Sun City Taxpayers' Association v. Citizens Utilities Company, 45 F.3d 58, 2d Cir. (1995)

45 F.
3d 58
RICO Bus.Disp.Guide 8729
SUN CITY TAXPAYERS' ASSOCIATION, PlaintiffAppellant,

v.
CITIZENS UTILITIES COMPANY, Defendant-Appellee.
No. 191, Docket 94-7223.
United States Court of Appeals,

Second Circuit.
Argued Sept. 9, 1994.
Decided Jan. 23, 1995.
Elliot I. Miller, Southport, CT (Kleban & Samor, P.C., Southport, CT, of

counsel), for plaintiff-appellant.
Joseph E. Mais, Phoenix, AZ (Anthony L. Marks, Brown & Bain, P.A.,
Phoenix, AZ, James F. Stapleton, Day, Berry & Howard, Stamford, CT, of
counsel), for defendant-appellee.
Before: MESKILL, MAHONEY, and WALKER, Circuit Judges.
MAHONEY, Circuit Judge:
Plaintiff-appellant Sun City Taxpayers' Association ("SCTA") appeals from an

order entered February 2, 1994 in the United States District Court for the
District of Connecticut, Jose A. Cabranes, then-Chief Judge,1 that dismissed
SCTA's civil claims under the Racketeer Influenced and Corrupt Organization
Act ("RICO"), 18 U.S.C. Sec. 1961 et seq., because: (1) SCTA lacked standing
to sue; (2) SCTA's claims were barred by the filed rate doctrine; and (3)
SCTA's complaint failed to state a claim under RICO. 847 F.Supp. 281.
We affirm the order of the district court.
Background
SCTA is an Arizona not-for-profit corporation whose primary purpose, as

stated in its articles of incorporation, is:
To investigate, obtain data, study, and determine the fairness and

reasonableness of ... utility charges ... which may be, or proposed to be, either
imposed, levied, assessed, charged, or contracted, by ... utilities ... affecting
property owners or residents of Sun City, [Arizona,] and to take whatever legal
action is deemed fair, reasonable, and otherwise equitable.
Although all ratepayers of Sun City presumably benefit from SCTA's

participation in rate-setting procedures, SCTA's membership does not include
all present or past ratepayers of Sun City.
Citizens Utilities Company ("CUC") is a Delaware corporation with its

principal place of business in Stamford, Connecticut. Sun City Water Company
and Sun City Sewer Company (the "Utilities"), which provide water and
sewage services to the residents of Sun City, Arizona, are wholly owned
subsidiaries of CUC. CUC conducted all rate-setting and related activities on
behalf of the Utilities during the years in question.
The Arizona Corporation Commission (the "Commission") is vested by article

