 U.S. 210 (1908) ....

Vii

TABLE OF AUTHORITIES - Continued

Page

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120

PR AKG SA an 044 000% n-dka aa 5 Uke aka eae wd oes 13

Ratepayers Coalition of Rochester v. Rochester Electric

Light and Power Company, 571 A.2d 606 (Vt.

CE EE ee ee Rene eet a ee 21

Republic Natural Gas Co. v. Oklahoma, 334 U.S. 62

Reiesht ew cho ioe slashes ONS oa cbiks e deka ed ns 10

Rescue Army v. Municipal Court of Los Angeles, 331

EE 5 5 5 rs Savd aves ow beka woeeaiede um, &

Richardson-Merrell, Inc. v. Koller, 472 U.S. 424

Ain AP bda suns dunks deus 1 40840ases oe ce ak 11

Southwestern Bell Telephone Co. v. Oklahoma Corpo-

ration Commission, No. 80,579, Slip. Op. (Okla.

I I na 3

Southwestern Bell Telephone Co. v. Oklahoma Corpo-

ration Commission, 873 P.2d 1001 (Okla. 1994). . passim

Tennessee Cable Television Assn. v. Public Service

Comm'n., 844 S.W.2d 151 (Tenn. Ct. App. 1992)

review denied (Tenn. 1992) .............. ccc cece. 19, 23

Turpen v. Oklahoma Corporation Comm’n., 769 P.2d

RS py re ee tire genre 18

United States v. Florida East Coast Ry., 410 U.S. 224

RDN AG nba hehe VckbN eka yonsese bays. aucesseuas 17

United States v. Will, 449 U.S. 200 (1980) ............ 19

Ward v. Village of Monroeville, 409 U.S. 57 (1972)..... 24

West Ohio Gas Co. v. Public Utilities Comm’n., 294

I De a 16, 22

Withrow v. Larkin, 421 U.S. 35 (1975) ............. 10, 25

Vill

TABLE OF AUTHORITIES - Continued

Page

FEDERAL STATUTES

aE RR a ee 18

I EE Sols oie. su hee atrn ks etitee Ds en Aeee 6, 7

STATE CONSTITUTIC INAL PROVISIONS

Okla. Const., art. IX, §§ 18 and 28.................. 24

No. 94-73

e

In The

Supreme Court of the United States

October Term, 1994

*

SOUTHWESTERN BELL TELEPHONE COMPANY,

Petitioner,

OKLAHOMA CORPORATION COMMISSION,

Respondent.

+

On Petition For Writ Of Certiorari

To The Supreme Court Of Oklahoma

+

BRIEF IN OPPOSITION

¢

The Respondent Oklahoma Corporation Commission

submits this brief in opposition to the Petition for Writ of

Certiorari filed by Southwestern Bell Telephone Company

in the above referenced case.

+

STATEMENT OF THE CASE

Petitioner Southwestern Bell Telephone Company

(“SWB”) seriously misstates the holding of the Oklahoma

Supreme Court in its Petition for Writ of Certiorari, and

then builds a series of arguments on this unsound foun-

dation. Respondent Oklahoma Corporation Commission

1

(“Corporation Commission”) therefore submits the fol-

lowing Statement of the Case. |

The Corporation Commission derives its powers

directly from the Oklahoma Constitution, and consists of

three commissioners elected to staggered six-year terms

by statewide ballot. It regulates public utilities, including

Petitioner SWB. The Oklahoma Supreme Court exercises

direct appellate jurisdiction over final rate orders of the

Corporation Commission.

Bob Anthony was elected to the Corporation Com-

mission in 1988, and took office in 1989. On October 2,

1992, Commissioner Anthony made a public announce-

ment, which is set forth in the Oklahoma Supreme

Court’s opinion and reproduced in the appendix to the

Petition (“Pet. App.”) at 2a-3a. In summary, the

announcement disclosed that Commissioner Anthony

had worked with the Federal Bureau of Investigation

since 1988 to investigate alleged corruption at the Corpo-

ration Commission; had received thousands of dollars in

cash from individuals associated with regulated com-

panies; had immediately given this cash to the FBI; and,

more than a year before the announcement, had sep-

arately advised a SWB senior corporate officer and a SWB

corporate attorney of the conduct of persons associated

with their firm.

On the basis of this announcement, SWB sought

Commissioner Anthony’s recusal from a pending rate-

making proceeding (styled PUD-260) and from. all pend-

ing and future SWB cases. After Commissioner Anthony

declined to recuse himself and the Corporatior Commis-

sion declined to override his decision, SWB sought a writ

of prohibition in the Oklahoma Supreme Court, in an

attempt to compel the recusal of Commissioner Anthony.

