A recent Alabama Supreme Court decision has handed an important victory to electric cooperatives defending their patronage capital practices in the state. The court affirmed the trial court’s dismissal in Recherche LLC v. Baldwin County Electric Membership Corp. (CV-2012-900820), finding that under Ala. Code § 37-6-20, distributing patronage refunds through capital credits was permissible.
The Baldwin EMC complaint was one of several class action lawsuits filed against cooperatives in Alabama with nearly identical claims: that the coops did not comply with Ala. Code § 37-6-20 because, according to the plaintiffs, the statute requires coops to refund patronage capital directly to their members. Specifically as to Baldwin EMC, the plaintiffs alleged that the coop violated the statute and its own bylaws, which require refunds of patronage capital, by choosing to credit its members’ capital accounts instead of distributing cash or implementing general rate reductions.
While Baldwin EMC and the related class actions were being litigated, the Eleventh Circuit issued a decision in Caver v. Central Alabama Electric Cooperative, 845 F.3d 1135 (11th Cir. 2017), affirming dismissal of claims brought on the same grounds as in the Baldwin EMC case based on the same Alabama statute. The court held that the statute does not use the words “cash” or “pay” and does not forbid other methods of making the required distributions, only that distributions be made in the manner provided by the coop’s bylaws. Id.
On June 7, 2018, Baldwin EMC filed a motion to dismiss, arguing that its distribution methods complied with its bylaws and were appropriate under the statute. Initially, the Alabama trial court denied the motion to dismiss, but later withdrew this decision and entered another order granting the motion to dismiss on July 30, 2018. The trial court cited Caver in dismissing the case and reasoned that, given the large number of related cases in Alabama, the Alabama Supreme Court should consider the issue.
Alabama Supreme Court Decision
On October 18, 2019, the Alabama Supreme Court issued a decision affirming dismissal of the Baldwin EMC case. The court noted that “the only question is whether Baldwin EMC’s allocation of capital credits to the members’ capital accounts each year satisfies the requirement of distributing ‘patronage refunds’ under § 37-6-20.” That statute provides:
Revenues of a cooperative for any fiscal year in excess of the amount thereof necessary to defray expenses [and other costs] . . . shall be distributed by the cooperative to its members as, and in the manner, provided in the bylaws, either as patronage refunds prorated in accordance with the patronage of the cooperative by the respective members paid for during such fiscal year or by way of general rate reductions, or by combination of such methods.
The court quoted the Caver decision extensively and found its reasoning persuasive. The court found that the ordinary meaning of “refund” encompassed concepts of distribution by either cash or credit and that Baldwin EMC’s “apportionment of equity to capital accounts qualified as distributing patronage refunds under § 37-6-20.” The court further found that in distributing excess revenues to the members’ capital accounts, Baldwin EMC was in compliance with its bylaws. Accordingly, the court found that the trial court properly dismissed the class action complaint.
Subsequent Motions to Dismiss
In the months following the Baldwin EMC dismissal, at least five patronage capital cases in Alabama have been resolved by dismissal and several more have motions to dismiss pending. These motions rely exclusively on the Baldwin EMC decision as the basis for dismissal.
The recent dismissals and the surge of motions relying on the Baldwin EMC decision signal an end to patronage capital lawsuits in Alabama relying on the same theory.