Howe v. Big Horn Electric Cooperative, Inc.

No. 83-85

I N THE SUPREME COURT O THE STATE O M N A A
F F OTN

1983

BETH HOWE,

P l a i n t i f f and A p p e l l a n t ,

-vs-

B I G HORN ELECTRIC COOPERATIVE, I N C . ,

D e f e n d a n t and R e s p o n d e n t .

APPEAL FROM: D i s t r i c t Court of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e County o f B i g Born,
The H o n o r a b l e R o b e r t 13. PJilson, J u d g e p r e s i d i n g .

COUNSEL O RECORD:
F

For Appellant:

P a t t e n & Renz, B i l l i n g s , Montana
D. M i c h a e l E a k i n , Montana L e g a l S e r v i c e s , B i l l i n g s ,
Montana

F o r Respondent :

B e r t W. K r o n m i l l e r ; K r o n m i l l e r & S e y k o r a ,
H a r d i n , Montana

Submitted on B r i e f s : J u l y 1 4 , 1983
Decided: October 1 9 , 1983

Filed: ih.3 1 d /%3

-
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of
the Court.

This appeal involves the reasonableness of a Rural
Electric Cooperative's termination of service to a customer.
After a hearing in the District Court of the Thirteenth
Judicial District of the State of Montana in and for the
County of Big Horn, The Honorable Robert H. Wilson dismissed
the member's complaint.
Appellee Big Horn County Electric Cooperative, Inc.,
(hereinafter the Co-op) is a membership corporation
organized and existing under the Rural Electric and
Telephone Cooperative Act, Section 35-18-101, MCA, et. seq.,
and appellant is a member of the Co-op. On September 21,
1979, appellant executed an "Application for Membership and
for Electric Service," attempting to secure electric service
for the house she was renting south of Lodge Grass, Montana,
in an area served by the Co-op. The owner of the house,
appellant's landlord, had been supplied electricity by the
Co-op at the residence before he moved out and all the
necessary wiring and other hardware were in place. At the
time appellant applied for service, there was an outstanding
bill of approximately $270 which had been amassed by
appellant's landlord. Appellant agreed to be liable for and
pay $10 per month to reduce the delinquent bill, though the
record is unclear as to how the agreement came about.
Appellant claims she was required to agree to this
arrangement before she would be provided service, pursuant
to a Co-op policy, but the Co-op contends she offered to
make the payments. The application was approved and
appellant's electricity was turned on.
Appellant complied with the agreement through the
remainder of 1979 and 1980. However, it appears that she
lost her job in the winter of 1980-81 and began having
difficulty making the payments. The payments were not
always made on time, and instead of paying the extra $10 per
month she was only paying $1 over her own bill. After
sporadic payments in the spring of 1981, appellant received
a "Notice of Termination of Service and Demand for Payment"
on July 14, 1981. Appellant made one payment leaving the
unpaid portion at $41.83, and on July 18, 1981, her service
was disconnected.
This action was commenced on August 10, 1981, by
appellant, alleging that she was coerced into the agreement,
which amounted to extortion and an unfair trade practice in
violation of Sections 30-14-103 and 45-6-317, MCA. By her
complaint, appellant sought a temporary restraining order to
have her service reconnected, a declaratory judgment that
the Co-op's policy was illegal and an injunction to prevent
the Co-op from enforcing the policy. The temporary
restraining order and order to show cause was issued and a
hearing date set.
At the hearing, it was stipulated between counsel that
the issue upon which the case rested was whether "the
policies and by-laws of the Electric Cooperative regarding
the refusal of service based upon charges against the land
is valid and proper." The specific policy concerned is
commonly known as Policy Number 24A, which was adopted by
the Board of Trustees of the Co-op on March 13, 1979.
Policy 24A gives the manager of the Co-op the authority to
discontinue service to a member or customer who fails to pay
the fees incurred for the service. After certain documents
and facts were stipulated to and briefs filed, the case was
submitted to the District Court judge for his decision. On
November 12, 1982, the judge found that the policies, rules
and regulations of the Co-op were part of a binding contract
between the Co-op and appellant, and that the policy in
question was reasonable. The complaint was ordered
dismissed and from this order the appeal is taken.
Appellant has framed the issue thus: May a rural
electric cooperative make electric service to one customer
contingent upon payment of the delinquent bill of another
customer? This issue is not capable of resolution on the
District Court record as it stands.
The relationship between the Co-op and each member is
contractual in nature. Sutton v. Hunziker (1954), 75 Idaho
395, 272 P.2d 1012. The articles of incorporation, by-laws,
rules and regulations of the cooperative contain the
provisions of the contract, as the member agrees to be bound
by them in signing the application for membership. Such was
