         Case: 15-15207   Date Filed: 01/12/2017   Page: 1 of 26


                                                                   [PUBLISH]



          IN THE UNITED STATES COURT OF APPEALS

                  FOR THE ELEVENTH CIRCUIT
                    ________________________

                           No. 15-15207
                     ________________________

                D.C. Docket No. 2:15-cv-00129-WS-C



PAMELA CAVER,
CHRISTINE GRANDISON,
DEXTER GRANDISON,

                                            Plaintiffs - Appellants,

versus

CENTRAL ALABAMA ELECTRIC COOPERATIVE,

                                            Defendant - Appellee.

                     ________________________

              Appeal from the United States District Court
                 for the Southern District of Alabama
                     ________________________

                          (January 12, 2017)
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Before TJOFLAT and HULL, Circuit Judges, and MENDOZA, * District Judge.

HULL, Circuit Judge:

       Plaintiff Pamela Caver and others, on behalf of members of Defendant

Central Alabama Electric Cooperative (“CAEC”), brought a putative class action

against CAEC, alleging that CAEC wrongfully had refused to pay out “excess

revenues” in cash to its members. CAEC supplies electricity to rural communities

in Alabama. The federal government loans substantial capital to CAEC and highly

regulates CAEC’s operations and provision of government-subsidized electricity to

rural customers.

       Defendant CAEC removed this case to federal court under the federal officer

removal statute, 28 U.S.C. § 1442(a)(1). The district court denied Plaintiff Caver’s

motion to remand the case back to state court.

       Subsequently, the district court granted CAEC’s motion to dismiss the

complaint. The district court pointed out that when CAEC’s revenues exceed its

operating costs and other expenses, CAEC does credit each members’ capital

account with the cooperative. The district court held that CAEC’s distribution of

excess revenues to its members by making credits to their capital accounts, as

opposed to making cash payments, complied with Alabama state law. After



       *
         Honorable Carlos Eduardo Mendoza, United States District Judge for the Middle District
of Florida, sitting by designation.
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thorough review and with the benefit of oral argument, we affirm the district

court’s ruling on both issues.

                        I.       JURISDICTION BACKGROUND

      As background to the jurisdiction issue, we review the extensive

interrelationship between the federal government and Defendant CAEC.

A.    History of Rural Electrification

      In 1935, during the Great Depression, President Franklin D. Roosevelt,

through an executive order, created the Rural Electrification Administration

(“REA”) “[t]o initiate, formulate, administer, and supervise a program of approved

projects with respect to the generation, transmission, and distribution of electric

energy in rural areas.” Exec. Order No. 7037. The following year, Congress

passed the Rural Electrification Act of 1936 (the “RE Act”). 7 U.S.C. § 901. By

passing the RE Act, Congress affirmed the creation of the REA and authorized the

REA to make loans “for rural electrification and the furnishing of electric energy to

persons in rural areas.” Pub. L. No. 74-605, 49 Stat. 1363; accord 7 U.S.C.

§ 902(a).

      The federal government thus initiated this program of rural electrification.

Specifically, the program was formulated and supervised by the REA, and all

projects required REA approval. The President and Congress’s objective in

creating the REA “was to provide electricity to those sparsely settled areas which

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the investor-owned utilities had not found it profitable to service. To this end REA

makes long-term low-interest loans to approved non-profit cooperatives.” Salt

River Project Agric. Improvement & Power Dist. v. Fed. Power Comm’n, 391 F.2d

470, 473 (D.C. Cir. 1968); see also City of Stilwell v. Ozarks Rural Elec. Coop.

Corp., 79 F.3d 1038, 1041 (10th Cir. 1996) (explaining that the REA “was created

by the [RE Act] to provide financing to power suppliers as an inducement to

provide economical electric power to rural America.”).

      “In response to the RE Act and its precursor Executive Branch order,

cooperative electrical systems were formed to seek government subsidized loans

and deliver electricity to rural consumers.” In re Cajun Elec. Power Coop., Inc.,

109 F.3d 248, 252 (5th Cir. 1997). In 1939, Alabama passed the Electric

Cooperative Act, which provides for the creation of cooperative, nonprofit

membership corporations “for the purpose of supplying electric energy and

promoting and extending the use thereof.” Ala. Code § 37-6-2. Other states

approved similar legislation, and by 1968 there were “nearly 1,000 rural electric

cooperatives which own and operate electric systems financed by the United

States, acting through REA, pursuant to the Rural Electrification Act of 1936.”

Salt River Project, 391 F.2d at 472.




