Attached files
| file | filename |
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| 8-K - FORM 8-K - ENTERGY TEXAS, INC. | a06509.htm |
| EX-8.1 - EXHIBIT 8.1 - ENTERGY TEXAS, INC. | a0650981.htm |
| EX-5.1 - EXHIBIT 5.1 - ENTERGY TEXAS, INC. | a0650951.htm |
| EX-99.6 - EXHIBIT 99.6 - ENTERGY TEXAS, INC. | a06509996.htm |
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SIDLEY
AUSTIN LLP
787
SEVENTH AVENUE
NEW
YORK, NY 10019
(212)
839 5300
(212)
839 5599 FAX
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BEIJING
BRUSSELS
CHICAGO
DALLAS
FRANKFURT
GENEVA
HONG
KONG
LONDON
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LOS
ANGELES
NEW
YORK
SAN
FRANCISCO
SHANGHAI
SINGAPORE
SYDNEY
TOKYO
WASHINGTON,
D.C.
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FOUNDED
1866
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Exhibit
99.5 Opinion
November
6, 2009
To Each
of the Persons Listed
on
Schedule A Attached Hereto
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Re:
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Entergy
Texas Restoration Funding, LLC
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Senior Secured
Transition Bonds - Federal Constitution
Issues
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Ladies
and Gentlemen:
We have
served as special counsel to Entergy Texas, Inc., a Texas corporation ("ETI"), in connection
with the issuance and sale on the date hereof by Entergy Texas Restoration
Funding, LLC, a Delaware limited liability company (the "Issuer"), of
$545,900,000 aggregate principal amount of the Issuer's Senior Secured
Transition Bonds (the "Bonds"), which are
more fully described in the Prospectus Supplement dated October 29,
2009. The Bonds are being sold pursuant to the provisions of the
Underwriting Agreement dated October 29, 2009 (the "Underwriting Agreement")
among ETI, the Issuer and the underwriters named in Schedule I to such
Underwriting Agreement. The Bonds are being issued pursuant to the
provisions of the Indenture dated as of November 6, 2009 (the "Indenture"), as
supplemented by the Series Supplement dated as of November 6, 2009 (together
with the Indenture, the "Indenture"), between
the Issuer and The Bank of New York Mellon, a New York banking corporation, as
indenture trustee (the "Indenture
Trustee"). Under the Indenture, the Indenture Trustee holds,
among other things, transition property as described below (the "Transition Property")
as collateral security for the payment of the Bonds. This opinion is
being delivered pursuant to Section 9(m) of the Underwriting
Agreement.
"Transition
property" is defined in the applicable provisions of Chapter 36, Subchapter I of
the Texas Utility Code and Chapter 39, Subchapter G of the Texas Utility Code
(collectively, the "Securitization Law")
each being part of the Texas Public Utility Regulatory Act ("PURA")1 The Transition Property
was created in favor of ETI, pursuant to a financing order issued by the Public
Utility Commission of Texas (the "PUCT") on September
11, 2009, in Docket No. 37247 (the "Order"); and the
Transition Property was assigned to the Issuer pursuant to the provisions of the
Transition Property Purchase and Sale Agreement dated as of November 6, 2009
between ETI and the Issuer in consideration for the payment by the Issuer to ETI
of the proceeds of the sale of the Bonds, net of certain issuance
costs. The Transition Property includes the right to impose and
receive certain "non-bypassable" charges described in the Order (the "Charges"). The
Charges constitute "transition charges" as defined in the Securitization Law and
may be periodically adjusted, in the manner authorized in the Order, in order to
enhance the probability that the revenues received by the Issuer from the
Charges are sufficient to (i) amortize the Bonds pursuant to the amortization
schedule to be followed in accordance with the provisions of the Bonds and the
Indenture, (ii) pay interest thereon and related fees and expenses and (iii)
maintain the required reserves for the payment of the Bonds.
The Order
was issued in response to an application for its issuance that was filed by ETI
with the PUCT pursuant to the provisions of PURA. The Order became
final and not subject to further appeal on September 28, 2009. ETI
filed its Issuance Advice Letter with the PUCT on October 30, 2009, as required
by the Order, and its Schedule SRC- Tariff relating to the Charges on November
3, 2009.
Questions
Presented and Opinions
Legislative
Repeal, Amendment or Revocation
You have
requested our opinion as to:
(a) whether
the State Pledge creates a contractual relationship between the State of Texas
(the "State")
and the holders of the Bonds (the "Bondholders");
(b) whether
the Bondholders could challenge successfully under the "contract clause" of the
United States Constitution (Article I, Section 10 (the "Federal Contract
Clause")) the constitutionality of any legislation passed by the Texas
legislature (the "Legislature") which
becomes law or any action of the PUCT exercising legislative powers ("Legislative Action")
that in either case limits, alters, impairs or reduces the value of the
Transition Property or the Charges so as to impair (i) the terms of the
Indenture or the Bonds or (ii) the rights and remedies of the Bondholders (or
the Indenture Trustee acting on their behalf) (any impairment described in
clause (i) or (ii) being referred to herein as an "Impairment") prior to
the time that the Bonds are fully paid and discharged2;
(c) whether
preliminary injunctive relief would be available under federal law to delay
implementation of Legislative Action that limits, alters, impairs or reduces the
value of the Transition Property or the Charges so as to cause an Impairment
pending final adjudication of a claim challenging such Legislative Action under
the Federal Contract Clause and, assuming a favorable final adjudication of such
claim, whether relief would be available to prevent permanently the
implementation of the challenged Legislative Action; and
(d) whether,
under the Fifth Amendment to the United States Constitution (made applicable to
the State by the Fourteenth Amendment to the United States Constitution), which
provides in part "nor shall private property be taken for public use, without
just compensation" (the "Federal Takings
Clause"), the State could repeal or amend PURA or take any other action
in contravention of the State Pledge without paying just compensation to the
Bondholders, as determined by a court of competent jurisdiction, if doing so (a)
constituted a permanent appropriation of a substantial property interest of the
Bondholders in the Transition Property or denied all economically productive use
of the Transition Property; (b) destroyed the Transition Property other than in
response to emergency conditions; or (c) substantially reduced, altered or
impaired the value of the Transition Property so as to unduly interfere with the
reasonable expectations of the Bondholders arising from their investments in the
Bonds (a "Taking").
Based
upon our review of relevant judicial authority, as set forth in this letter, but
subject to the qualifications, limitations and assumptions (including the
assumption that any Impairment would be "substantial") set forth in this letter,
it is our opinion that a reviewing court of competent jurisdiction,
in a properly prepared and presented case:
(i) would
conclude that the State Pledge constitutes a contractual relationship between
the Bondholders and the State;
(ii) would
conclude that, absent a demonstration by the State that an Impairment is
necessary to further a significant and legitimate public purpose, the
Bondholders (or the Indenture Trustee acting on their behalf) could successfully
challenge under the Federal Contract Clause the constitutionality of any
Legislative Action determined by such court to limit, alter, impair or reduce
the value of the Transition Property or the Charges so as to cause an Impairment
prior to the time that the Bonds are fully paid and discharged;
(iii) should
conclude that permanent injunctive relief is available under federal law to
prevent implementation of Legislative Action hereafter taken and determined by
such court to limit, alter, impair or reduce the value of the Transition
Property or the Charges so as to cause an Impairment in violation of the Federal
Contract Clause; and although sound and substantial arguments support the
granting of preliminary injunctive relief, the decision to do so will be in the
discretion of the court requested to take such action, which will be exercised
on the basis of the considerations discussed in subpart B of Part II below;
and
(iv) would
conclude that the State would be required to pay just compensation to
Bondholders if the State's repeal or amendment of the Securitization Law or
taking of any other action in contravention of the State Pledge (a) constituted
a permanent appropriation of a substantial property interest of the Bondholders
in the Transition Property or denied all economically productive use of the
Transition Property; (b) destroyed the Transition Property other than in
response to emergency conditions; or (c) substantially reduced, altered or
impaired the value of the Transition Property so as to unduly interfere with the
reasonable expectations of the Bondholders arising from their investments in the
Bonds.