The Oklahoma Supreme Court's first decision, ren-

dered on May 25, 1993, granted the writ of prohibition.

Southwestern Bell Telephone Co. v. Oklahoma Corporation

Commission, No. 80,579, Slip. Op. (Okla. May 25, 1993),

Pet. App. at 60a-74a. On April 13, 1994, however, on

rehearing, the court withdrew its earlier opinion and

denied the writ of prohibition. Southwestern Bell Telephone

Co. v. Oklahoma Corporation Commission, 873 P.2d 1001

(Okla. 1994), Pet. App. at 1a-59a. SWB has filed a Petition

for Writ of Certiorari, seeking this Court’s review of the

Oklahoma Supreme Court’s April 13, 1994 decision.

In that decision, the Oklahoma Supreme Court dis-

cussed prior cases that characterize utility ratemaking as

legislative, not adjudicative. The Oklahoma Supreme

Court concluded that judicial standards of due process do

not apply, and the writ of prohibition is not available.

Furthermore, because the Corporation Commission

derives its powers directly from the state constitution, the

Corporation Commission is not governed by the provi-

sions of the Oklahoma Administrative Procedures Act

regarding the recusal of agency members and the

appointment of temporary substitutes.

In denying the writ of prohibition, the Oklahoma

Supreme Court addressed the remedies that will be avail-

able to SWB after the Corporation Commission renders a

rate order. The court’s statement of these remedies is part

of the holding in this case, because the availability of

these remedies forms an integral part of the court’s deci-

sion to deny relief at the present interlocutory stage of

the pending ratemaking proceeding.

Once the Corporation Commission renders a rate

order, SWB will have an opportunity to seek review in the

Oklahoma Supreme Court on the grounds that (1) the rate

order is unreasonable or confiscatory, or (2) SWB was

prejudiced during the ratemaking proceeding by “unfair

treatment and arbitrary rulings on evidence and testi-

mony.” Pet. App. at 13a. In performing this review, the

Oklahoma Supreme Court “will exercise its independent

judgment as to both the law and the facts.” Pet. App. at

13a.

By reaffirming the availability of these remedies, the

Oklahoma Supreme Court clearly demonstrated that due

process applies. Substantive due process protects the util-

ity company from the imposition of unreasonable or con-

fiscatory rates; procedural due process guarantees the

utility an opportunity to create a fair record of its case

during the ratemaking proceeding, so that the reviewing

court will have an adequate basis for determining

whether the rate order is unreasonable or confiscatory.

The Oklahoma Supreme Court’s opinion also dis-

cussed the relief that would be available against an

allegedly biased commissioner if that official were exer-

cising a judicial function. This discussion reached the

conclusion that the rule of necessity would prevent the

recusal of a commissioner who was exercising a judicial

function, because no mechanism exists for the appoint-

ment of a substitute commissioner. Pet. App. at 15a. This

part of the court’s opinion is purely advisory to the

parties, in view of the court’s determination that the rate-

making proceeding at issue in this case is legislative, not

judicial.

The Petition includes SWB’s protestation of inno-

cence of any impropriety. Pet. at 3, n.1. The Corporation

Commission expresses no opinion, at this stage of the

proceedings, as to the culpability of any person or the

source of the cash given to Commissioner Anthony. The

resolution of those matters is pending in other tribunals.

The Petition is replete with erroneous interpretations

of the Oklahoma Supreme Court’s decision. According to

SWB, for example, the question presented is “|w]hether

States may deny all procedural due process protection in

ratemaking proceedings, by labelling such proceedings

‘legislative’ and applying the Rule of Necessity.” Pet. at i.

Along similar lines, SWB’s Statement of the Case in the

Petition includes the assertion that “[t]he court made

clear that its reasoning would compel it to deny all due

process claims arising from ratemaking proceedings.”

Pet. at 7 (emphasis in original).

SWB’s interpretation of the Oklahoma Supreme

Court’s decision is untenable. In fact, as indicated above,

the Oklahoma Supreme Court clearly held that rate-

making proceedings before the Corporation Commission

are indeed governed by due process. Furthermore, the

Corporation Commission will demonstrate herein that

the Oklahoma Supreme Court’s interpretation of due pro-

cess in ratemaking does not conflict with any of this

Court’s precedents.

This Court has not provided guidance on all details

of due process that could arise in the ratemaking pro-

ceedings of state agencies. For the reasons discussed

below, this case does not offer this Court an appropriate

opportunity to provide additional guidance. The Petition

for Writ of Certiorari should therefore be denied.