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B.     Federal Loans and Regulation

       Defendant CAEC, like other rural electric cooperatives, receives substantial

loans from the federal government, specifically the United States Department of

Agriculture Rural Utilities Services (“RUS”). The RUS is the successor to the

REA.

       The latest loan agreement between CAEC and RUS is dated February 2,

2009. The loan agreement limits CAEC’s discretion to make “Distributions” to its

members. The loan agreement defines “Distributions” to mean to “declare or pay

any dividends, or pay or determine to pay any patronage refunds, or retire any

patronage capital or make any other Cash Distributions, to its members,

stockholders or consumers.” Loan Agreement Art. 1.

       Under the loan agreement, CAEC cannot pay patronage refunds, or retire

any patronage capital, or make any cash distributions to its members if doing so

would cause its equity to fall below 30% of its total assets, as follows:

       Limitation on Distributions.

       Without the prior written approval of RUS, [CAEC] shall not in any
       calendar year make any Distributions (exclusive of any Distributions
       to the estates of deceased natural patrons) to its members,
       stockholders or consumers except as follows:

       (a)   Equity above 30%. If, after giving effect to any such
             Distribution, the Equity of [CAEC] shall be greater than or
             equal to 30% of its Total Assets; or



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       (b)     Equity above 20%. If, after giving effect to any such
               Distribution, the Equity of [CAEC] shall be greater than or
               equal to 20% of its Total Assets and the aggregate of all
               Distributions made during the calendar year when added to
               such Distribution shall be less than or equal to 25% of the prior
               year’s margins.

       Provided however, that in no event shall [CAEC] make any
       Distributions if there is unpaid when due any installment of principal
       of (premium, if any) or interest on any of its payment obligations
       secured by the Mortgage, if [CAEC] is otherwise in default hereunder
       or if, after giving effect to any such Distribution, [CAEC’s] current
       and accrued assets would be less than its current and accrued
       liabilities.

Loan Agreement § 6.8.

       A loan agreement with RUS, such as CAEC’s, “imposes certain restrictions

and controls on the borrowers and gives RUS . . . the right to approve or

disapprove certain actions contemplated by the borrowers.” 7 C.F.R.

§ 1717.600(a).1 RUS’s regulations contain the same restriction on distributions as

the loan agreement. 7 C.F.R. § 1717.617. Among other things, the loan agreement

and regulations allow RUS, at certain times: (1) to set standards for property

maintenance; (2) to set accounting standards; (3) to inspect the utility system, the

books, and documents of every kind; (4) to regulate power requirement studies;

(5) to regulate long-range engineering and construction plans, as well as design and

       1
          The record contains only limited excerpts of CAEC’s loan agreement with RUS. Caver,
however, cites to the model loan agreement contained in the federal regulations as reflecting the
terms of CAEC’s contract with RUS. The model loan agreement generally contains the
restrictions discussed herein and requires compliance with all relevant laws and regulations. See
7 C.F.R. § 1718, app. A.
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construction standards; (6) to approve plans and specifications for construction;

and (7) to set contract bidding requirements. See generally 7 C.F.R. § 1717.600, et

seq.; 7 C.F.R. § 1718, app. A. The loan agreement and the regulations also require

CAEC, in certain situations, to seek RUS approval: (1) to extend its electric

system; (2) to hire a general manager; (3) to enter into certain contracts; (4) to

merge or sell portions of its business or assets; (5) to make distributions to its

members; or (6) to take on additional debt. See generally § 1717.600, et seq.;

§ 1718, app. A. In addition to these federal regulations and restrictions, Alabama

law also regulates CAEC’s operations as discussed below.

C.     Alabama Code § 37-6-1, et seq.

       Alabama state law authorizes the creation of rural electric distribution

cooperatives, such as Defendant CAEC, and regulates them. 2 Ala. Code § 37-6-1,

et seq. As a cooperative, Defendant CAEC is prohibited from making a profit on

business conducted with the members. Ala. Code §§ 37-6-2, 37-6-20.

       The difference between CAEC’s revenues and operating costs and other

expenses is considered “margins” or “excess revenues” that belong to its members

as “patronage capital.” Loan Agreement § 6.8; CAEC Bylaws § 8.02; Ala. Code

§ 37-6-20. Defendant CAEC must account for the patronage capital that belongs

       2
         When considering a motion to dismiss, infra Part III, we take the complaint’s factual
allegations as true and construe them in the light most favorable to the plaintiffs. Rivell v.
Private Health Care Sys., Inc., 520 F.3d 1308, 1309 (11th Cir. 2008). For this reason, we rely on
Caver’s operative complaint for the facts of this case.
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to its members. CAEC Bylaws § 8.02. CAEC’s members each have an account in

his or her name that reflects a credit or debit for each year the member was or

continues to be a CAEC member.