Our
opinion in the immediately preceding paragraph (i) is based upon our evaluation
of existing judicial decisions and arguments related to the factual
circumstances likely to exist at the time of a Federal Contract Clause challenge
to Legislative Action; such precedents and such circumstances could change
materially from those discussed below in this letter. Accordingly,
such opinion is intended to express our belief as to the result that should be
obtainable through the proper application of existing judicial decisions in a
properly prepared and presented case.
We also
note, with respect to such opinion, that existing case law indicates that the
State would have to establish that any Impairment is necessary and reasonably
tailored to address a significant public purpose, such as remedying or providing
relief for a broad, widespread economic or social problem. The cases
also indicate that the State's justification would be subjected to a higher
degree of scrutiny, and that the State would bear a more substantial burden, if
the Legislative Action impairs a contract to which the State is a party (which
we believe to be the case here), as contrasted to a contract solely between
private parties.
We note
that our work in connection with the preparation of this opinion and the
issuance of the Bonds did not bring to our attention any reported judicial
decision which we believe would provide a basis on which a court would declare
the provisions of the Securitization Law to be invalid under the
United States Constitution and it is our opinion that the Securitization Law is
constitutional in all material respects under the United States
Constitution. As discussed in our opinion delivered to you of even
date herewith concerning certain bankruptcy matters, however, there is some
judicial authority providing a basis for an argument that certain provisions of
the Securitization Law with respect to the commingling of funds may be preempted
by the United States Bankruptcy Code under the Supremacy Clause (Article VI) of
the United States Constitution. Our analysis as to the merits of such
an argument is set forth in that other opinion. If such provisions of
the Securitization Law were so preempted by the Bankruptcy Code and declared
invalid, such preemption would not, in our view, provide a grounds for changing
the opinions otherwise set forth herein,
Discussion
I. Protection
of State Pledge Under the Federal Contract Clause
Section
39.310 of PURA provides:
Transition
bonds are not a debt or obligation of the state and are not a charge on its full
faith and credit or taxing power. The state pledges, however, for the
benefit and protection of financing parties and the electric utility, that it
will not take or permit any action that would impair the value of transition
property, or, except as permitted by Section 39.307 [regarding true-ups],
reduce, alter, or impair the transition charges to be imposed, collected, and
remitted to financing parties, until the principal, interest and premium, and
any other charges incurred and contracts to be performed in connection with the
related transition bonds have been paid and performed in full. Any
party issuing transition bonds is authorized to include this pledge in any
documentation relating to those bonds.
PURA
§ 39.310. As authorized by the foregoing statutory provision and
the Order, the language of the State Pledge has been included in the Indenture
and in the Bonds. Based on our analysis of relevant judicial
authority, as set forth below, it is our opinion, subject to all of the
qualifications, limitations and assumptions (including the assumption that any
Impairment would be "substantial") set forth in this letter, that, absent a
demonstration by the State that an Impairment is necessary to further a
significant and legitimate public purpose, a reviewing court would conclude that
the State Pledge provides a basis upon which the Bondholders (or the Indenture
Trustee acting on their behalf) could challenge successfully, under the Federal
Contract Clause, the constitutionality of any Legislative Action determined by
such court to reduce, alter, or impair the value of the Transition Property or
the Charges so as to cause an Impairment prior to the time that the Bonds are
fully paid and discharged.
Article
I, Section 10 of the United States Constitution prohibits any state from
impairing the "obligation of contracts," whether among private parties or among
such state and private parties.3 The general purpose of
the Federal Contract Clause is "to encourage trade and credit by promoting
confidence in the stability of contractual obligations."4 The law is well-settled that "the
[Federal] Contract Clause limits the power of the States to modify their own
contracts as well as to regulate those between private parties."5 Although the Federal
Contract Clause appears literally to proscribe any impairment, the United States
Supreme Court has made it clear that the proscription is not
absolute: "Although the language of the Federal Contract Clause is
facially absolute, its prohibition must be accommodated to the inherent police
power of the State ‘to safeguard the vital interests of its people.'"6
In recent
cases, the United States Supreme Court has applied a three-part analysis to
determine whether a particular legislative action violates the Federal Contract
Clause:7
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(1)
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whether
the legislative action operates as a substantial impairment of a
contractual relationship;
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(2)
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assuming
such an impairment, whether the legislative action is justified by a
significant and legitimate public purpose;
and
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(3)
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whether
the adjustment of the rights and responsibilities of the contracting
parties is reasonable and appropriate given the public purpose behind the
legislative action.
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The first
inquiry contains three components:8
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(1)
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does
a contractual relationship exist;
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(2)
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does
the change in law impair that contractual relationship;
and
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(3)
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is
the impairment substantial.
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In
addition, to succeed with a claim under the Federal Contract Clause, a party
must show that the contractual relationship is not an invalid attempt to
restrict or limit a state's "reserved powers."9
The
following three subparts address: (i) whether a contract exists
between the State and the holders of the Bonds; (ii) if so, whether such
contract violates the "reserved powers" doctrine, which would render such
contract unenforceable; and (iii) the State's burden in justifying an
impairment. The determination of whether particular Legislative
Action constitutes a substantial impairment of a particular contract is a
fact-specific analysis, and nothing in this letter expresses any opinion as to
how a court would resolve the issue of "substantial impairment" with respect to
the Order, the Transition Property or the Bonds vis-a-vis a particular
Legislative Action. Therefore, we have assumed for purposes of this
letter that any Impairment resulting from the Legislative Action being
challenged under the Federal Contract Clause would be substantial.10 In the final subpart of
this Part I, we address what relief would be likely to be granted if a Federal
Contract Clause challenge were successfully asserted.
A. Existence
of a Contractual Relationship
The
courts have recognized the general presumption that, absent some clear
indication that a legislature intends to bind itself contractually, "a law is
not intended to create private contractual or vested rights but merely declares
a policy to be pursued until the legislature shall ordain otherwise."11 This presumption is
based on the fact that the legislature's principal function is not to make
contracts, but to make laws that establish the policy of the
state. Thus, a person asserting the creation of a contract with the
State must overcome this presumption.
This
general presumption can be overcome where the language of the statute indicates
an intention to create contractual rights. In determining whether a
contract has been created by statute, "it is of first importance to examine the
language of the statute."12 The courts
have ruled that a statute creates a contractual relationship between a state and
private parties if the statutory language contains sufficient words of
contractual undertaking.13 The United States
Supreme Court has stated that a contract is created "when the language and
circumstances evince a legislative intent to create private rights of a
contractual nature enforceable against the State."14
In U.S. Trust, the
United States Supreme Court affirmed the trial court's finding, which was not
contested on appeal, that a statutory covenant of two states for the benefit of
the holders of certain bonds gave rise to a contractual obligation between such
states and the bondholders.15 The covenant at issue
limited the ability of the Port Authority of New York and New Jersey to
subsidize rail passenger transportation from revenues and reserves pledged as
security for such bonds. In finding the existence of a contract
between such states and bondholders, the Court stated "[t]he intent to make a
contract is clear from the statutory language: ‘The two States
covenant and agree with each other and with the holders of any affected bonds. .