SUMMARY OF ARGUMENT

The Oklahoma Supreme Court’s order in this case is

iiot a final order under 28 U.S.C. § 1257, and is therefore

ineligible for review by this Court. The Oklahoma

Supreme Court issued this order during a pending rate-

making proceeding. The order denied SWB’s Petition to

disqualify Bob Anthony, one of the three elected members

of the Oklahoma Corporation Commission. SWB will

have the right of review by the Cklahoma Supreme Court

after completion of the ratemaking proceeding.

Even if this Court determines that review is not

completely barred for lack of finality, this Court should

decline to review the portion of the Oklahoma Supreme

Court opinion regarding the rule of necessity which may

arise in an adjudicative proceeding in the future. This

part of the decision is advisory, since the Oklahoma

Supreme Court characterized the instant ratemaking pro-

ceedings as legislative, not adjudicative.

Even if this Court considers the merits, this Court

should deny the Petition because the Oklahoma Supreme

Court’s opinion does not conflict with this Court’s:prece-

dents, does not significantly conflict with the decisions of

other state courts, and correctly decides the federal con-

stitutional issues. The Oklahoma Supreme Court will pro-

vide SWB with an opportunity, after the Corporation

Commission issues its final rate order, for the court’s

review in its independent judgment to determine whether

the rate order is confiscatory and whether SWB was

denied the right to make a fair presentation of its case.

The availabilty of this review satisfies the requirements of

substantive and procedural due process. Further, the

record contains no evidence that Commissioner Anthony

had prejudged issues in the rate case.

4

ARGUMENT

I. THE STATE COURT’S DECISION IS NOT A FINAL

ORDER AND THEREFORE DOES NOT QUALIFY

FOR REVIEW BY THIS COURT.

SWB correctly cites 28 U.S.C. § 1257 as the basis for

this Court’s jurisdiction, but SWB makes no mention of

that section’s requirement that the state court’s decision

must be final. Because SWB does not discuss the crucial

issue of finality, the Corporation Commission submits the

following discussion.

A. The Oklahoma Supreme Court’s decision is not

eligible for review under the finality doctrine

as it is applied to a decision of the highest

court of a state.

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 (1975),

summarizes four categories of situations in which this

Court has reviewed state court decisions as “final,” even

though the state proceedings are not yet complete. The

Oklahoma Supreme Court's decision in this case does not

fall within any of these four categories.

In the first Cox Broadcasting category are “those cases

in which there are further proceedings . . . even entire

trials .. . yet to occur in the state courts but where for one

reason or another the federal issue is conclusive or the

outcome of further proceedings preordained.” Id. at 479.

The instant case clearly does not come within this cate-

gory, because the Oklahoma Supreme Court’s denial of

the petition to recuse Commissioner Anthony does not

conclude due process opportunities for SWB or preordain

the outcome of the Corporation Commission’s rate-

making proceeding.

In the second Cox Broadcasting category are cases in

which the federal issue “finally decided by the highest

court in the State, will survive and require decision

regardless of the outcome of future state-court proceed-

ings.” Id. at 480. This category is also inapplicable to the

instant case. After the Corporation Commission renders

its rate order, SWB will have the opportunity to appeal to

the Oklahoma Supreme Court, which may decide the case

in a manner that renders unnecessary the resolution of

any federal question.

In the third Cox Broadcasting category are “those situ-

ations where the federal claim has been finally decided,

with further proceedings on the merits in the state courts

to come, but in which later review of the federal issue

cannot be had, whatever the outcome of the case.” Id. at

481. As an example of this category, Cox Broadcasting

refers to North Dakota State Bd. of Pharmacy v. Snyder's

Drug Stores, Inc., 414 U.S. 156 (1973), which held that a

state court decision is “final” when the state court

remands a matter to a state agency with instructions to

hold the hearing “sans [the] constitutional issue.” The

instant case is distinguishable. SWB will have the oppor-

tunity to litigate its constitutional claims during the

remainder of the pending rate proceeding before the Cor-

poration Commission and during any subsequent review

in the Oklahoma Supreme Court or in this Court.

In the fourth and final Cox Broadcasting category are

[T]hose situations where the federal issue has

been finally decided in the state courts with

further proceedings pending in which the party

seeking review here might prevail on the merits

on nonfederal grounds, thus rendering unneces-

sary review of the federal issue by this Court,

and where reversal of the state court on the

federal issue would be preclusive of any further

litigation on the relevant cause of action rather

than merely controlling the nature and character

of, or determining the admissibility of evidence

in, the state proceedings still to come . . . [and] if

a refusal immediately to review the state-court

decision might seriously erode federal pol-

icy.