       The particular Alabama statue at issue in this case is § 37-6-20 of the

Alabama Code, which provides for the “Disposition of excess revenues” by an

electric cooperative such as CAEC. Specifically, § 37-6-20 provides that the

“excess revenues”3 of CAEC should be distributed, “as, and in the manner,

provided in the bylaws,” either by “patronage refunds” or “rate reductions,” as

follows:

       [“Excess revenues”] 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. Nothing contained in this article shall be construed to
       prohibit the payment by a cooperative of all or any part of its
       indebtedness prior to the date when the same shall become due.

Ala. Code § 37-6-20 (emphasis added).

       3
          Section 37-6-20 defines “excess revenues” as those revenues for any fiscal year in
excess of the amount necessary to (1) “defray expenses of the cooperative and of the operation
and maintenance of its facilities during such fiscal year”; (2) “pay interest and principal
obligations of the cooperative coming due in such fiscal year”; (3) “finance or to provide a
reserve for the financing of, the construction or acquisition by the cooperative of additional
facilities to the extent determined by the board of trustees”; (4) “provide a reasonable reserve for
working capital”; (5) “provide a reserve for the payment of indebtedness of the cooperative
maturing more than one year after the date of the incurrence of such indebtedness in an amount
not less than the total of the interest and principal payments in respect thereof required to be
made during the next following fiscal year”; and (6) “provide a fund for education in cooperation
and for the dissemination of information concerning the effective use of electric energy and other
services made available by the cooperative.” Ala. Code § 37-6-20.
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       CAEC’s bylaws provide that (1) CAEC shall account, on a patronage basis,

for all revenue amounts received in excess of operating costs and expenses

chargeable against the furnishing of electricity and (2) CAEC shall pay by credits

to a capital account for each patron all such amounts in excess of operating costs

and expenses, as follows:

       Patronage Capital in Connection with Furnishing Electric
       Energy. . . . In order to induce patronage and to assure that the
       Cooperative will operate on a not-for-profit basis the Cooperative is
       obligated to account on a patronage basis to all its patrons, members
       and non-members alike, for all amounts received and receivable from
       the furnishing of electric energy in excess of operating costs and
       expenses properly chargeable against the furnishing of electric energy.
       All such amounts in excess of operating costs and expenses at the
       moment of receipt by the Cooperative are received with the
       understanding that they are furnished by the patrons, members and
       non-members alike, as capital. The Cooperative is obligated to pay by
       credits to a capital account for each patron all such amounts in excess
       of operating costs and expenses.

CAEC Bylaws § 8.02. 4 In addition, the bylaws explain that these capital account

credits should be treated as though they had been paid in cash: “All such amounts

credited to the capital account of any patron shall have the same status as though

they had been paid to the patron in cash in pursuance of a legal obligation to do so

and the patron had then furnished the Cooperative corresponding amounts for



       4
         The bylaws are only quoted in CAEC’s Motion to Dismiss, but the district court
properly considered them without converting the motion to dismiss into a motion for summary
judgment because the document is central to Caver’s claim, and the authenticity of that portion
of the bylaws is undisputed. Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005).
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capital.” Id. The bylaws also provide that the bylaws themselves constitute a

contract between CAEC and each member. Id.

      Pursuant to its bylaws, Defendant CAEC accounts for and distributes the

patronage refund owed by crediting each member’s individual capital account for

the member’s portion of the excess revenues. Although it distributes the patronage

refund to the members’ capital accounts, CAEC does not actually pay out that

money in cash for years. Sometimes those payouts come as late as thirty years

after the credits are earned and when the members to whom they are owed can no

longer be found. According to Caver, CAEC had accrued a total amount of

patronage capital exceeding $24 million as of 2013.

      Plaintiff Caver alleges that Defendant CAEC violated Alabama Code

§ 37-6-20, as well its own bylaws, by not paying out its excess revenues in cash to

its members annually. Based on CAEC’s alleged violation of Alabama law and its

bylaws, Caver’s complaint seeks a declaratory judgment and injunctive relief

(Count 1) and alleges a claim for breach of contract (Count 2). The merits issues

on appeal revolve around the interplay between Alabama state law, CAEC’s

bylaws, and CAEC’s federal loan agreement with RUS. However, as a threshold

matter, we first must address whether the district court had jurisdiction to decide

this case.