15, Sec. 3 of the Arizona Constitution with "full power to ... prescribe ... just
and reasonable rates and charges to be made and collected, by public service
corporations within the State for service rendered therein...." SCTA asserts that
between 1968 and 1978, CUC perpetrated a "highly complex accounting fraud"
that misrepresented to the Commission the actual operating costs incurred by
the Utilities. It is claimed that CUC thus induced the Commission to increase
public utility rates by approximately $65 million, which allegedly was paid to
CUC as dividends. SCTA intervened in those rate-making proceedings, and
now contends that both it and the Commission were misled by CUC's
fraudulent representations, resulting in unlawful rate increases that harmed Sun
City's residents.
SCTA brought suit against CUC under RICO, based upon CUC's alleged
misrepresentations to the Commission both on the Utilities' books and in ratesetting applications. SCTA claims that CUC used the United States mails,
interstate telephone calls and telecopier transmissions, and other interstate wire
facilities to perpetrate the fraud and thereby obtain approval for excessive
utility rates in violation of 18 U.S.C. Secs. 1341 (mail fraud) and 1343 (wire
fraud). The complaint further alleges that the predicate acts of mail and wire
fraud form a pattern of racketeering activity, 18 U.S.C. Secs. 1961(1)(B),
1961(5), and constitute violations of 18 U.S.C. Sec. 1962(a), (b), and (c).
Consequently, SCTA sought treble damages and attorney fees, as authorized by
18 U.S.C. Sec. 1964(c).
9
CUC argued below that SCTA lacked standing to bring suit, that the filed rate
doctrine bars private RICO actions against regulated utilities based upon alleged
fraud in the rate-setting process, and that SCTA's complaint failed to state a
RICO claim. The district court so ruled in a comprehensive opinion.
10
This appeal followed.
Discussion
A. Standing to Sue.
11
12
Chief Judge Cabranes concluded that SCTA lacked standing to sue in this case,
and we agree with that determination. The district court correctly noted that the
postulated injury to SCTA's members did not "adversely affect [their]
associational ties." Warth v. Seldin, 422 U.S. 490, 511, 95 S.Ct. 2197, 2211, 45
L.Ed.2d 343 (1975). SCTA's complaint does not allege that its associational ties
with its members have been injured or impaired, but rather focuses solely upon
the direct injury to Sun City's residents.
13
Accordingly, Chief Judge Cabranes analyzed SCTA's standing under the test of
Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 97 S.Ct.
2434, 53 L.Ed.2d 383 (1977). Under Hunt, even in the absence of injury to its
members' associational ties, an organization has standing to sue on behalf of its
members if: "(a) its members would otherwise have standing to sue in their own
right; (b) the interests it seeks to protect are germane to the organization's
purpose; and (c) neither the claim asserted nor the relief requested requires the
participation of the individual members in the lawsuit." Id. at 343, 97 S.Ct. at
2441; see also Warth, 422 U.S. at 511, 95 S.Ct. at 2211-12 (even in absence of
injury to itself, association may have standing solely as representative of its
members); Rent Stabilization Ass'n v. Dinkins, 5 F.3d 591, 596 (2d Cir.1993)
(stating and applying Hunt test).
14
With regard to the third prong of the Hunt test, the Supreme Court has
explained that an organization lacks standing to sue for money damages on
behalf of its members if "the damage claims [of the members] are not common
to the entire membership, nor shared by all in equal degree," so that "both the
fact and extent of injury would require individualized proof." Warth, 422 U.S.
at 515-16, 95 S.Ct. at 2214. The district court concluded, and we agree, that
SCTA fails the third prong of the Hunt test because recovery in this case would
require individualized proof by Sun City's residents.
15
The complaint describes a ten-year period of RICO violations perpetrated

through a complex accounting fraud scheme. Presumably, not all of SCTA's
members today were living in Sun City during 1968-1978, and each resident's
injuries during that period would differ depending upon the amount of utility
services consumed and the uses to which those services were put.
Consequently, the individual members would be required as parties if this
lawsuit were allowed to proceed, and SCTA has no standing to proceed in their
absence.
B. The Filed Rate Doctrine.

16
17
Chief Judge Cabranes also addressed the filed rate doctrine, 2 which this court
has more recently considered in Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17
(2d Cir.1994). This doctrine provides an additional basis for dismissal in this
case. As we said in Wegoland:
18
The filed rate doctrine bars suits against regulated utilities grounded on the
allegation that the rates charged by the utility are unreasonable. Simply stated,
the doctrine holds that any "filed rate"--that is, one approved by the governing
regulatory agency--is per se reasonable and unassailable in judicial proceedings
brought by ratepayers.
19
Id. at 18. Wegoland, like the present case, involved RICO claims, but the filed
rate doctrine has been applied in numerous other contexts. See, e.g., Square D
Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 417, 423-24, 106
S.Ct. 1922, 1927, 1930-31, 90 L.Ed.2d 413 (1986) (antitrust); Arkansas La.
Gas Co. v. Hall, 453 U.S. 571, 584-85, 101 S.Ct. 2925, 2933-34, 69 L.Ed.2d
856 (1981) (breach of contract); Montana-Dakota Utils. Co. v. Northwestern
Pub. Serv. Co., 341 U.S. 246, 251-53, 71 S.Ct. 692, 695-96, 95 L.Ed. 912
(1951) (fraud); Keogh v. Chicago & N.W. Ry., 260 U.S. 156, 162-65, 43 S.Ct.
47, 49-50, 67 L.Ed. 183 (1922) (antitrust).
20
Wegoland was decided after the filing of briefs on this appeal, but prior to oral
argument. Wegoland ruled that RICO claims premised upon alleged fraud
perpetrated by utilities upon a rate-setting agency are barred by the filed rate
doctrine. 27 F.3d at 20-22; accord: Taffet v. Southern Co., 967 F.2d 1483,
1494-95 (11th Cir.) (in banc), cert. denied, --- U.S. ----, 113 S.Ct. 657 (1992);
H.J. Inc. v. Northwestern Bell Tel. Co., 954 F.2d 485, 488-92 (8th Cir.), cert.
denied, --- U.S. ----, 112 S.Ct. 2306, 119 L.Ed.2d 228 (1992). The fundamental
problem is that "only by determining what would be a reasonable rate absent
the fraud could a court determine the extent of the damages. And it is this
judicial determination of a reasonable rate that the filed rate doctrine forbids."
Wegoland, 27 F.3d at 21.
21
Wegoland requires affirmance in this case. SCTA attempts to distinguish itself