the case in the present controversy as the Co-op's
membership application provides that the member agrees to
"comply with, and be bound by the provisions of the articles
of incorporation and by-laws of the Cooperative, and such
rules and regulations as may from time to time be adopted by
the Cooperative." The rules, regulations and by-laws
adopted after the execution of this contract became a valid
part of the agreement.
While it is true that the member is bound by this
agreement, the articles, by-laws, rules and regulations of
the cooperative must be reasonable. Sutton, supra; Smith v.
Pickwick Electric Cooperative (1963), 212 Tenn. 62, 367
S.W.2d 775. Cooperatives hold a favored position in the
law. In Montana, rural electric cooperatives have limited
powers of eminent domain, Section 35-18-106(9), MCA; have
the right to conduct power lines across public
thoroughfares, Section 35-18-106(8), MCA; and are exempt
from Montana tax laws, Section 35-18-503, MCA. Conversely,
cooperative members are often in a disadvantageous position
with respect to the cooperative, as they are in rural areas
which are less likely to be serviced by a public utility and
must rely on the cooperative for power. In dealing with an
unreasonable rule, a member has the option of either
attempting to amend the adopted rule or to discontinue
service, both of which are inadequate remedies. This
inadequacy is exacerbated by the circumstances in the
present case where the member's residence is already
connected with the cooperative and finding an alternative
supply of electricity would be quite costly. This disparity
between the relative positions gives rise to an obligation
on the part of the Cooperative to deal in a reasonable
manner with its members. The Cooperative may not foist
either unreasonable rules or interpretations of rules on its
members simply because they have agreed to be bound by the
actions taken by the governing body. The adoption and
implementation of all rules must be done fairly and in a
reasonable manner with proper regard for the rights of the
member and his property.
Whether a rule is reasonable is a question of fact.
Sutton, supra. Likewise, the reasonableness of its
interpretation is a question of fact. In the present case,
the District Court found that the policy of the Co-op
allowing disconnection of service for nonpayment of fees was
reasonable. We do not disagree with this finding. However,
the dispositive issue in this case is not whether the policy
is reasonable, but whether its implementation was
reasonable. As stated above, this issue is not capable of
resolution on the present record.
From its order dismissing appellant's complaint, it
appears the District Court assumed that appellant agreed to
be liable for the prior customer's bill of her own volition,
making it reasonable for the Co-op to disconnect for
nonpayment. However as noted above, there is a basic
disagreement between the parties as to the facts and
circumstances surrounding appellant's signing the
application for electric service. Appellant contends she
was required to agree to pay the delinquent bill before she
would be provided service, but the Co-op claims she offered
to make the payments. The District Court did not hold a
hearing to determine whose contentions were correct, but
relied on a stipulation of facts submitted by the parties
which did not address the question either. Without first
making a finding of the pertinent facts, the District Court
erred by ruling that the Co-op acted reasonably. The
District Court must find whether the agreement to pay was
voluntary, or a result of unequal bargaining power to judge
the reasonableness of the Co-op's use of Policy 24A. It is
unreasonable for a Co-op to use its superior bargaining
position to force a prospective member to pay another
member's delinquent bill and terminate service for
nonpayment.
The District Court must further find whether appellant
was delinquent so as to justify the termination of service.
There was no finding of the amount of payments made, or
whether they were made in payment of her own bill or her
predecessor's bill. If the District Court finds that
appellant was unreasonably coerced into paying the prior
tenant's bill, such payments must be credited to her own
bill and then a determination of its status made. If the
District Court finds that appellant volunteered to pay the
prior tenant's bill, then the court must find that she was
delinquent to uphold the Co-op's termination of service.
Appellant raises a second issue, whether a rural
electric cooperative serving customers on Indian trust land
may require that the charges for electric service run with
the land.
It was stipulated that the residence in question is
located on the Crow Indian Reservation. The membership
application provides that the member agrees to a lien on the
property served to secure payment of the fees incurred.
However, the application expressly exempts Indian trust land
from this provision.
Reversed and remanded for further proceedings in
accordance with this opinion.

We concur:
(
w
1
Chief Justice
Justices
/