. . ‘"16 Later, in Nat'l R.R., the Court
discussed the U.S.
Trust covenant and noted: "[r]esort need not be had to a dictionary or
case law to recognize the language of contract" in such covenant.17
Similarly,
in Brand, the
United States Supreme Court determined that the Indiana Teachers' Tenure Act
created a contract between the state and specified teachers because the
statutory language demonstrated a clear legislative intent to
contract. The Court based its decision, in part, on the legislature's
use of the word "contract" throughout the statute to describe the legal
relationship between the state and such teachers.18
Like the
language of the covenant considered in U.S. Trust, the
language of the State Pledge plainly manifests the Legislature's intent to bind
the State.19 Indeed, the biggest
difference between such language and the U.S. Trust statute is
the use of the verb "pledge," rather than "covenant," but that difference is
not, in our view, material. The definition of the Legislature's term
-- "pledge" -- is "to bind by a promise."20 Accordingly, this
slight variation between the State Pledge and the language contained in the
U.S. Trust
statute appears inconsequential and not to provide a basis for distinguishing
the wording of the two statutes. Unlike the statute construed in Nat'l R.R., PURA
expressly includes language indicating the State's obligation with respect to
transition bond transactions. See PURA § 39.310
("The State
pledges . . . that it will not take or permit any action that would impair the
value of transition property . . . until the principal, interest and premium . .
. and contracts to be performed in connection with the related transition bonds
have been paid and performed in full."). Id. (emphasis
added). Moreover, it is important to note that the State also
authorizes an issuer of transition bonds to include the State Pledge in
contracts with the holders of transition bonds (such as the
Bonds). Id.
In
summary, the language of the State Pledge supports the conclusion that it
constitutes a contractual relationship between the State and the
Bondholders. We are not aware of any circumstances surrounding
enactment of the Securitization Law that suggests that the Legislature did not
intend to bind the State contractually by the State Pledge.21
B. Reserved
Powers Doctrine
The
"reserved powers" doctrine limits the State's ability to bind itself
contractually in a manner which surrenders an essential attribute of its
sovereignty.22 Under this doctrine, if
a contract limits a state's "reserved powers" -- powers that cannot be
contracted away -- such contract is void.23 Although the scope of
these "reserved powers" has not been precisely defined by the courts, case law
has established that a state cannot contract away its police powers24 or its power of eminent
domain.25 In contrast, the United
States Supreme Court has stated that a state's "power to enter into effective
financial contracts cannot be questioned."26
Under
existing case law, the State Pledge does not, in our view, limit any "reserved
powers" of the State. The State Pledge does not purport to contract
away, or constitute a waiver of, the State's power of eminent domain or
otherwise restrict the State's ability to legislate for the public welfare or to
exercise its police powers. Through "financing orders" (such as the
Order), the State will authorize electric utilities to issue "transition bonds"
(such as the Bonds) and pledges not to impair the value of the "transition
property" (such as the Transition Property) securing such
instruments. In other words, the State Pledge constitutes an
agreement made by the State not to impair the financial security for transition
bonds in order to foster the capital markets' acceptance of such bonds, which
are expressly authorized and will be issued as part of the transition to a new
electric utility industry structure. The State Pledge is clearly an
inducement offered by the State to investors to purchase the
Bonds. As such, we believe that the State Pledge is akin to the type
of "financial contract" involved in U.S. Trust, a promise
that revenues and reserves securing the bonds at issue there would not be
depleted beyond a certain level.27
C. State's
Burden to Justify an Impairment
Any
substantial impairment by a state of contractual rights which cannot be upheld
under the "reserved powers" doctrine must be justified as a legitimate exercise
of the state's police powers in order to be successfully defended against a
challenge pursuant to the Federal Contract Clause.28 In Blaisdell29, referred to by the United States
Supreme Court in U.S.
Trust as "the leading case in the modern era of [Federal] Contract Clause
interpretation,"30 the Court found that the economic
exigencies of the time (the Depression) justified a Minnesota law which (i)
authorized county courts to extend the period of redemption from foreclosure
sales on mortgages previously made "for such additional time as the court may
deem to be just and equitable," subject to certain limitations, and (ii) limited
actions for deficiency judgments.31 The Court stated that
the "reserved powers" doctrine could not be construed "to permit the state to
adopt as its policy the repudiation of debts or the destruction of contracts or
the denial of means to enforce them." On the other hand, the Court
also indicated that the Federal Contract Clause could not be construed32
to
prevent limited and temporary interpositions with respect to the enforcements
[of contracts] if made necessary by a great public calamity such as fire, flood,
or earthquake. [citation omitted] The reservation of state
power appropriate to such extraordinary conditions may be deemed to be as much a
part of all contracts, as is the reservation of state power to protect the
public interest in other situations to which we have referred. And if
state power exists to give temporary relief from the enforcement of contracts in
the presence of disasters due to physical causes such as fire, flood or
earthquake, that power cannot be said to be non-existent when the urgent public
need demanding such relief is produced by other and economic
causes.
In
upholding the Minnesota law, the Court relied on the following: (1)
an economic emergency existed which threatened the loss of homes and lands which
furnish those persons in possession with necessary shelter and means of
subsistence; (2) the law was not enacted for the benefit of particular
individuals but for the protection of a basic interest of society; (3) the
relief provided by the law was appropriate to the emergency, and could only be
granted upon reasonable conditions; (4) the conditions on which the period of
redemption was extended by the law did not appear to be unreasonable; and (5)
the law was temporary in operation and limited to the emergency on which it was
based.33 In 1983, the United
States Supreme Court stated in its Energy Reserves
opinion that "a significant and legitimate public purpose" is required to
justify a substantial impairment of contract.34 Similarly, the Court
had earlier stated that, to be justifiable, an impairment must deal with "a
broad, generalized economic or social problem."35
The
deference to be given by a court to a legislature's determination of the need
for a particular impairment depends on whether the contract is purely private or
the state is a contracting party. In a 1987 decision evaluating a
state statute under the Federal Contract Clause, the United States Supreme Court
noted that it has repeatedly held that, unless a state is a contracting party
(which we believe to be the case here), courts should defer to legislative
judgment as to the necessity and reasonableness of a particular action.36 Both the Energy Reserves and
Spannaus
opinions noted, however, that when a state is a contracting party the "stricter
standard" of justification set forth in the U.S. Trust opinion is
applicable.37 The Energy Reserves Court
also noted that "[i]n almost every case, the Court has held a governmental unit
to its contractual obligations when it enters financial or other markets."38
In U.S. Trust, the
United States Supreme Court stated that an impairment of a contract with a state
"may be constitutional if it is reasonable and necessary to serve an important
public purpose."39 The Court further
stated, however, that "complete deference to a legislative assessment of
reasonableness and necessity is not appropriate."40 The "public purposes"
advanced as justifications for the contractual impairment were the promotion of
mass transportation, energy conservation and environmental protection, and
encouragement of the use of public transportation rather than private
automobiles.41 The Court rejected
those justifications because repeal of the covenant was "neither necessary to
achievement of the plan nor reasonable in light of the circumstances."42 The Court stated that a
modification less drastic than total repeal would have permitted the states to
achieve their plan to improve commuter rail service, and, in fact, the states
could have achieved that goal without modifying the covenant at all.43 For example, the
states "could discourage automobile use through taxes on gasoline or parking . .
. and use the revenues to subsidize mass transit projects."44
The U.S. Trust Court
contrasted the legislation under consideration with the statute challenged in
El Paso v.