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                              II.    JURISDICTION ANALYSIS

       Defendant CAEC removed this case to federal court pursuant to the federal

officer removal statute, 28 U.S.C. § 1442(a)(1). That statute allows removal of any

civil action against any officer of the United States, or “any person acting under

that officer,” “for or relating to any act under color of such office,” as follows:

       (a) A civil action or criminal prosecution that is commenced in a State
       court and that is against or directed to any of the following may be
       removed by them to the district court of the United States for the
       district and division embracing the place wherein it is pending:

               (1) The United States or any agency thereof or any officer (or
               any person acting under that officer) of the United States or of
               any agency thereof, in an official or individual capacity, for or
               relating to any act under color of such office or on account of
               any right, title or authority claimed under any Act of Congress
               for the apprehension or punishment of criminals or the
               collection of the revenue.

28 U.S.C. § 1442(a)(1) (emphasis added).5 Because CAEC is not a federal officer

or agency itself, CAEC must satisfy a three-pronged test to determine whether it

may effect removal. First, CAEC must show that it is a person within the meaning

of the statute who acted under a federal officer. § 1442(a)(1). Second, CAEC

must show that it performed the actions for which it is being sued under color of

federal office. Magnin v. Teledyne Cont’l Motors, 91 F.3d 1424, 1427 (11th Cir.

1996); Florida v. Cohen, 887 F.2d 1451, 1453 (11th Cir. 1989). Stated another

       5
        “[W]e review de novo a district court’s denial of a motion to remand a state-court action
because it implicates subject-matter jurisdiction.” Escobar v. Celebration Cruise Operator, Inc.,
805 F.3d 1279, 1283 (11th Cir. 2015), cert. denied, 136 S. Ct. 1158 (2016).
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way, CAEC must show “a causal connection between what the officer has done

under asserted official authority and the action against him.” Magnin, 91 F.3d at

1427 (quotation marks omitted). Third, CAEC must raise a colorable federal

defense. Id.; Cohen, 887 F.2d at 1453–54.6

        This “statute’s ‘basic’ purpose is to protect the Federal Government from

[state] interference with its ‘operations.’” Watson v. Philip Morris Cos., 551 U.S.

142, 150, 127 S. Ct. 2301, 2306 (2007). “This statute is an incident of federal

supremacy and is designed to provide federal officials with a federal forum in

which to raise defenses arising from their official duties.” Cohen, 887 F.2d at

1453.

A.      “Acting Under”

        The first question for federal officer removal is whether CAEC was a person

“acting under” a federal officer when it took the actions complained of in this case.

The parties do not debate that CAEC is a person within the meaning of the statute.

Rather, they dispute whether CAEC was fulfilling a basic governmental task, or

assisting the government in doing so, and thus “acting under” an officer of the

United States.

        6
         Magnin and Cohen did not address the first prong because there was no debate in those
cases that the relevant parties were officers of the United States for purposes of § 1442(a)(1).
See Magnin, 91 F.3d at 1428 (involving a Federal Aviation Authority designated manufacturing
inspection representative); Cohen, 887 F.2d at 1454 (involving a Deputy Marshal and other
federal agents). Magnin and Cohen therefore addressed only the two “prerequisites” of a causal
connection and a colorable federal defense. See Magnin, 91 F.3d at 1427; Cohen, 887 F.2d at
1453-54.
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        The phrase “acting under” is broad and thus we “liberally construe” this

portion of § 1442(a)(1). Watson, 551 U.S. at 147, 127 S. Ct. at 2304-05. The

Supreme Court in Watson held that a private tobacco company, although highly

regulated, was not “acting under” a federal officer. Id. at 153, 157, 127 S. Ct. at

2308, 2310. The Supreme Court explained that a “private person’s ‘acting under’

must involve an effort to assist, or to help carry out, the duties or tasks of the

federal superior.” Id. at 152, 127 S. Ct. at 2307. In other words, the private person

must help federal officers fulfill a basic governmental task that the government

otherwise would have had to perform. Id. at 153-54, 127 S. Ct. at 2308.

        In Watson, the tobacco company was using the government’s required

method to test its cigarettes before it sold the cigarettes to the public for its own

profit. Id. at 146, 127 S. Ct. at 2304. By using that testing method, the tobacco

company was “simply complying” with federal law, which does “not” bring a

private person within the scope of § 1442(a)(1). Id. at 152, 127 S. Ct. at 2307.

Similarly, the mere fact that the federal government regulates a private entity does

not satisfy the statutory basis for removal under § 1442(a)(1). Id. at 153, 127 S. Ct.

at 2308. Instead, the relationship between the private person and the federal officer

must be one of “subjection, guidance, or control.” Id. at 151, 127 S. Ct. at 2307

(quotation marks omitted).




