Judge sorts through co-op lawsuit
The lawsuit between Socorro Electric Cooperative and its member-owners nudged forward during a status hearing held in 13th Judicial District Court in Los Lunas on Tuesday.
The lawsuit was initiated last summer when the co-op’s board of trustees voted to challenge three newly adopted bylaws — all of with call for increased transparency — passed by member-owners of the public non-profit corporation at the annual meeting last April.
In order to contest the validity of the bylaws, the co-op filed its complaint requesting declaratory judgment and injunctive relief against all of its approximately 10,000 member-owners, who are also its customers.
Though the co-op later filed papers to have the lawsuit dismissed, by then the court had already received several responses to the complaint and one counterclaim asking for class-action certification.
Judge Albert J. Mitchell Jr. of the 10th Judicial District, who was assigned to the case by the New Mexico Supreme Court, reviewed the key elements with attorneys representing both sides during Tuesday’s hearing and sketched out a schedule for the coming months.
“I’m not going to be ruling on merits,” he told the 10 attorneys present and a crowd of about 25 member-owners seated in the gallery at the outset of the hearing. “I hope to resolve some of the issues by written motion; some will require hearings.”
One thing Mitchell did decide was that the case would not be dismissed. Unless all of the parties who filed responses were willing to do so, “I’m not going to dismiss,” he said. “I think you have legitimate issues here.”
But Mitchell indicated he wanted to put off ruling on the class-action certificate until later in the process and put a stay on the matter.
“My initial inclination is we need to get this part taken care of before we get into the class action,” he said during discussion of the co-op’s complaint.
Seated at one table were co-op attorneys Dennis Francish and Paul Kennedy.
Crowded around the defendants’ table were Socorro attorneys Don Klein, John Gerbracht, Roscoe Woods, Thomas Fitch and Polly Tausch, most of whom had filed responses pro se. Also at the table were Lee Deschamps, Bill Ikard and his associate William Kilgarlin, lawyers listed on the counterclaim asking for class action certification.
Breaking it Down
Mitchell said there were three aspects of the case that needed to be addressed at the status hearing: the first dealing with pretrial issues of venue and notice, then there was the original complaint and the class-action request.
Mitchell set the first deadline, asking for new sets of briefs regarding motions made by defendants to have the case moved to Socorro by the end of the year.
“As to the venue issue, that Dec. 30 date is solid,” he said, “because we need to move forward.”
The co-op filed the case in Valencia County, where a small percentage of members reside, to avoid conflicts of interest that might exist with judges in Socorro also being members of the co-op.
At one point, Mitchell asked for a show of hands from anyone opposed to moving the case to Socorro and only the two co-op attorneys raised their hands.
When the judge asked why, Kennedy simply stated that Valencia County complied with requirements for proper venue.
Mitchell showed he was willing to consider a change of venue, asking a series of questions about the distance Socorro was from Los Lunas, the set up at the Socorro courthouse and security.
At the end of the hearing, he asked the co-op attorneys to let him know what objections they would have to move the proceedings from the fully modern courthouse in Los Lunas to Socorro.
“It may be more convenient to have it heard in Socorro,” the judge said.
Mitchell determined that all parties agreed proper notice was not fulfilled when the co-op ran the summons as a legal ad in El Defensor Chieftain in July. He said the co-op had a means of serving notice directly to member-owners each month, intimating notices could have been sent out with billing statements.
Legal Arguments
The judge queried the co-op attorneys about the substance of their original complaint. He said one bylaw the co-op was contesting, requiring the board of trustees to voluntarily adopt the Open Meetings Act, overlapped another that allows members and the media to attend meetings. The only difference was that the latter one also permitted members to address the board, he noted.
“Allowing the public to speak is over and above the Open Meetings Act,” he said.
Francish said the co-op was willing to go along with letting members speak, but he didn’t think they belonged at corporate meetings.
“My position throughout this thing was that they be allowed to speak, then leave,” he said, adding that historically members have not been allowed to sit in on meetings. “As someone who liked the old ways, I was opposed to it and so was the majority of the board.”
Mitchell indicated the matter wasn’t for them to decide if the bylaw was properly adopted, which Francish acknowledged it was.
“It all comes down to what the owners want,” Mitchell said.
Regarding the third bylaw that requires the co-op to follow the Inspection of Public Records Act, Francish said there is already case law against it and cited the 1997 New Mexico Supreme Court case of Schein v. Northern Rio Arriba Electric Cooperative.
That case affirms that members can inspect records as long as they have “proper pursue.”
“The way you’re characterizing the Rio Arriba case is much more restrictive than I read it,” Mitchell told Francish.
The judge asked Francish if an evidential hearing was necessary or if he was making a legal argument. When Francish answered it was a legal argument, Mitchell asked for briefs on the matter to be turned in within 30 days.
There was also discussion regarding whether eventual rulings would be binding on those not party to the case, since defendants were not properly served. Mitchell wanted briefs submitted on that subject by Jan. 20.
“Whether it’s binding on everyone is critical,” he said.
Considering Class
Mitchell turned to attorneys at the other table to address the proposed class action counterclaim. He said he was concerned that such action would cause the co-op financial distress if it lost the case.
“How in the world can you sue the cooperative without harming it?” he asked.
Bill Ikard, an Austin, Texas, attorney who helped win a class action lawsuit against Pedernales Electric Cooperative, the largest rural electric co-op in the county, a few years ago, responded that there were two reasons. One, the co-op likely had an insurance policy that would cover damages. And, he noted, the counterclaim calls for current and former co-op officials named in the complaint to be disgorged of damages. That is, they would have to pay back the co-op out of their own pockets, if it were found that they had unfairly received compensation.
“Never was there intention to damage the co-op,” Ikard said.
Francish disagreed. He pointed out the counterclaim calls for capital credits to be returned to member-owners and therefore reduce the co-op’s equity holdings.
Ikard also made the argument that the co-op would benefit in the long run.
“If the overriding issue is transparency, good governance and democracy, it won’t hurt the co-op,” he said.
Mitchell said no one would argue against good governance, but at what cost? He noted that in most all the filings one side asks the other to pay attorney fees.
“I’m trying to minimize the cost to the class until we get past the governance issue,” he said. “When we get to damages, I want that pure.”
Mitchell asked if the co-op would be willing to disclose the particulars of its insurance coverage for litigation.
“Of course,” Kennedy said.
But Kennedy later said defending against a class action countersuit could prove costly.
“There’s extensive discovery that I want to take on with the class and the class action representative,” he said.
The representative in the class action proposal is Charlie Wagner, the District 5 trustee who was a leader in the reform movement that was successful in getting a bevy of new bylaws passed in April.
Cross-claim defendants include the nine other current trustees, four former trustees and the co-op’s former general manager.
In the end, Mitchell said he wanted to deal with the other issues first and he would revisit the matter of class action certification in February.
Near the end of the one-hour, 15-minute hearing, Mitchell floated the idea that the matter could be resolved outside the courtroom.
“Is it worth encouraging you to sit down with a mediator?” he asked the lawyers.
Deschamps, who represents several member-owners and is one of the attorneys listed on the class-action proposal, said he’d be willing. But other attorneys weren’t.
“I think it’s way too early,” Kennedy told the judge.
“This may be the one time I agree with Mr. Kennedy,” Ikard said. “There needs to be discovery.”
At the end of the hearing, Fitch asked the judge if he’d prepare the court order outlining the schedule for deadlines of briefs and pleadings.
“I’ll take a crack at it,” Mitchell said, reminding everyone that it would only be a draft.
Contact T.S. Last