Simmons,45 which limited to five years the
reinstatement rights of defaulting purchasers of land from the
state. For many years prior to the enactment of this statute,
defaulting purchasers had been allowed to reinstate their claims upon written
request and payment of delinquent interest, unless the rights of third parties
had intervened. In the judgment of the U.S. Trust Court,
this older (19th century) statute "had effects that were unforeseen and
unintended by the legislature when originally adopted," i.e., "speculators were
placed in a position to obtain windfall benefits," and therefore adoption of a
statute of limitations was reasonable to restrict parties to gains reasonably
expected from the contract when the original statute was adopted.46 In contrast, the U.S. Trust Court
stated that the need for mass transportation was not a new development and the
likelihood that publicly owned commuter railroads would produce substantial
deficits was well known when the covenant was adopted.47 Although, the Court
noted, public perception of the importance of mass transit undoubtedly grew
between 1962, when the covenant was adopted, and 1974, when it was repealed,
"these concerns were not unknown in 1962, and the subsequent changes were of
degree and not of kind . . . . and [did not] cause the covenant to have a
substantially different impact in 1974 than when it was adopted in 1962."48
The U.S. Trust Court also
distinguished its earlier decision in Faitoute Iron & Steel
Co. v. City of Asbury Park,49 which, according to the Court, was
the "only time in this century that alteration of a municipal bond contract has
been sustained."50 Faitoute involved a
state municipal reorganization act under which bankrupt local governments could
be placed in receivership by a state agency. Pursuant to that act,
the holders of certain municipal revenue bonds received new securities bearing
lower interest rates and later maturities. According to the Court in
U.S. Trust, the
earlier decision rejected the dissenting bondholders' Federal Contract Clause
claims on the theory that the "old bonds represented only theoretical rights; as
a practical matter the city could not raise its taxes enough to pay off its
creditors under the old contract terms," and thus the plan "enabled the city to
meet its financial obligations more effectively."51 The U.S. Trust Court
further quoted Faitoute to the
effect that the obligation in that case was "discharged, not impaired" by the
plan.52
The
Court's opinion in Winstar, even though
not a Federal Contract Clause case, is consistent with U.S. Trust in
imposing a more rigorous standard of justification where the government is a
contracting party. One issue in Winstar was whether
the contract claim was barred by the "sovereign acts" doctrine, i.e., the government's
"public and general" acts cannot amount to a breach of
contract. Although the legislation alleged to constitute a
contractual breach had as its purposes "preventing the collapse of the [thrift]
industry, attacking the root causes of the crisis, and restoring public
confidence",53 the Court held a "sovereign acts"
defense was unavailable: "[w]hile our limited enquiry into the
background and evolution of the thrift crisis leaves us with the understanding
that Congress acted to protect the public in the FIRREA legislation, the extent
to which this reform relieved the Government of its own contractual obligations
precludes a finding that the statute is a ‘public and general' act for purposes
of the sovereign acts defense."54
Thus, the
relevant case law demonstrates that a state bears a substantial
burden when attempting to justify an impairment of a contract to
which it is a party. A mere recitation that the impairment is in the
public interest is insufficient. Instead, a specific and significant
state interest must be established, and the impairment must be necessary to
further that interest. Furthermore, "a state is not free to impose a
drastic impairment when an evident and more moderate course would serve its
purposes equally well."55
II. Relief
Granted in a Federal Contract Clause Challenge
A. Permanent
Injunctive Relief
In a
Federal Contract Clause challenge to Legislative Action alleged to cause an
Impairment, the remedies which the plaintiff would be expected to seek are (i) a
declaration of the invalidity of such Legislative Action and (ii) an order
permanently enjoining State officials from enforcing the provisions of such
Legislative Action; a claim for money damages against the State would appear
less likely. Whether such a declaration of invalidity could be
obtained will depend on application of the principles discussed in Part I, as
well as a demonstration that such law effected a substantial
impairment. If such a declaration were obtained, the plaintiff would
then have to meet several requirements in order to obtain a permanent
injunction. Texas law would govern the requirements for issuance of a
permanent injunction if the case were brought in State court,56 while federal law would govern
those requirements if the case were brought in federal court.57 The following discussion relates
to federal law only.
Federal
case law applies the following test in determining whether to grant permanent
injunctive relief: (i) success on the merits of the claim;58 (ii) a demonstration of
irreparable harm; (iii) a showing of the inadequacy of legal remedies; and (iv)
a determination that granting the injunction will not disserve the public
interest.59 The first requirement,
a showing of likely success on the merits of the claim, will have been satisfied
by obtaining the aforementioned declaration of the invalidity of such
Legislative Action.60 The party seeking a
permanent injunction must also establish that it has no adequate remedy at law,
for example, money damages. It seems doubtful that the Bondholders
(or the Indenture Trustee acting on their behalf) could obtain adequate money
damages from the State or its officials.61 Such party must further
show that without permanent injunctive relief, it would suffer irreparable
harm. The "irreparable harm" and "inadequate legal remedies" tests
are closely related. However, one way to distinguish the two tests is
to interpret the "irreparable harm" requirement to mean that the wrongful act be
of a continuing nature, as opposed to a one-time denial of rights.62 It appears to us that
any substantial Impairment would, in all likelihood, constitute a transgression
of a continuing nature supporting the grant of permanent injunctive
relief. For example, the Fifth Circuit has acknowledged that a
federal court may enjoin state officials from enforcing an unconstitutional
statute under certain "unusual" circumstances that require equitable
relief. In Let's Help Florida v.
McCrary,63 the Fifth Circuit upheld the
issuance of an injunction against enforcement of two statutes limiting political
contributions because the timing of the next election, which was to be held a
few weeks later, meant that the plaintiffs would suffer an irreparable loss of
their First Amendment rights if they were barred from making contributions that
they were constitutionally permitted to make. Had the court refused
to provide equitable relief while awaiting a trial on the merits, the plaintiffs
would have permanently lost their opportunity to affect the outcome of that
election through their contributions. The court ruled that such a
situation constituted the necessary unusual circumstances that could justify
equitable relief. For the reasons stated above, we believe that a
substantial Impairment in this case would constitute the unusual circumstances
that are required for the grant of permanent injunctive relief from a court
sitting in the Fifth Circuit.
B. Preliminary Injunctive
Relief
Whether a
preliminary injunction delaying implementation of Legislative Action being
challenged under the Federal Contract Clause as a substantial Impairment could
be obtained by the Bondholders (or the Indenture Trustee acting on their behalf)
pending an adjudication on the merits of such claim will depend on several
considerations. As noted in subpart B of this Part II with respect to
the availability of permanent injunctive relief, an action challenging such
Legislative Action, and therefore an accompanying request for preliminary
injunctive relief, could be brought in either a Texas court or a federal court,
and Texas law or federal law, respectively, would provide the basis for
determining whether such relief should be granted.64 The following
discussion relates to federal law only.