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       As recounted above, rural electric cooperatives, such as CAEC, are highly

regulated by the federal government. Salt River Project, 391 F.2d at 473.

“Through its lending authority REA exercises extensive supervision over the

planning, construction and operation of the facilities it finances.” Id. REA,

however, is not a “classic public utility regulatory body” but instead is a “lending

agency” that regulates. Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm’n, 461

U.S. 375, 386, 103 S. Ct. 1905, 1913 (1983) (discussing the scope of REA’s

regulations). Any loans made by RUS must conform to the agency’s regulations

and the RE Act. 7 C.F.R. § 1710.100.

       Although these federal regulations alone are not enough to satisfy the federal

officer removal statute, they do demonstrate the close and extensive relationship

between CAEC and RUS, as well as RUS’s significant level of control over

CAEC’s operations. In addition to their obligation to comply with extensive

federal regulations, rural cooperatives such as CAEC must also assist RUS with

accomplishing its duties or tasks in order to utilize the federal officer removal

statute.

       Consistent with the historical background discussed earlier, “rural electric

cooperatives are something more than public utilities; they are instrumentalities of

the United States. They were chosen by Congress for the purpose of bringing

abundant, low cost electric energy to rural America.” Ala. Power Co. v. Ala. Elec.

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Coop., Inc., 394 F.2d 672, 677 (5th Cir. 1968) (internal quotation marks omitted). 7

Although Alabama Power Co. involved a power company seeking judicial review

of a loan to rural electric cooperatives, its recognition of the role and purpose of

rural cooperatives in the federal system is instructive.

       Quite simply the REA was designed to guide and control the process of

bringing electricity to sparsely populated rural areas that would not otherwise

receive electricity. Congress and the President designed a system by which the

REA would accomplish these goals by loaning money to state entities, which

would carry out these objectives under the REA’s close supervision. The federal

government, using low-interest loans, funds its objective of providing rural

electricity through these cooperatives such as CAEC. These rural electric

cooperatives exist to provide a public function conceived of and directed by the

federal government.

       CAEC therefore helps assist or carry out the duties of RUS and works

closely with RUS to fulfill the congressional objective of bringing electricity to

rural areas that would otherwise go unserved. In other words, CAEC assists the

RUS by “perform[ing] a job that, in the absence of a contract with a private firm,

the Government itself would have had to perform.” Watson, 551 U.S. at 154, 127

S. Ct. at 2308; see also Ruppel v. CBS Corp., 701 F.3d 1176, 1181 (7th Cir. 2012)

       7
       This Court adopted as binding precedent all Fifth Circuit decisions prior to October 1,
1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).
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(“‘Acting under’ covers situations . . . where the federal government uses a private

corporation to achieve an end it would have otherwise used its own agents to

complete.”); Bennett v. MIS Corp., 607 F.3d 1076, 1088 (6th Cir. 2010)

(concluding that company satisfied the “acting under” requirement when “in the

absence of a contract with” the company, the government “itself would have had to

perform” the task). In this sense, CAEC, a non-profit entity funded in part by

federal loans, is closer in kind to a federal contractor performing work on behalf of

the government than a private business working for its own ends. See Ruppel, 701

F.3d at 1179, 1181 (concluding that a corporation that supplied the Navy with

turbines satisfied the “acting under” requirement); Bennett, 607 F.3d at 1086-88

(holding that a private mold remediation firm, removing mold from an airport,

“act[ed] under” a federal officer).

      Others courts, in addition to the district court in this case, have concluded,

for the same reasons as those discussed here, that rural electric cooperatives are

“acting under” a federal officer. See, e.g., Cessna v. Rea Energy Coop., Inc., No.

3:16-42, 2016 WL 3963217, at *5 (W.D. Pa. July 21, 2016) (“In light of the

unusually close and detailed regulatory and contractual relationship between [Rea

Energy Cooperative] and RUS, and in accordance with the liberal construction of

28 U.S.C. § 1442(a)(1), the Court finds that [Rea Energy Cooperative] was acting

under a federal office.”) (internal quotation marks omitted). We find the reasoning

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of Cessna persuasive and agree that CAEC is “acting under” a federal officer for

purposes of § 1442(a)(1) based on the long history of RUS’s control over CAEC

and direction of the federal government’s rural electrification program dating back

to the Great Depression.