420 U.S. at 482-83. Cox Broadcasting itself fits into this

fourth category. That case arose from a state court deci-

sion which rejected challenges, under the First and Four-

teenth Amendments, to a state law authorizing damage

suits against the press for publishing the name of a rape

victim whose identity is revealed in the course of a public

prosecution. This Court was concerned that “a failure to

decide the question now will leave the press in Georgia

10

operating in the shadow of the civil and criminal sanc-

tions of a rule of law and a statute the constitutionality of

which is in serious doubt... .” Id. at 486. In the instant

case, no such serious consequences will flow from denial

of the writ at this time. The state court’s decision does not

conflict with any of this Court’s precedents, and does not

leave utilities or anyone else in the precarious position

this Court described in Cox Broadcasting.

In summary, none of the four Cox Broadcasting catego-

ries applies to this case. Nor does this case qualify as

“final” under Goodyear Atomic Corp. v. Miller, 486 U.S. 174

(1988) (state court decision is “final” when it determines

federal preemption issue). Therefore, this Court should

deny the writ on the ground, inter alia, that the state

court decision is not final. This result would be consistent

with Republic Natural Gas Co. v. Oklahoma, 334 U.S. 62

(1948) (state court interpreted Oklahoma Corporation

Commission’s order as giving the regulated party three

choices, and this Court held the state court decision was

not “final”).

B. Finality cases involving appeals within the fed-

eral court system do not apply.

A distinction must be made between (1) the finality

requirement regarding this Court’s review of decisions of

the highest court of a state, as interpreted by the above

cases, and (2) the finality requirement regarding appeals

within the federal court system.

Regarding finality category (2), this Court has

allowed interlocutory review in some cases. See, e.g.,

Withrow v. Larkin, 421 U.S. 35 (1975) (petitioner filed suit

—_—— ——s

11

in federal district court, before agency conducted hearing on

license revocation; petitioner alleged that the combination of

functions in state agency violated procedural due process;

this Court entertained the merits of this pre-hearing chal-

lenge, but held the state system valid). See also Gibson v.

Berryhill, 411 U.S. 564 (1973), discussed infra, IV, B.2. But this

Court has disallowed interlocutory review in other cases. See,

e.g., Richardson-Merrell, Inc. v. Koller, 472 U.S. 424 (1985)

(federal district coust order denying motion to disqualify

counsel is a “collateral order” and is not subject to interlocu-

tory review by the court of appeals).

In any event, the cases under category (2) of finality

(appeals within the federal court system) appear to be

based on considerations of federal judicial economy, in

contrast to the cases under category (1) of finality (this

Court’s review of highest state court decisions), which

are based on considerations of federalism and deference

due, state courts.

C. Finality cases involving writs of prohibition do

not apply.

The instant case is also distinguishable from finality

cases arising from state court proceedings on writs of

prohibition, such as Bandini Petroleum Co. v. Superior Court

of California, 284 U.S. 8 (1931) and Rescue Army v. Munici-

pal Court of Los Angeles, 331 U.S. 549 (1947) (noted in

Hammerstein v. Superior Court of California, 341 U.S. 491

(1951)). See also Madruga v. Superior Court of California, 346

U.S. 556 (1954); Fisher v. District Court, 424 U.S. 382 (1976);

Board of Education of City of Los Angeles v. Superior Court of

California, 448 U.S. 1343 (1980) (Rehnquist, J., in chambers

12

opinion denying stay in state proceedings). Each of those

cases arose from a state appeilate court’s denial of a writ

of prohibition (or in the case of Fisher v. District Court, a

writ of supervisory control). Furthermore, each of those

cases indicated that a state court’s decision on a writ of

prohibition may be considered to be “final,” even though

other aspects of the case are still ongoing.

The instant case, however, is distinguishable from

those cases. In all of those cases, prohibition was sought

as a means of challenging the jurisdiction of a lower court

to proceed. In contrast, SWB’s petition to the state court

for writ of prohibition was in the nature of a motion to

recuse one of the three commissioners from participating

in a proceeding, as noted in the Petition at 5-6. Therefore,

the Bandini/ Rescue Army doctrine does not transform the

Oklahoma Supreme Court's decision in this case into a

final order.

D. SWB will not suffer irreparable harm if this

Court denies certiorari at the present stage of

the proceedings.

SWB is not required to do anything until completion

of the pending ratemaking proceedings and will have

access to adequate remedies, in the form of state court

review, as soon as the Corporation Commission com-

pletes those proceedings. Accordingly, SWB will not suf-

fer irreparable harm if this Court denies the Petition for

Writ of Certiorari at this interlocutory stage of the state

ratemaking proceedings. Under the finality doctrine as

applied to decisions of a state’s highest court, absent an

imminent decision in an incomplete state proceeding

a a Te ee ee ee Ee ee ee ne PT ee

13

which will cause an immediate detrimental impact upon

property rights, this Court should deny the Petition for

Writ of Certiorari and avoid intervening in the state

proceeding. See Radio Station WOW, Inc. v. Johnson, 326

U.S. 120, 124-26 (1945).