The
function of preliminary injunctive relief is to preserve the latest uncontested
status quo prior to the action which is the subject of the legal challenge.65 The latest uncontested
status quo with respect to the Bonds prior to the challenged Legislative Action
would appear to be the continued effectiveness of the Order and the validity of
the Transition Property and Charges. The factors considered by
federal courts in ruling on a request for preliminary injunctive relief are: (i)
the party seeking relief must show a substantial likelihood of success on the
merits; (ii) such party will suffer a substantial threat of irreparable injury
if the preliminary injunction is not granted; (iii) the threatened injury to the
plaintiff outweighs the injury the injunction would cause to the defendant; and
(iv) the injunction must not be adverse to the public interest.66 The third part of the
test, the balancing of hardships, is often done on a "sliding scale"
basis: the showing of hardship required by a party seeking relief is
inversely related to the strength on the merits of such party's claims.67
Assuming
that the injunction is not adverse to the public interest, that the Federal
Contract Clause claim appears to the court to be meritorious (based on the
application of the principles discussed in Part I), and further assuming that
the challenged Legislative Action effects a substantial Impairment, the
requirement of likelihood of success on the merits should be
met. However, decisions in several federal courts have found that a
delay in the scheduled receipt of payments until final judgment is not the type
of "irreparable harm" which a preliminary injunction seeks to prevent, absent
countervailing circumstances -- such as the possibility that such delay could
result in the insolvency or the destruction of the business of the party seeking
the preliminary injunction or could result in the other party's insolvency
(thereby rendering a judgment worthless).68 Notwithstanding these
decisions, there are arguments why payment delays on the Bonds should be
accepted as "irreparable harm," and why the Bondholders would experience greater
harm if preliminary injunctive relief were denied than any other party would
suffer if it were granted. For example, if imposition and collection
of the Charges, and accordingly payments to the Issuer, were stopped or reduced,
the ratings on the Bonds would likely be downgraded, causing a loss of value in
the Bonds and possibly causing institutional Bondholders to sell their Bonds at
depressed market prices, and Bondholders could experience delays or omissions in
the receipt of payments of interest or principal on their Bonds. In
addition, any such loss on sale or additional interest due the Bondholders as
the result of the payment interruption probably could not be recovered from the
likely defendant (the State) in the proceeding on the merits.
III. Federal
Takings Clause
A. Analysis
The
Federal Takings Clause --- "nor shall private property be taken for public use,
without just compensation." --- is made applicable to state action
via the Fourteenth Amendment.69 The Federal
Takings Clause covers both tangible and intangible property.70 Rights under
contracts can be property for purposes of the Federal Takings Clause71, but legislation that "disregards
or destroys" contract rights does not always constitute a taking.72 Where
intangible property is at issue, state law will determine whether a property
right exists. Based on the opinion of Clark, Thomas & Winters, a
Professional Corporation of even date herewith with respect to constitutional
issues under the "takings" clause of the Texas State Constitution, it is our
understanding that the Transition Property would be treated as a property
interest under Texas law, and it is therefore our belief that the Transition
Property would constitute a cognizable property interest for purposes of the
Federal Takings Clause. If a court determines that an intangible
asset is property, a court will next look to whether the owner of the property
interest had a "reasonable investment-backed expectation" that the property
right would be protected.73
The
United States Supreme Court has suggested that the Federal Takings Clause may be
implicated by a diverse range of government actions, including when the
government (a) permanently appropriates or denies all economically productive
use of property74; (b) destroys property other than
in response to emergency conditions75; or (c) reduces, alters or impairs
the value of property so as to unduly interfere with reasonable
investment-backed expectations.76 In determining what is
an undue interference, a court would consider the nature of the governmental
action and weigh the public purpose served thereby against the degree to which
it interferes with legitimate property interests and distinct investment-backed
expectations of the Bondholders.
In Lingle,77 the Supreme Court identified two
categories where regulatory action constitutes per se takings – regulations that
involve a permanent physical invasion of property and regulations that deprive
the owner of all economically beneficial use of the property – plus a third
category of other regulatory takings. In cases in this third
category, the Supreme Court has eschewed any set formula and has relied instead
on "ad hoc, factual inquiries into the circumstances of each particular
case."78 According to the Connolly decision, a
regulation constitutes a taking if it denies a property owner "economically
viable use" of that property, which is determined by three
factors: (i) the character of the governmental action; (ii) the
economic impact of the regulation on the claimant; and (iii) the extent to which
the regulation has interfered with distinct investment-backed expectations.79
The first
factor described above requires the court to examine "the purpose and importance
of the public interest reflected in the regulatory imposition" and "to balance
the liberty interest of the private property owner against the Government's need
to protect the public interest through imposition of the restraint."80
The
second factor described above incorporates the principle enunciated by Justice
Holmes: "Government hardly could go on if to some extent values
incident to property could not be diminished without paying for every such
change in the general law."81 "Not every destruction
of injury to property by governmental action has been held to be a ‘taking' in
the constitutional sense."82 Diminution in property
value alone, thus, does not constitute a taking; there must be serious economic
harm.
The third
factor described above is "a way of limiting recovery under the Federal Takings
Clause to owners who could demonstrate that they bought their property in
reliance on a state of affairs that did not include the challenged regulatory
regime."83 The burden
of showing such interference is a heavy one.84 Thus, a
reasonable investment-backed expectation "must be more than a ‘unilateral
expectation or an abstract need."85 Further, "[l]egislation adjusting
rights and burdens is not unlawful solely because it upsets otherwise settled
expectations."86 "[T]he fact that
legislation disregards or destroys existing contractual rights does not always
transform the regulation into an illegal taking…. This is not to say
that contractual rights are never property rights or that the Government may
always take them for its own benefit without compensation."87 In order to sustain a
claim under the Federal Takings Clause, the private party must show that it had
a "reasonable expectation" at the time the contract was entered that it "would
proceed without possible hindrance" arising from changes in government
policy.88 With
respect to this third factor, we note that the Securitization Law expressly
provides for the creation of transition property in connection with the issuance
of the Bonds, and further provides that the Order, once final, is
irrevocable. Moreover, through the State Pledge, the State has
pledged, "for the benefit and protection of financing parties" not to impair the
value of such Transition Property. Given the foregoing, we believe it
would be hard to dispute that Bondholders have reasonable investment
expectations with respect to their investments in the Bonds.
We are
not aware of any case law which addresses the applicability of the Federal
Takings Clause in the context of the proper exercise by a state of its police
power to abrogate or impair contracts otherwise binding on the
state. The outcome of any claim that interference by the State with
the value of the Transition Property without compensation is unconstitutional,
would likely depend on factors such as the State interest furthered by that
interference and the extent of financial loss to Bondholders caused by that
interference, as well as the extent to which courts would consider that
Bondholders had a reasonable expectation that changes in government policy and
regulation would not interfere with their investment.
B. Conclusion
Based on
our analysis of relevant judicial authority, as set forth above, it is our
opinion, subject to all of the qualifications, limitations and assumptions set
forth in this letter, that, under the Federal Takings Clause, a reviewing court
would hold that the State would be required to pay just compensation to
Bondholders if the State's repeal or amendment of the Securitization Law or
taking of any other action by the State in contravention of the State Pledge (a)
constituted a permanent appropriation of a substantial property interest of the
Bondholders in the Transition Property or denied all economically productive use
of the Transition Property; (b) destroyed the Transition Property other than in
response to emergency conditions; or (c) substantially reduced, altered or
impaired the value of the Transition Property so as to unduly interfere with the
reasonable expectations of the Bondholders arising from their investments in the
Bonds. As noted earlier, in determining what is an undue
interference, a court would consider the nature of the governmental action and
weigh the public purpose served thereby against the degree to which it
interferes with the legitimate property interests and distinct investment-backed
expectations of the Bondholders. There can be no assurance, however,
that any such award of just compensation would be sufficient to pay the full
amount of principal of and interest on the Bonds.89
* * * *
*
We note
that judicial analysis of issues relating to the Federal Contract Clause and the
retroactive effect to be given to judicial decisions has typically proceeded on
a case-by-case basis and that the court's determination, in most instances, is
usually strongly influenced by the facts and circumstances of the particular
case. We further note that there are no reported controlling judicial
precedents of which we are aware directly on point. Our analysis is necessarily
a reasoned application of judicial decisions involving similar or analogous
circumstances. Moreover, the application of equitable principles
(including the availability of injunctive relief or the issuance of a stay
pending appeal) is subject to the discretion of the court which is asked to
apply them. We cannot predict the facts and circumstances which will
be present in the future and may be relevant to the exercise of such
discretion. Consequently, there can be no assurance that a court will
follow our reasoning or reach the conclusions which we believe current judicial
precedent supports. It is our and your understanding that none of the
foregoing opinions is intended to be a guaranty as to what a particular court
would actually hold; rather each such opinion is only an expression as to the
decision a court ought to reach if the issue were properly prepared and
presented to it and the court followed what we believe to be the applicable
legal principles under existing judicial precedent. The recipients of this
letter should take these considerations into account in analyzing the risks
associated with the subject transaction.