B.     Causal Connection

       The second question for federal officer removal is whether there is a causal

connection between Plaintiff Caver’s claims and an act of Defendant CAEC that

forms the basis of those claims. Magnin, 91 F.3d at 1427; Cohen, 887 F.2d at

1453-54. In other words, we must determine whether that act was taken under

color of law. Magnin, 91 F.3d at 1427; Cohen, 887 F.2d at 1453-54. Section

1442(a)(1) provides that removable claims must be “for or relating to any act”

under color of federal office. 28 U.S.C. § 1442(a)(1). The phrase “relating to” is

broad and requires only “a ‘connection’ or ‘association’ between the act in

question and the federal office.” In re Commonwealth’s Motion to Appoint

Counsel Against or Directed to Def. Ass’n of Phila., 790 F.3d 457, 471 (3d Cir.

2015). 8 “The hurdle erected by this requirement is quite low . . . .” Isaacson v.

Dow Chem. Co., 517 F.3d 129, 137 (2d Cir. 2008).




       8
        In 2011, Congress amended § 1442(a)(1) to add the phrase “or relating to,” which was
intended to broaden the scope of acts that allow a federal officer to remove a case to federal
court. In re Commonwealth’s Motion, 790 F.3d at 471-72.
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      The acts that Caver challenges relate to actions of CAEC in not making cash

distributions of patronage capital. In its Notice of Removal, CAEC claims: (1) that

the loan agreement with RUS prohibited it from making distributions of patronage

capital if doing so would cause its equity to fall below 30% of its total assets and

(2) that if CAEC made the distributions sought by Caver, doing so would reduce

CAEC’s equity on assets to zero percent, resulting in a breach of the loan

agreement. CAEC claims this accumulation of equity from patronage capital

contributions “directly resulted from CAEC’s compliance with express RUS

federal loan requirements to maintain equity at above 30% of assets before any

capital cash distributions to members.”

      These allegations, if true, would establish that the acts for which CAEC is

being sued—failure to make distributions of patronage capital—occurred because

of CAEC’s performance of its duties and loan agreement with RUS. We therefore

conclude that there is a causal nexus between Caver’s claims and CAEC’s conduct.

See Isaacson, 517 F.3d at 138 (“According to their theory of the case, the

Government knew that Agent Orange contained dioxin, and the Government

controlled the method of formulation. The action that Plaintiffs challenge, the

production of dioxin, naturally would have occurred during the performance of

these government-specified duties.”); Cessna, 2016 WL 3963217, at *7 (finding

the causal nexus requirement satisfied when the rural electricity cooperative’s

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allegations in the notice of removal stated that RUS forbade the actions that the

plaintiffs sought); Sparks v. Cullman Elec. Coop., No. 3:15-CV-387-MHH, 2016

WL 927032, at *2 n.5 (N.D. Ala. Mar. 11, 2016) (“To establish a causal

connection between what the cooperatives have done based on federal authority

and the conduct that gives rise to this action, the electric cooperatives must show

that the plaintiffs’ claims arise from the electric cooperatives’ performance of the

cooperatives’ contracts with the [Tennessee Valley Authority].”).

C.    Colorable Federal Defense

      The third question for federal officer removal is whether Defendant CAEC

has raised a colorable federal defense. Magnin, 91 F.3d at 1427; Cohen, 887 F.2d

at 1453-54. Our Court gives this portion of § 1442(a)(1) “a broad reading so as to

encompass ‘all cases where federal officers can raise a colorable defense arising

out of their duty to enforce federal law.’” Cohen, 887 F.2d at 1454 n.4 (quoting

Willingham v. Morgan, 395 U.S. 402, 406–07, 89 S. Ct. 1813, 1816 (1969)).

Federal officer removal is thus an exception to the well-pleaded complaint rule, as

“the federal-question element is met if the defense depends on federal law.”

Jefferson Cty. v. Acker, 527 U.S. 423, 431, 119 S. Ct. 2069, 2075 (1999). The

colorable federal “defense need only be plausible; its ultimate validity is not to be

determined at the time of removal.” Magnin, 91 F.3d at 1427. The law does not

require that the removing defendant virtually win his case before it can be

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removed. Acker, 527 U.S. at 431, 119 S. Ct. at 2075. Indeed, a core purpose of

federal officer removal is to have the validity of the federal defense tried in federal

court. Id.

      Here, CAEC has claimed that it performed the acts forming the basis of

Plaintiff Caver’s state action pursuant to the RUS loan agreement and federal

regulations. Before the district court, CAEC raised the defense of conflict

preemption based on the RUS loan agreement and federal regulations. Conflict

preemption occurs when state law actually conflicts with federal law because it is

impossible to comply with both the state and federal requirements or because the

state law “stands as an obstacle to the accomplishment and execution of the full

purposes and objectives of Congress.” Wiersum v. U.S. Bank, N.A., 785 F.3d 483,

486 (11th Cir. 2015) (quoting English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S.