from the "casual plaintiff" in Wegoland on the basis that SCTA is a consumer
advocacy group whose sole purpose is "to monitor and enforce, through
litigation if necessary, the rights of residents and property owners in Sun City to
be burdened by no more than fair and appropriate utilities charges." The effort
is unavailing.
22
Wegoland was not brought by a "casual plaintiff," but rather, as a putative class
action that purported to represent the interests of all injured ratepayers. In any
event, the filed rate doctrine exists for reasons independent of the type of
plaintiff maintaining the action: (1) legislatively appointed regulatory bodies
have institutional competence to address rate-making issues; (2) courts lack the
competence to set utility rates; and (3) the interference of courts in the ratemaking process would subvert the authority of rate-setting bodies and
undermine the regulatory regime. Wegoland, 27 F.3d at 21.
23
SCTA's goal of vindicating consumer rights simply does not implicate any of
the considerations underlying the filed rate doctrine. See id. at 22 ("the class
action nature of the proceeding in no way affects the important concerns of
agency authority, justiciability, and institutional competence"). Thus, we
recognized in Wegoland, as we do today, that the filed rate doctrine "applies
whether or not the plaintiffs are suing for a class," id., and regardless of the
plaintiff's motivations in maintaining the litigation.
24
Moreover, while SCTA purports to represent the rights of all Sun City
residents, there is no contractual or statutory vehicle for the equitable payment
of any recovery to all affected Sun City ratepayers. Cf. Holmes v. Securities
Investor Protection Corp., 503 U.S. 258, ----, 112 S.Ct. 1311, 1318, 117
L.Ed.2d 532 (1992) (criticizing claims that "would force courts to adopt
complicated rules apportioning damages among plaintiffs removed at different
levels of injury from the violative acts"); Keogh, 260 U.S. at 163, 43 S.Ct. at
49-50 ("Uniform treatment would not result, even if all [victims] sued, unless
the highly improbable happened, and the several juries and courts gave each the
same measure of relief.").Conclusion
25
The order of the district court is affirmed.
25
The order of the district court is affirmed.
Chief Judge Cabranes has since become a member of the United States Court of
Appeals for the Second Circuit
The district court's ruling that SCTA failed to state a RICO claim was
essentially derivative from its determinations that (1) SCTA lacked standing,
and (2) the filed rate doctrine barred any RICO claim

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45 F.

SUN CITY TAXPAYERS' ASSOCIATION, PlaintiffAppellant,

United States Court of Appeals,

Elliot I. Miller, Southport, CT (Kleban & Samor, P.C., Southport, CT, of

Plaintiff-appellant Sun City Taxpayers' Association ("SCTA") appeals from an

We affirm the order of the district court.

SCTA is an Arizona not-for-profit corporation whose primary purpose, as

To investigate, obtain data, study, and determine the fairness and

Although all ratepayers of Sun City presumably benefit from SCTA's

Citizens Utilities Company ("CUC") is a Delaware corporation with its

The Arizona Corporation Commission (the "Commission") is vested by article

This appeal followed.

The complaint describes a ten-year period of RICO violations perpetrated

B. The Filed Rate Doctrine.

Wegoland requires affirmance in this case. SCTA attempts to distinguish itself

The order of the district court is affirmed.

The order of the district court is affirmed.

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