Any
opinion expressed herein with respect to enforceability is subject to the
qualifications, limitations and assumptions set forth in the Bankruptcy
Opinion.
This
letter is limited to the federal laws of the United States of
America.
This
letter is being delivered solely for the benefit of the persons to whom it is
addressed; accordingly, it may not be quoted, filed with any governmental
authority or other regulatory agency or otherwise circulated or utilized for any
other purpose without our prior written consent. We hereby consent to
the filing of this letter as an exhibit to the Form 8-K filed on November 6,
2009 with respect to the above-referenced Registration Statement filed on Form
S-3 with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of the Bonds and to all references to our firm included in or made
a part of the Registration Statement. In giving the foregoing
consents, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act or the related
rules and regulations of the Commission. We assume no obligation to
update or supplement this letter to reflect any facts or circumstances which may
hereafter come to our attention with respect to the opinions or statements
expressed above, including any changes in applicable law which may hereafter
occur.
Very
truly yours,
/s/
Sidley Austin LLP
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2
|
As discussed in more detail in
the opinion of Clark, Thomas & Winters, a Professional Corporation of
even date herewith, the PUCT has acknowledged that it is bound by the
State Pledge. Assuming that the PUCT is bound by the State
Pledge as a matter of Texas law, a breach of the State Pledge by the PUCT
exercising legislative powers would be treated the same as a breach of the
State Pledge by the Legislature under the Federal Contract
Clause.
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3
|
Article
I, Section 10, provides, in relevant part, “No State shall . . . pass any
bill of attainder, ex post facto law, or law impairing the obligation of
contracts, . . . .” U.S. Const. art. I, 10. Please
see opinion of Clark, Thomas & Winters, a Professional Corporation, of
even date herewith, with respect to the Contract Clause in the Texas
Constitution.
|
|
4
|
See United States Trust
Co. of New York v. New Jersey, 431 U.S. 1, 15 (1977) (cited in the
text as “U.S.
Trust”).
|
|
6
|
Energy Reserves Group,
Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983)
(cited in the text as “Energy
Reserves”) (citing Home Bldg. & Loan
Ass'n v. Blaisdell, 290 U.S. 398, 434 (1934) (cited in the text as
“Blaisdell”)).
|
|
7
|
Energy Reserves Group,
Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411-12
(1983). See also Toledo Area AFL-CIO
Council v. Pizza, 154 F.3d 307, 323 (6th Cir. 1998) (stating the
three-part analysis).
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|
10
|
We
note, however, that in U.S. Trust the
United States Supreme Court found a substantial impairment where the
States of New York and New Jersey repealed outright an ”important
security provision” securing repayment of bonds without any form of
compensation to the bondholders, even in the absence of a finding of the
extent of financial loss suffered by the bondholders as a result of the
repeal. 431 U.S. 1, 19 (1977). See also Home Bldg. & Loan
Ass'n v. Blaisdell, 290 U.S. 398,
429-35 (1934).
|
|
11
|
National R.R.
Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470
U.S. 451, 466 (1985) (cited in the text as “Nat'l
R.R.”) (quoting Dodge v. Board of
Educ., 302 U.S. 74, 78 (1937) (cited in the text as “Dodge”)).
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13
|
See Indiana ex rel.
Anderson v. Brand, 303 U.S. 95, 104-05 (1938) (cited in the text as
“Brand”)
(noting “the cardinal inquiry is as to the terms of the statute supposed
to create such a contract”); United States Trust
Co. of New York v. New Jersey, 431 U.S. 1, 18
(1977).
|
|
16
|
Id. at
17. Although the issue of whether a contract existed between
such states and the bondholders was never disputed on appeal, the Court
reviewed the language of the covenant and the circumstances surrounding
the covenant, and stated, “We therefore have no doubt that the 1962
covenant has been properly characterized as a contractual obligation of
the two States.” Id. at
18.
|
|
17
|
See National R.R.
Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470
U.S. 451, 470 (1985).
|
|
18
|
Indiana ex rel.
Anderson v. Brand, 303 U.S. 95, 105
(1938). However, the mere use of the word “contract” in a
statute will not necessarily evince the requisite legislative
intent. As the Court cautioned in Nat'l R.R., the
use of the word “contract” alone would not signify the existence of a
contract with the
government. National R.R.
Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470
U.S. 451, 470 (1985). In Nat'l R.R., the
Court found that use of the word “contract” in the Rail Passenger Service
Act defined only the relationship between the newly-created
nongovernmental corporation (Amtrak) and the railroads, not the
relationship between the United States and the railroads. The Court
determined that “[l]egislation outlining the terms on which private
parties may execute contracts does not on its own constitute a statutory
contract.” Id., at
467.
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|
19
|
It
could be contended that the factual situation in the U.S. Trust case
is distinguishable from the factual situation surrounding the issuance of
the Bonds. In U.S. Trust, the
bonds were issued by the Port Authority -- a governmental agency -- while
the Bonds are being issued by a private entity. However, PURA
dictates that a utility must obtain a
financing order before any “transition bonds” such as the Bonds are
issued. The authority to issue such an order rests with the
State, acting through the PUCT, and therefore the issuance of the Bonds is
state-sanctioned in a manner closely analogous to the situation in U.S.
Trust.
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21
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In addition to the State Pledge,
the PUCT's financing order contains the following language: “The
Commission guarantees that it will act pursuant to this Financing Order as
expressly authorized by PURA to ensure that expected transition charge
revenues are sufficient to pay on a timely basis scheduled principal and
interest on the transition bonds issued pursuant to this Financing Order
and other costs, including fees and expenses, in connection with the
transition bonds.” We refer you to the opinion with respect to
constitutional law issues of Clark, Thomas & Winters, a Professional
Corporation of even date herewith for a discussion of this
language.
|
|
23
|
Id. See generally United States v.