Ct. 2270, 2275 (1990)), cert. denied, 136 S. Ct. 1655 (2016).

      CAEC has an unusually close and detailed regulatory and contractual

relationship with RUS dating back to 1939, and that relationship controls almost all

of CAEC’s actions. If Plaintiff Caver is correct that the Alabama statute requires

the $24 million in equity held in the capital accounts to be paid out in cash

annually to its members, CAEC asserts that the Alabama statute would then

conflict with RUS’s regulations and loan agreement provisions about equity

retention. For example, the federal regulations do not allow distribution of excess

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revenues if doing so would result in CAEC’s remaining equity being less than 30%

of its remaining assets. CAEC claims that it can prove such a financial barrier

exists under federal law, which would lead to a conflict between federal and state

law.

       We therefore conclude that CAEC’s preemption defense is plausible and

satisfies the lenient colorable federal defense requirement for removal under

§ 1442(a)(1). See Tenn. ex rel. City of Cookeville v. Upper Cumberland Elec.

Membership Corp., 256 F. Supp. 2d 754, 758 (M.D. Tenn. 2003) (finding a

colorable federal defense of preemption by RUS sufficient under § 1142(a)(1)),

aff’d sub nom. City of Cookeville v. Upper Cumberland Elec. Membership Corp.,

484 F.3d 380 (6th Cir. 2007).

       The Supreme Court’s decision in Arkansas Electric Cooperative expressly

left open the possibility that a valid rule of the REA affecting rural power

cooperatives could preempt state law or state regulation of those cooperatives, as

follows:

       There may come a time when the REA changes its present policy, and
       announces that state rate regulation of rural power cooperatives is
       inconsistent with federal policy. If that were to happen, and if such a
       rule was valid under the Rural Electrification Act, it would of course
       pre-empt any further exercise of jurisdiction by the Arkansas PSC.
       Similarly, as Arkansas already recognizes, the PSC can make no
       regulation affecting rural power cooperatives which conflicts with
       particular regulations promulgated by the REA. Moreover, even
       without an explicit statement from the REA, a particular rate set by
       the Arkansas PSC may so seriously compromise important federal
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       interests, including the ability of the AECC to repay its loans, as to be
       implicitly pre-empted by the Rural Electrification Act.

461 U.S. at 388–89, 103 S. Ct. at 1915 (citations omitted). While in Arkansas

Electric Cooperative the Supreme Court ruled that the REA’s published policy did

not preempt the state’s regulation of wholesale rates, the Supreme Court explicitly

stated that a valid REA regulation could preempt state law. Id. at 385-89, 103 S.

Ct. at 1913-15. In this case, CAEC has pointed to a RUS regulatory rule

concerning equity levels and distribution of patronage capital that it contends

preempts state law. We need not, and do not, determine the merits of that position

at this time, as we are confident that CAEC’s argument is at least colorable and

should be tried in federal court.

       For the foregoing reasons, we conclude that CAEC properly removed this

case under the federal officer removal statute, § 1442(a)(1), and the district court

had subject matter jurisdiction to hear the case.

                          III.    MOTION TO DISMISS: MERITS

       Having concluded federal jurisdiction exists, we now address whether the

district court erred in dismissing Plaintiff Caver’s complaint.9 The district court

held that CAEC’s method of distributing excess revenues through patronage

capital accounts satisfies the requirements of Alabama Code § 37-6-20 and

       9
       We review the district court’s grant of a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6) de novo, using the same standard as the district court. Spain v. Brown &
Williamson Tobacco Corp., 363 F.3d 1183, 1187 (11th Cir. 2004).
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CAEC’s bylaws. That statute provides, in relevant part, that excess revenues “shall

be distributed by the cooperative to its members as, and in the manner, provided in

the bylaws, either as patronage refunds . . . or by way of general rate reductions, or

by combination of such methods.” Ala. Code § 37-6-20 (emphasis added).

      On appeal, as she did in the district court, Caver argues that CAEC must

annually distribute “patronage refunds” in the form of an annual cash payment to

its members. Caver contends that CAEC’s allocation of “credits” to members’

capital accounts does not constitute a refund because CAEC’s members cannot

access the credits. Caver describes § 37-6-20 as having a “plain statutory

requirement that excess revenue be distributed through refund or rate reduction,

not ‘crediting’ and withholding.”

      Section 37-6-20 does not speak with the clarity that Caver wishes, and

nowhere does that section require a cash payment, much less an annual one.