Il. THt STATE COURT’S DISCUSSION OF THE

RULE OF NECESSITY IS ONLY ADVISORY AND

IS THEREFORE NOT REVIEWABLE BY THIS

COURT.

The Oklahoma Supreme Court’s discussion of the

rule of necessity deals only with adjudicative proceedings.

The Oklahoma Supreme Court heid that the ratemaking

proceeding in the instant case is legislative and therefore

did not base its decision on the rule of necessity; its

discussion of this issue was merely advisory and there-

fore not reviewable by this Court. Black v. Cutter Laborato-

ries, 351 U.S. 292, 297 (1956) (this Court reviews state

judgments, not statements in opinions of state courts);

Herb v. Pitcairn, 324 U.S. 117, 126 (1945) (the power of this

Court is to correct judgments, not to revise opinions).

Ill. THE STATE COURT’S DECISION DOES NOT

CONFLICT WITH ANY OF THIS COURT’S DECI-

SIONS, AND DOES NOT SIGNIFICANTLY CON-

FLICT WITH DECISIONS OF OTHER STATE

COURTS.

The Oklahoma Supreme Court’s decision in this case

does not conflict with any of this Court’s precedents. The

decision appears to conflict, to a limited extent, with a

14

small number of decisions of other state courts but this

limited conflict does not warrant review by this Court.

A. The state court’s decision does not conflict with

any of this Court’s precedents.

According to SWB, the Oklahoma Supreme Court's deci-

sion in this case conflicts with this Court’s precedents. Pet. at

8-11. SWB’s conclusion is based on its erroneous portrayal of

the Oklahoma Supreme Court’s holding and SWB’s conclu-

sion that due process is met only if a judicial due process

standard is adhered to rather than a legislative due process

standard. A correct reading of the Oklahoma Supreme

Court's decision makes clear the fact that it does not confiict

with any of this Court’s precedents.

i. Ratemaking is legislative in nature.

This Court has consistently affirmed state court holdings

that ratemaking is legislative in nature. Prentis v. Atlantic

Coast Line, 211 U.S. 210 (1908); New Orleans Public Service, Inc.

v. Council of New Orleans, 491 U.S. 350 (1989) (summarizing

Prentis and more recent cases citing it with approval).

Accordingly, the Oklahoma Supreme Court’s characteriza-

tion of ratemaking as legislative does not conflict with this

Court’s precedents.

2. Procedural due process, as developed in adju-

dicative proceedings, does not necessarily

apply in non-adjudicative proceedings.

Having characterized ratemaking as legislative in

nature, the Oklahoma Supreme Court held that judicial

15

standards of due process do not apply to such proceed-

ings. This part of the holding does not conflict with this

Court’s precedents.

As indicated recently in Concrete Pipe and Products v.

Construction Laborers Pension Trust, 113 S. Ct. 2264 (1993),

due process requires a neutrai and detached judge for a

judicial or quasi-judicial function, but not for a non-

judiciai function (which in Concrete Pipe invoived an

enforcement proceeding), provided a neutral adjudicator

will conduct de novo review of all factual and legal

issues. The Oklahoma Supreme Court decision is fully

consistent with Concrete Pipe; the Corporation Commis-

sion need not conform to judicial standards of due process

when conducting ratemaking proceedings which are leg-

islative, but the Oklahoma Supreme Court will fully pro-

tect the rights of the utility and other parties by

reviewing all factual and legal issues de novo.

3. The due process rights of regulated parties

to ratemaking are satisfied by judicial

review, in the independent judgment of the

state court, of (1) the rate order, to protect

against the imposition of an unreasonable

or confiscatory rate, and (2) the fundamen-

tal fairness of the proceedings, to guarantee

that the utility has a proper opportunity to

create a fair record of its case during the

ratemaking proceeding.

This Court has decided only a few cases regarding

due process in individualized ratemaking proceedings,

that is, ratemaking affecting only one or a small number

of regulated parties. These decisions outline the elements

16

of due process. None of this Court’s precedents require a

state court to entertain a petition to recuse a commis-

sioner in a pending ratemaking proceeding.

West Ohio Gas Co. v. Public Utilities Comm’n, 294 U.S.

63 (1935), held that if a commission establishes a rate that

is above the confiscatory level, but gives the utility a

suitable opportunity through evidence and argument to

challenge the result, there is no denial of due process,

even though there is irregularity or error in the proceed-

ings. This Court insisted only on the fundamentals of a

fair hearing. Along similar lines, Ohio Bell Tel. Co. v. Public

Utilities Comm’n, 301 U.S. 292 (1937), held that a commis-

sion’s failure to identify the sources of information of

which it took official notice, that is, its failure to provide

a fundamentally fair proceeding, violated the utility’s

right to due process.