Winstar Corp., 518 U.S. 839, 888-90 (1996) (cited in the text as
“Winstar”).
|
|
31
|
The
mortgagor was required to continue to pay the reasonable income or rental
value of the property, as determined by the court, toward payment of
taxes, insurance, interest and principal. The law stated that
it was to remain in effect only during the current emergency and no later
than May 1, 1935; no redemption period could be extended beyond the
expiration of the law. Home Bldg. & Loan
Ass'n v. Blaisdell, 290 U.S. at
415-18.
|
|
33
|
Id. at
444-47. Contemporaneous cases in which the United States
Supreme Court struck down laws passed in response to an economic emergency
reinforce the notion that, to be justified, the impairment must be a
reasonable and specific response to the conditions. See Treigle v. Acme
Homestead Ass'n, 297 U.S. 189 (1936); W.B. Worthen Co.
v. Kavanaugh, 295 U.S. 56 (1935) (cited in the text as “Worthen”);
W.B. Worthen Co.
v. Thomas, 292 U.S. 426
(1934).
|
|
35
|
Allied Structural
Steel Co. v. Spannaus, 438 U.S. 234, 250 (1978) (cited in the text
as “Spannaus”).
|
|
36
|
Keystone Bituminous
Coat Ass'n v. DeBenedictis, 480 U.S. 470 (1987) (cited
in the text as “DeBenedictis”). The
decision involved a 1966 Pennsylvania law which authorized a state agency
to revoke a coal mine operator's mining permit if removal of the coal
caused damage to a structure or area protected by the law and the operator
had not within six months taken certain remedial
action. Several mine operators claimed that the law impaired
their rights to enforce contractual waivers by the owners of
the affected surface rights of any claims for liability due to surface
damage. While agreeing that the 1966 law operated as a
substantial impairment of the operators' contracts, the Court held that
the state had a strong public interest in preventing the damage caused by
underground mining, “the environmental effect of which transcends any
private agreement between contracting parties.” 480 U.S. at
505. Since 1966, the operators had conducted mining operations
under approximately 14,000 structures protected by the law. The
Court noted the “devastating effects” of subsidence caused by underground
mining, including substantial damage to foundations, walls and other
structural members, and the integrity of houses and buildings; sinkholes
which made land difficult or impossible to develop or farm; and loss of
groundwater and surface ponds. Id. at
475. The Court concluded that the law “plainly survives
scrutiny under our standards for evaluating impairments of private
contracts.” Id. at
505-06.
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|
37
|
Energy Reserves Group,
Inc. v. Kansas Power & Light Co., 459 U.S. 400, 412-13 n.14
(1983); Allied
Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 n.15
(1978). See also United States v.
Winstar Corp., 518 U.S. 839, 876 (1996) (noting “heightened
Contract Clause scrutiny when States abrogate their own contractual
obligations”).
|
|
38
|
Energy Reserves Group,
Inc. v. Kansas Power & Light Co., 459 U.S. 400, 412 n.14 (1983)
(citing United
States Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977);
W.B. Worthen Co.
v. Kavanaugh, 295 U.S. 56 (1935); and Murray v.
Charleston, 96 U.S. 432 (1878) (cited in the text as “Murray”)). In
Worthen,
the United States Supreme Court reversed a decision of the Arkansas
Supreme Court upholding the validity of legislative enactments which, in
the words of the former, take “from [the] mortgage [securing bonds issued
by municipal improvement districts pursuant to state law] the quality of
an acceptable investment for a rational investor” by making it much more
difficult and time consuming to foreclose upon the collateral posted as
security for the mortgage. 295 U.S. at 60. Such
enactments were accompanied by a legislative “declaration of an emergency,
which was stated to endanger the peace, health and safety of a multitude
of citizens.” In Murray, the
United States Supreme Court reversed a judgment of the Supreme Court of
South Carolina upholding an ordinance of the City of Charleston which
permitted the City to withhold, as a tax, a portion of the interest that
was otherwise payable with respect to bonds issued by the
City. This “tax” was held to violate the Federal Contract
Clause: “no municipality of a State can, by its own ordinances,
under the guise of taxation, relieve itself from performing to the letter
all that it has expressly promised to its creditors.” 96 U.S.
at 448.
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|
41
|
Id. at
28-29. The Court noted that when the bills to repeal the
covenant were pending “a national energy crisis was
developing.” Id. at
13-14.
|
|
49
|
Faitoute Iron &
Steel Co. v. City of Asbury Park, 316 U.S. 502 (1942) (cited in the
text as “Faitoute”).
|
|
56
|
Please
see the Clark, Thomas & Winters, a Professional Corporation opinion,
of even date herewith, for an analysis of Texas law and permanent
injunctive relief.
|
|
57
|
However,
if the case is brought to federal court via diversity jurisdiction, it is
possible that the federal court would use state law in deciding
whether or not to issue an
injunction.
|
|
58
|
Sierra Club, Lone Star
Chapter v. FDIC, 992 F.2d 545, 551 (5th Cir.), reh'g denied, 3 F.3d
441 (5th Cir. 1993).
|
|
59
|
Beacon Theatres, Inc.
v. Westover, 359 U.S. 500, 506-07 (1959); Calmes v. United
States, 926 F. Supp. 582, 591 (N.D. Tex. 1996); Wenner v. Texas
Lottery Comm'n, 123 F.3d 321, 325 (5th Cir.
1997).
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61
|
Examples of hurdles to the
receipt of such damages might include, but are not limited to, State
sovereign immunity to suit in a particular forum, State administrative
procedures for filing claims, legislative refusal to appropriate funds to
pay a damages award, and the limited funds available to State
officials.
|
|
62
|
United States v. W.T.
Grant Co., 345 U.S. 629, 633 (1953); Posada v. Lamb County,
Texas, 716 F.2d 1066, 1070 (5th Cir. 1983) (“. . . to win [a
permanent injunction], a petitioner must show a clear threat of continuing
illegality portending immediate harmful consequences irreparable in any
other manner”) (emphasis added); Shanks v. City of
Dallas, 752 F.2d 1092, 1097 (5th Cir.
1985).
|
|
63
|
61
F.2d 195, 199 (5th Cir. 1980) (“A federal court may enjoin state officials
from enforcing an unconstitutional statute. . . . An injunction
is proper in this case because no legal remedy could correct the
irreparable injury to plaintiffs' first amendment rights, important for an
election only weeks away.”); but see Wightman v. Texas
Supreme Court, 84 F.3d 188, 191 (5th Cir. 1996) (“The possible
unconstitutionality of a statute ‘on its face' does not in itself justify
an injunction against good faith attempts to enforce it,” especially
absent “any showing of bad faith, harassment, or any other unusual
circumstance that would call for equitable relief.”) (quoting Younger v.
Harris, 401 U.S. 37, 53-54
(1971)).
|
|
64
|
Once
again, if the case enters federal court via diversity jurisdiction, the
federal court may use Texas law in deciding whether to issue an
injunction.
|
|
65
|
Univ. of Texas v.
Camenisch, 451 U.S. 390, 395 (1981) (“The purpose of a preliminary
injunction is merely to preserve the relative positions of the parties
until a trial on the merits can be held.”); Wenner, 123
F.3d at 326 (“Preliminary injunctions commonly favor the status quo and
seek to maintain things in their initial condition so far as possible
until after a full hearing permits final relief to be
fashioned.”).
|
|
66
|
Sierra Club v. Fed.
Deposit Ins. Corp., 992 F.2d 545, 551 (5th Cir. 1993); DFW Vending, Inc. v.
Jefferson County, Texas, 991 F. Supp. 578, 587 (E.D. Tex.
1998).
|
|
67
|
Texas v. Seatrain
Int'l, S.A., 518 F.2d 175, 180 (5th Cir. 1975) (“[the inability to
prove with certainty eventual success on the merits] does not foreclose
the possibility that temporary restraint may be appropriate. .
. . the importance and nature of the requirement can vary
significantly, depending upon the magnitude of the injury which would be
suffered . . . and the relative balance of the threatened hardship faced
by each of the parties. . . . [N]one of the four prerequisites
has a fixed quantitative value. Rather, a sliding scale is
utilized, which takes into account the intensity of each in a given
calculus.”); Hunt v. Commodity
Futures Trading Comm'n, 93 B.R. 484, 492 (N.D. Tex 1988); Apple Barrel
Productions, Inc. v. Beard, 730 F.2d 384, 398, n.11 (5th Cir.
1984).
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|
68
|
See, e.g., Centurion Reinsurance
Co. v. Singer, 810 F.2d 140 (7th Cir. 1987); Roland Mach. Co. v.
Dresser Indus., Inc., 749 F.2d 380, 386 and n.1 (7th Cir.