Indeed, the statute does not even define the term “patronage refund” or the word

“distributed.” Rather, the statute states plainly that the manner of distribution,

whether by patronage refund or rate reduction, “shall” be done “as, and in the

manner, provided in the bylaws.” CAEC’s bylaws provide such an express manner

for distribution. In the bylaws, CAEC treats its excess revenues as furnished by

the patrons to CAEC and credits each patron’s capital account for their

proportional share of the excess revenues. Those credits are later retired as

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directed by CAEC’s Board of Trustees. CAEC’s bylaws thus use capital account

credits as the manner for distributing patronage refunds.

      Telling too, the relevant portion of the statute does not use the words “cash”

or “pay.” Nor does the statute expressly forbid CAEC from using methods other

than a cash payment to make the required distributions. Other clauses in § 37-6-20

indicate when CAEC must “pay” something rather than “finance” or “provide” for

a fund or a reserve. § 37-6-20. For patronage refunds, the statute only says that

the excess revenues shall be distributed “as, and in the manner, provided in the

bylaws.” Id. Nothing in the statute imposes the specific requirement that all

patronage refunds be made in a cash manner. Caver offers no persuasive

reasoning, such as a statutory, textual basis, for why a refund or distribution must

be in a cash payment as opposed to a capital account credit. Instead, the statute

allows each rural electric cooperative’s bylaws to specify the “manner” in which

the cooperative makes distributions through patronage refunds, in effect giving

each rural electric cooperative a measure of discretion in carrying out the statutory

directives.

      The reasoning of at least two Alabama appellate decisions, though both are

tax cases and the reasoning is dicta, support a rejection of Caver’s reading of

§ 37-6-20. In the first case, the Alabama appellate court thoroughly reviewed

§ 37-6-20 and a rural electric cooperative’s system of making refunds to patrons

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through capital account credits and approved the use of those credits, which

created “an obligation to the member against the assets of the cooperative.” State

v. Pea River Elec. Coop., 434 So. 2d 785, 786 (Ala. Civ. App. 1983). In a

subsequent tax case decided over a decade later, the Alabama appellate court,

relying in large part on Pea River, again thoroughly examined § 37-6-20 and the

use of capital account credits for refunds and found that § 37-6-20 “mandates that a

cooperative return any excess advances to its members and allows those returns to

be made in the form of patronage credits.” State Dep’t of Revenue v. Mon-Cre

Tel. Coop., Inc., 702 So. 2d 179, 182 (Ala. Civ. App. 1997).10 While these cases

did not involve direct challenges to the use of capital account credits (as opposed

to cash payments), their reasoning lends credence to CAEC’s position in this

case.11 Both Alabama appellate decisions, dating back to 1983, approved the use

of capital account credits to distribute patronage refunds.

       Based on the foregoing Alabama law, we must reject Caver’s claims that

CAEC must distribute patronage refunds only in the form of annual cash payments.

       10
            Caver directs our attention to several Alabama trial court decisions that have denied
motions to dismiss in allegedly similar cases. Only one of those decisions provides any
reasoning, which we find unpersuasive. Harkless v. Dixie Elec. Coop., No. CV 2012-900073
(Ala. Cir. Ct. Oct. 18, 2012). In that case, the defendant cooperative apparently argued that
§ 37-6-20 “does not require a refund of ‘excess revenues.’” Id. at 3. Instead of arguing that it
does not need to refund excess revenues at all, CAEC presents a stronger argument in this case—
that it is providing patronage refunds through patron capital credits, which is the manner of
distribution provided for in the bylaws.
         11
            We also find Caver’s reliance on a Tennessee statute similar to § 37-6-20 unpersuasive
for the reasons stated in the district court’s order.

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Caver’s argument assumes, without support, that a refund must be paid in cash.

Section 37-6-20 contains no such cash payout requirement.12 While § 37-6-20

requires that excess revenues be distributed, Caver’s claims ignore how § 37-6-20

provides that the manner of distribution of patronage refunds is determined by a

cooperative’s bylaws. To be clear, our narrow holding here is that § 37-6-20 does

not require CAEC to distribute patronage refunds only in a cash payment manner.

Caver’s complaint therefore fails to state a viable claim because cash payments are

not required by the statute, and therefore there is no statutory violation, no breach

of contract, and no basis for injunctive relief.

                                      IV.    CONCLUSION

       For the reasons contained herein, we affirm the district court’s denial of

Plaintiff Caver’s motion to remand and grant of Defendant CAEC’s motion to

dismiss.

       AFFIRMED.




       12
         In light of this conclusion, we need not address CAEC’s other defenses, including
whether the bylaws can waive a patron’s statutory right to receive a cash payment or whether
RUS regulations in fact preempt § 37-6-20.
                                              26