The combined effect of both cases coincides with the

result reached by the Oklahoma Supreme Court in the

instant case. Due process is satisfied if the rate is not

confiscatory, which is a matter of substantive due pro-

cess, and if the ratemaking proceedings meet a standard

of fundamental fairness, which is a matter of procedural

due process. Fundamental fairness is preserved if the

utility has an opportunity to create a fair record of its

case during the ratemaking proceedings, thus ensuring

that the reviewing court will have an adequate record on

which to decide the substantive due process issue of

confiscatory rates.

The Oklahoma Supreme Court's decision is also cor-

sistent with Cities Service Gas Co. v. Peerless Oil & Gas Co.,

340 U.S. 179 (1950), where this Court discussed the broad

17

powers of the Corporation Commission and reviewed the

end result of the Corporation Commission’s process,

without discussing the procedure followed by the Corpo-

ration Commission in reaching that result.

SWB is mistaken in asserting that the Oklahoma

Supreme Court’s decision in this case conflicts with the

decisions of this Court in Londoner v. Denver, 210 U.S. 373

(1908); Bi-Metallic Investment Co. v. State Bd. of Equaliza-

tion, 239 U.S. 441 (1915); and United States v. Florida East

Coast Ry., 410 U.S. 224 (1973). Pet. at 8-9. These prece-

dents hold that a party whose individual rights are at

stake must have an opportunity “to support his allega-

tions by argument, however brief; and, if need be, by

proof, however informal.” Londoner, 210 U.S. at 385.

Obviously, SWB has fully enjoyed a highly elaborate ver-

sion of this right throughout the pending ratemaking

proceeding, which has been going on since 1986. SWB has

consistently had the opportunity to present its arguments

and its proof and will continue to have this opportunity

in the future; SWB does not remotely suggest the con-

trary. Accordingly, these preceedings conform fully to the

requirements of Londoner, Bi-Metallic and Florida East

Coast.

The Oklahoma Supreme Court held simply that judi-

cial due process does not apply in these ratemaking pro-

ceedings. Pet. App. at 6a (emphasis added). The court did

not preclude the application of other types of due pro-

cess. To the contrary, the court guaranteed due process by

reaffirming SWB’s right to judicial review of the final rate

order. The Oklahoma Supreme Court’s precedents dem-

onstrate the effectiveness of this guarantee. See, e.g.,

Henry v. Southwestern Bell Tel. Co., 825 P.2d 1305 (Okla.

_ :

18

1992) (Pet. App. at 75a-102a); Turpen v. Oklahoma Corpora-

tion Comm'n, 769 P.2d 1309 (Okla. 1989).

Therefore, the question is not whether SWB has a

Fourteenth Amendment due process right to an individu-

alized ratemaking proceeding. SWB clearly has that right,

and it continues to exercise that right. The question,

rather, is whether the Fourteenth Amendment due pro-

cess right attendant to an individualized ratemaking pro-

ceeding includes the right to recuse Commissioner

Anthony from a pending ratemaking proceeding under

the circumstances of this case.

4. The Federal Administrative Procedure Act

does not require application of a judicial

standard for ratemaking.

SWB’S reflections on the impact of the federal

Administrative Procedure Act (Pet. at 17) provide no

support for SWB. First, the Act obviously does not define

Fourteenth Amendment due process or weaken this

Court’s longstanding precedents. Second, the Act

includes ratemaking in the definition of rulemaking, 5

U.S.C. § 551(4), and therefore does not require an adjudi-

cative process in ratemaking.

5. The rule of necessity is correctly stated in

the Oklahoma Supreme Court’s opinion.

As discussed in II, supra, the portion of the Oklahoma

Supreme Court’s decision discussing the rule of necessity

is not subject to review, as it was merely advisory to the

parties in the context of the ratemaking. Assuming,

aes

cd ogee tas a ee

19

arguendo, that this portion of the decision is reviewable, it

correctly stated and applied this Court’s precedent estab-

lished in United States v. Will, 449 U.S. 200 (1980).

B. Conflicts with other state courts are not suffi-

ciently significant to justify the grant of cer-

tiorari.

State courts in South Dakota, Tennessee and Illinois

have entertained motions for interlocutory judicial

review of decisions by public utility commissioners

which denied motions for recusal from pending regula-

tory proceedings. In Northwestern Bell Telephone Co. v.