1984). Federal courts with jurisdiction over Texas have
similar, if less explicit, case law. See also, Federal Savings &
Loan Insurance Corp. v. Dixon, 835 F.2d 554, 560 (5th Cir. 1987)
(holding that while, generally, injunctions are not permissible to secure
post-judgment damages, because such an injunction would be acting as a
prejudgment attachment, which is subject to state law under Fed. R. Civ.
P. 64, equitable powers are “extremely flexible” and an injunction may
issue under some circumstances in order to prevent difficulty in
collecting a damage judgment, such as an injunction preventing a corporate
defendant from selling its assets in such a way that it could be
impossible for a winning plaintiff to subsequently collect those
assets).
|
|
69
|
Webb's Fabulous
Pharmacies v. Beckwith, 449 U.S. 155, 160
(1980).
|
|
70
|
Ruckelshaus v.
Monsanto Co., 467 U.S. 986, 1003 (1984). The Monsanto case
involved a federal law requiring disclosure of certain data related to
Monsanto products. The Supreme Court was asked to determine
whether Monsanto had a property interest in this information as a trade
secret and whether that property interest was protected under the Federal
Takings Clause. One focus of the Supreme Court's analysis was
whether Monsanto had a reasonable investment-backed expectation in the
privacy of this property. The Court concluded that at most
times prior to the enactment of the law and at all times after the
enactment of the law, Monsanto did not have and would not have a
reasonable expectation that its information would be kept
private. However, the Court noted for a six year period from
1972 to 1978, federal law had provided that an entity submitting
information to the government could designate such information as a trade
secret and that federal law guaranteed such information would be kept a
secret. Accordingly, the Court concluded that with respect to
such information designated as a trade secret from 1972 to 1978, Monsanto
had a property interest that was protected by the Federal Takings
Clause.
|
|
74
|
Connolly v. Pension
Benefit Guar. Corp., 475 U.S. 211, 225 (1986) (noting that in that
case the government did not “permanently appropriate” any of the
employer's assets for its own use) (cited in the text as “Connolly”);
Palazzolo v.
Rhode Island, 533 U.S. 606, 617 (2001)(“regulation which ‘denies
all economically beneficial or productive use of land' will require
compensation under the Takings Clause”) (citing Lucas v. South
Carolina Coastal Council, 505 U.S. 1003, 1015 (1992), which notes
that for personal property, however, some regulations that limit use of
personal property may not be compensable takings given the state's
“traditionally high degree of economic control over commercial dealings”);
United
States v. Security Indus. Bank, 459 U.S. 70, 77 (1982) (citing
Armstrong v.
United States, 364 U.S. 40, 48 (1960) (“The total destruction by
the Government of all values of these liens, which constitute compensable
property, has every possible element of a Fifth Amendment ‘taking' and is
not a mere ‘consequential incidence' of a valid regulatory
measure”)); See also Lingle v. Chevron
USA, 544 U.S. 528, 538 (2005) (noting that regulatory action will
be deemed a per se taking of property if it requires an owner to suffer a
“permanent” physical invasion of property or completely deprives the owner
of all
economically beneficial use of such property) (cited in the text as “Lingle”). The
Supreme Court has also held that legislation that terminates a property
interest can be considered a taking for which compensation is
due. Hodel v.
Irving, 481 U.S. 704 (federal law escheating certain fractional
interests in tribal property to an Indian tribe was a compensable
taking). See also 2 Rotunda
and Nowack, Treatise on
Constitutional Law: Substance and Procedure 746 (3d ed.
1999).
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75
|
The
emergency exception to the just compensation requirement of the Federal
Takings Clause appears in several Supreme Court
decisions. See generally
Rotunda and Novack Volume 2 at 738. Several of these decisions
involve the government's activities during military
hostilities. See, e.g., United States v.
Caltex, Inc., 344 U.S. 149 (1952) (no compensable taking when Army
destroys property to prevent enemy forces from obtaining it); United States v. Cent.
Eureka Mining Co., 357 U.S. 155 (1958) (no compensable taking when
government forces gold mines to cease operations to conserve resources for
war effort); Nat'l Bd. of Young
Men's Christian Ass'ns v. United States, 395 U.S. 85 (1969) (no
compensable taking where private property destroyed when US troops take
shelter there). Compare United States v. Pewee
Coal Co., 341 U.S. 114 (1951)(compensable taking when occupation is
physical rather than regulatory, emergency
notwithstanding). The emergency exception is not limited to
wartime activities, however. See, e.g., Miller v.
Schoene, 276 U.S. 272 (1928)(no compensable taking where trees
destroyed to prevent disease from spreading to other trees); Dames & Moore v.
Regan, 453 U.S. 654 (1981) (no compensable taking resulting from
executive order nullifying attachments on Iranian assets and permitting
those assets to be transferred out of the country). The
emergency exception is not limited to the physical destruction of property
by the government, see Cent. Eureka
Mining, 357 U.S. at 168, but the Supreme Court has suggested it
does not apply to physical occupation of property, see Pewee, 341 U.S.
at 116-17, or permanent appropriation, see Lingle, 544
U.S. at 538, both of which constitute a per se
taking. Moreover, we believe that a permanent appropriation of
property by the government would be generally inconsistent with the
concept of an “emergency”. See Cent. Eureka
Mining, 357 U.S. at 168 (describing wartime restrictions as
“temporary in character”).
|
|
76
|
Connolly v. Pension
Benefit Guar. Corp., 475 U.S. 211, 225 (1986)(nothing that one
point of Federal Takings Clause analysis is “the extent to which the
regulation has interfered with distinct investment-backed expectations”))
(citing Penn
Cent. Transp. Co. v. New York, 438 U.S. 104, 124 (1978)); United States v. Cent.
Eureka Mining Co., 357 U.S. 155 (1958), rehearing denied 358 U.S.
858 (1958) (no compensable taking when government forces gold mines to
cease operations to conserve resources for war
effort).
|
|
78
|
Connolly v. Pension
Benefit Guar. Corp., 475 U.S. 211, 224 (1986); Penn Central Transp.
Co. v. City of New York, 438 U.S. 104, 124
(1978).
|
|
79
|
Connolly v. Pension
Benefit Guar. Corp., 475 U.S. 211, 224 (1986) (citing
Penn Central
Transp. Co. v. New York, 438 U.S. 104, 124
(1978)).
|
|
80
|
Loveladies Harbor,
Inc. v. United States, 28 F.3d 1171, 1176 (Fed. Cir. 1994); see Keystone Bituminous
Coal Ass'n v. DeBenedictis, 480 U.S. 470
(1987).
|
|
81
|
Penn Coal Co. v.
Mahon, 260 U.S. 393 (1922); Loveladies Harbor,
Inc. v. United States, 28 F.3d 1171, 1176-77 (Fed. Cir.
1994).
|
|
82
|
Armstrong v. United
States, 364 U.S. 40, 48
(1960)
|
|
88
|
Chang v. United
States, 859 F. 2d 893, 897 (Fed Cir.
1988).
|
|
89
|
We
express no opinion as to whether any court would have or exercise
jurisdiction to hear such a Federal Taking Clause challenge, when such a
challenge would be ripe, or whether the State would be entitled to assert
sovereign immunity in a particular forum. As to the question of
sovereign immunity, to the extent that there is a taking without just
compensation and just compensation is unavailable through State or federal
procedures, Bondholders (or the Indenture Trustee on their behalf) or the
Issuer could seek to enjoin enforcement of the State action by suing
individual officers under Ex Parte Young,
209 U.S 123 (1908) and 42 U.S.C.
§1983.
|
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