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Jessie Zeigler, a litigation partner at Bass Berry & Sims in Nashville, Tennessee, heads up Smyrna's trial team in The Town of Smyrna, Tenn. v. The Municipal Gas Authority of Georgia, case number 12-5476 in the U.S. Circuit Court of Appeals for the Sixth Circuit.
Law360 reported Jessie's victory in the Court of Appeals.
Law360, New York (July 19, 2013, 3:57 PM ET) -- The Sixth Circuit on Friday shot down the Municipal Gas Authority of Georgia’s attempt to claim sovereign immunity in a battle with a Tennessee client over the price of natural gas, saying the utility is not intertwined with the state of Georgia to qualify for immunity.
The dispute arises from the Gas Authority’s commitment to a multiyear hedge contract for its acquisition of gas, which set a contract price and volume of gas through the year 2014, and then passed these costs on to the city of Smyrna, Tenn., which gets its natural gas from the authority.
According to the appeals panel, after the hedge contract was in place, the market price of natural gas fell due to the increased use of hydraulic fracturing, or “fracking.”
“So, although gas was less expensive in the market generally, it was not less expensive to Smyrna, who was still paying the Gas Authority according to the higher price and volume set between the Gas Authority and its suppliers,” the panel said.
In July 2011, Smyrna sued the Gas Authority for breach of contract, violations of the Tennessee Consumer Protection Act, breach of fiduciary duty, and unjust enrichment for entering into these long-term hedge contracts and passing the allegedly unauthorized charges on to Smyrna.
The Gas Authority filed a motion to dismiss, arguing that it was entitled to sovereign immunity under Georgia law and under the Eleventh Amendment. In April 2012, the district court denied the motion, and the authority appealed.
The Gas Authority asserts that it has sovereign immunity under the Georgia Supreme Court’s recent decision in Kyle v. Georgia Lottery Corp., which the authority claims held that anything called a state instrumentality is entitled to sovereign immunity. Because the Gas Authority is called an “instrumentality” under its enacting statute, it said it is entitled to sovereign immunity.
“Like the GLC, the Gas Authority is referred to as ‘an instrumentality of the state’ in its enacting statute ... but the similarities end there. Unlike the GLC, the Gas Authority’s purpose is not provided for in the Georgia Constitution and it does not benefit the general Georgian public,” the panel said.
Rather, the authority’s purpose is to “provide municipalities a reliable, economical supply of natural gas and to assist them in developing and growing their gas systems to optimize the benefits of public ownership.” Although it is described as an entity that supplies gas for the “public,” the Gas Authority is structured such that it benefits only municipalities that choose to become members.
“And members are not necessarily from Georgia; current member municipalities are located in Alabama, Florida, Georgia, Pennsylvania and Tennessee. The pipeline that delivers gas to Smyrna does not even run through the state of Georgia,” the panel said.
The panel also said the Gas Authority’s function is not intertwined with the state. Unlike the GLC, which gives its profits to the state for the benefit of public education in Georgia, the Gas Authority operates as an independent nonprofit corporation, the panel said.
“It is expressly exempt from the provisions on financing and investment for state entities ... and it makes its own decisions on accumulation, investment, and management of its funds,” the panel said. “The Gas Authority acts as an ‘agent’ for the municipalities it serves and provides services “to and for the benefit of the political subdivisions.”
The Gas Authority also contended that it is entitled to sovereign immunity under the Eleventh Amendment, but the panel said using a list of factors to determine whether a particular entity is owed sovereign immunity, including the state’s potential liability, the authority does not qualify.
“The district court made an express finding that these claims present no potential liability to the coffers of the state of Georgia — which comes as no surprise because the Gas Authority is responsible for its own expenses, including judgments, among other things,” the panel said.
Smyrna's attorney Jessalyn H. Zeigler of Bass Berry Sims PLC said Friday that the Sixth Circuit recognized that Kyle is unambiguous, controlling precedent.
"The town of Smyrna, Tenn., will continue its effort to recover the millions of dollars that it has lost due to MGAG’s unauthorized natural gas hedges," Zeigler said.
Counsel for the Gas Authority did not respond to a request for comment Friday.
The Gas Authority is represented by Jay D. Bennett of Alston Bird LLP.
Smyrna is represented by Jessalyn H. Zeigler of Bass Berry Sims PLC.
The case is The Town of Smyrna, Tenn. v. The Municipal Gas Authority of Georgia, case number 12-5476 in the U.S. Circuit Court of Appeals for the Sixth Circuit.
Jessie Zeigler commented:
The Sixth Circuit succinctly summarized this appeal by stating that MGAG’s claim to sovereign status “requires quite a stretch of the imagination.” By declining to certify the question to the Supreme Court of Georgia, the Sixth Circuit recognized that Kyle is unambiguous, controlling precedent. The Town of Smyrna, TN will continue its effort to recover the millions of dollars that it has lost due to MGAG’s unauthorized natural gas hedges. Additionally, we are pleased that the Sixth Circuit used this opportunity to clarify its Eleventh Amendment jurisprudence.