Stofferahn, 461 N.W.2d 129 (S.D. 1990), a motion by North-

western Bell to disqualify a commissioner from pending

and all future cases alleged that the commissioner’s prior

statements on deregulation demonstrated bias. Upon the

commissioner’s denial of the motion for recusal, the court

entertained interlocutory review. The court noted that the

test for disqualifying a commissioner in adjudicative pro-

ceedings is prejudgment. But in rulemaking or legislative

proceedings, including ratemaking, the Court found that

the test is whether there has been a clear and convincing

showing that the official has an “unalterably closed

mind” on critical matters. Applying this test, the court

held the commissioner disqualified from pending

dockets, but not from future ones.

Similarly, Tennessee Cable Television Ass'n v. Public Ser-

vice Comm'n, 844 S.W.2d 151 (Tenn. Ct. App. 1992), review

denied (Tenn. 1992), held that the test for disqualifying a

commissioner from rulemaking is an “unalterably closed

20

mind.” The court found no grounds for disqualification in

that case.

The Illinois court in Business and Professional People for

the Public Interest v. Barnich, 614 N.E.2d 341 (Ill. App. Ct.

1993), ordered the recusal of a state commerce commis-

sioner for bias because he admitted to having numerous

ex parte communications with officials of a utility com-

pany under rate review by the commission. The appeals

court determined the issue of recusal on the basis of state

statutes which required the agency decisionmaker to

avoid the appearance of impropriety. The state Adminis-

trative Procedure Act, applicable to the Illinois commis-

sion, prevented ex parte communication with parties to a

contested case about issues involved in the matter. The

court considered the commissioner to have a duty to

recuse himself.

The Oklahoma decision in the instant case conflicts

with those other state courts only to the extent they

entertained interlocutory judicial review of actions by

commissioners denying motions for recusal. This conflict

is not, however, an appropriate basis for this Court to

grant SWB’s Petition for Writ of Certiorari, because (1)

the conflict is based substantially on state law (the deci-

sion of the Illinois court was based on statutes which

established an appearance of impropriety standard not

applicable to the Oklahoma commission); (2) the factual

record in this case falls far short of meeting the “unaltera-

bly closed mind” test adopted by the South Dakota and ©

Tennessee courts; (3) there is no indication that state

courts need guidance on this issue; and (4) the Oklahoma

Supreme Court's decision in this case is not a final order,

21

and is therefore ineligible for review by this Court. See I,

supra.

In fact, most of the state authorities reviewed by SWB

in its Petition (Pet. at 16, n.4) agree with the rationale of

the Oklahoma Supreme Court. Several explicitly reject the

concept of adopting extensive “trial-type” due process

procedures in individualized ratemaking proceedings.

See, e.g., Ratepayers Coalition of Rochester v. Rochester Elec-

tric Light and Power Company, 571 A.2d 606 (Vt. 1989); Gulf

States Utilities Company v. Louisiana Public Service Commis-

sion, 578 So.2d 71, 79-84 (La. 1991); Earle M. Jorgensen Co.

v. City of Seattle, 665 P.2d 1328 (Wash. 1983).

IV. THE STATE COURT HAS CORRECTLY DECIDED

THE FEDERAL CONSTITUTIONAL ISSUE.

As demonstrated above, the Oklahoma Supreme

Court’s decision does not conflict with any of this Court’s

precedents. Furthermore, the Oklahoma Supreme Court

correctly decided the federal constitutional issue.

A. The state court properly held that ratemaking is

legislative, and the court adequately protected

the due process rights of the utility.

The Oklahoma Supreme Court’s decision in this case

correctly characterized ratemaking as legislative. See III,

supra. :

The Oklahoma Supreme Court denied SWB’s inter-

locutory petition to recuse a commissioner, but stated that

SWB will be able to appeal from the final rate order on

22

two interrelated grounds: (1) if the end result is unrea-

sonable or confiscatory, or (2) if the procedure violated

the requirements of fundamental fairness by denying

SWB a proper opportunity to create a fair record during

the presentation of its case to the Corporation Commis-

sion. The Oklahoma Supreme Court indicated it will pro-

vide independent review of the final rate order, but will

not provide interlocutory review. Due process requires no

more than this. See III, supra; West Ohio Gas Co. v. Public

Utilities Comm’n, 294 U.S. 63 (1935); and Ohio Bell Tel. Co.

v. Public Utilities Comm'n, 301 U.S. 292 (1937).

B. Assuming due process requires ratemaking to

be characterized as something other than legis-

lative, the state court committed harmless error.

Assuming, arguendo, that due process requires rate-

making to be characterized as something other than legis-

lative, the Oklahoma court committed harmless error in

characterizing ratemaking as legislative. This is true

whether due process requires ratemaking to be charac-

terized as rulemaking or as adjudicative.

1. If individualized ratemaking is rulemaking.

Assuming due process requires individualized rate-

making to be regarded as rulemaking, this Court has

provided no precedent for determining the standard for

recusal, or for determining whether due process requires

a state court to exercise interlocutory review of disputes

about recusal. According to the two state courts that have

addressed the issue recently, the standard for recusal in

23

ratemaking, when the ratemaking is regarded as a

rulemaking proceeding, is an “unalterably closed mind.”

Northwestern Bell Tel. v. Stofferahn, 461 N.W.2d 129 (S.D.

1990); Tennessee Cable Television Ass'n v. Public Service

Comm'n, 844 S.W.2d 151 (Tenn. Ct. App. 1992) review

denied (Tenn. 1992). See also Association of National Adver-

tisers, Inc. v. Federal Trade Comm'n, 627 F.2d 1151 (D.C. Cir.

1979), cert. denied, 447 U.S. 921 (1980). The record in this

case does not establish that Commissioner Anthony had

an unalterably closed mind.

2. If individualized ratemaking is adjudica-

tive in nature.

As an even more remote possibility, if due process

requires ratemaking to be characterized as adjudicative,

the standard for this Court to review a decision of a state

court or agency on recusal in adjudicative proceedings is

extremely limited. See Aetna Life Insurance Co. v. Lavoie,

475 U.S. 813 (1986). That opinion included an extensive

discussion of bias and financial interest, emphasizing the

deference due state courts, though holding that a justice

of the Alabama Supreme Court should have recused him-

self from participating in a case of first impression

regarding the availability of punitive damages against an

insurance company for bad-faith refusal to settle a claim,

when the justice had a personal claim pending against

another insurance company at the same time, and the

justice’s personal claim was affected by the outcome of

the case before the court. The record in the instant case

does not establish that Commissioner Anthony should be

recused under this standard.

24

A distinction must be made between due process

cases, such as Aetna Life, and cases applying statutory

grounds for disqualification of federal judges or officers.

See, e.g., Liljeberg v. Health Services Acquisition Corp., 486

U.S. 847 (1988); Liteky v. United States, 114 S. Ct. 1147

(1994). Cases requiring recusal on statutory grounds do

not control this case; Aetna Life controls.

The two primary Fourteenth Amendment due pro-

cess cases involving review of state proceedings which

are most frequently cited by SWB are Gibson v. Berryhill,

411 U.S. 564 (1973) and Ward v. Village of Monroeville, 409

U.S. 57 (1972). Neither case helps SWB’s argument. In

both cases, the pivotal issue was the existence of a per-

sonal and pecuniary interest in the outcome of the pro-

ceeding. Commissioner Anthony has no personal and

pecuniary interest in the outcome of the SWB proceeding.

A second category of Fourteenth Amendment due

process cases is cited by SWB, particularly In Re Mur-

chison, 349 U.S. 133 (1955), in which judicial officers,

involved in state prehearing procedures for criminal con-

tempt determinations, developed significant bias because

of prejudgment of facts about defendants they would

eventually try for the charged offense. The facts of the

instant case do not support a conclusion that Commis-

sioner Anthony has prejudged issues in the pending rate

case, or that he maintains a personal or pecuniary interest

in the outcome.

An Oklahoma corporation commissioner possesses

investigative and decision-making authority over regu-

lated public service companies. See Okla. Const.,,art. IX,

§§ 18 and 28. Therefore, the cases which are far more

f de!

relevant to the facts of this case, if ratemaking is consid-

ered adjudicative, are Withrow v. Larkin, 421 U.S. 35 (1975)

and Hortonville Joint School District v. Hortonville Education

Association, 426 U.S. 482 (1976), where it was recognized

that the combination of investigative and adjudicative

functions within a state administrative agency does not

violate Fourteenth Amendment due process standards.

*

CONCLUSION

For the reasons stated herein, this Court should deny

SWB’s Petition for Writ of Certiorari.

Respectfully submitted,

L. Haro_tp LEVINSON

School of Law

Vanderbilt University

Nashville, TN 37240

Phone: (615) 322-2540

Davip W. LEE

Lee, Coins & FIELDs

818 N.W. 63rd

Oklahoma City, OK 73116

Phone: (405) 848-1983

Dated: August 12, 1994

LAWRENCE R. EDMISON

Counsel of Record

LestigE WiLtson PEPPER

MariseTH D. SNAPP

MIcHAEL L. DéCKER >

Oklahoma Corporation

Commission

2101 North Lincoln Bivd.

Jim Thorpe Building,

Room 400

Oklahoma City, OK 73105

Phone: (405) 521-2255

Attorneys for Respondent