253 P.3d 38 (Okla. 2010), 107,468, Rural Water Sewer and Solid Waste Management, Dist. No. 1, Logan County, Oklahoma v. City of Guthrie

Docket Nº:107,468.
Citation:253 P.3d 38, 2010 OK 51
Opinion Judge:COLBERT, J.
Party Name:RURAL WATER SEWER AND SOLID WASTE MANAGEMENT, DISTRICT NO. 1, LOGAN COUNTY, OKLAHOMA, an agency and legally constituted authority of the State of Oklahoma, Plaintiff/Counter-Defendant/Appellee, v. CITY OF GUTHRIE, an Oklahoma Municipality; the Guthrie Public Works Authority, a public trust, Defendants/Counter-Claimants/Third-Party Plaintiffs/Appell
Attorney:James C. Milton and Courtney Bru, Doerner, Saunders, Daniel & Anderson, L.L.P., Tulsa, OK, for Defendants/Appellants City of Guthrie and the Guthrie Public Works Authority. Michael D. Davis, Steven M. Harris, Doyle Harris Davis & Haughey, Tulsa, OK, for Plaintiff/Appellee Rural Water, Sewer and S...
Judge Panel:CONCUR: EDMONDSON, C.J.; TAYLOR, V.C.J.; HARGRAVE, WATT, WINCHESTER, COLBERT, REIF, JJ. CONCUR IN RESULT: OPALA, KAUGER, JJ.
Case Date:June 29, 2010
Court:Supreme Court of Oklahoma
 
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253 P.3d 38 (Okla. 2010)

2010 OK 51

RURAL WATER SEWER AND SOLID WASTE MANAGEMENT, DISTRICT NO. 1, LOGAN COUNTY, OKLAHOMA, an agency and legally constituted authority of the State of Oklahoma, Plaintiff/Counter-Defendant/Appellee,

v.

CITY OF GUTHRIE, an Oklahoma Municipality; the Guthrie Public Works Authority, a public trust, Defendants/Counter-Claimants/Third-Party Plaintiffs/Appellants,

v.

Department of Agriculture, Third-Party Defendant/Appellee,

and

Community Program Loan Trust 1987A, a Massachusetts Business Trust, Third-Party Defendant.

No. 107,468.

Supreme Court of Oklahoma.

June 29, 2010

Rehearing Denied Jan. 31, 2011.

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[Copyrighted Material Omitted]

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CERTIFIED QUESTIONS OF LAW

¶ 0 The United States Court of Appeals for the Tenth Circuit certified two questions. Question One addresses whether article 5, section 51 of the Oklahoma Constitution precludes a rural water district from entering or enforcing loan agreements that contain protection from competition by other water districts. Question Two inquires as to whether there is a " police power" or " public safety" exception to the Oklahoma Constitution's article 5, section 51, prohibition against exclusive rights, privileges, or immunities that would validate a rural water district's loan agreement that included protection from competition during the term of the contract.

James C. Milton and Courtney Bru, Doerner, Saunders, Daniel & Anderson, L.L.P., Tulsa, OK, for Defendants/Appellants City of Guthrie and the Guthrie Public Works Authority.

Michael D. Davis, Steven M. Harris, Doyle Harris Davis & Haughey, Tulsa, OK, for Plaintiff/Appellee Rural Water, Sewer and Solid Waste Management District No. 1.

John C. Richter, United States Attorney, Steven K. Mullins & Kay Sewell, Assistant United States Attorneys, United States Attorney's

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Office, Oklahoma City, OK, for Third-Party Defendant/Appellee Department of Agriculture.

COLBERT, J.

¶ 1 The Rural Water, Sewer, and Solid Waste Management District No. 1 (Logan-1), filed an action in the Western District of Oklahoma against the City of Guthrie, an Oklahoma Municipality and the Guthrie Public Works Authority, a public trust (collectively Guthrie), claiming unlawful encroachment on its service area in an alleged violation of a federal law that protects rural water districts from competition while the district remains indebted on loans obtained from the United States Department of Agriculture (USDA). On appeal, the United States Court of Appeals for the Tenth Circuit certified two questions pursuant to the Revised Uniform Certification of Questions of Law Act, Okla. Stat. tit. 20, §§ 1601-1611 (2001):

1. Whether article 5, section 51 of the Oklahoma Constitution precludes Logan-1 from either entering into loan agreements with the USDA that include 7 U.S.C. section 1926(b)'s protection from competition, or enforcing its claimed section 1926(b) protection against other Oklahoma water districts?

2. If either is so, whether there is a " police power" or " public safety" exception to the Oklahoma Constitution's article 5, section 51 prohibition against exclusive rights, privileges, or immunities that would, nevertheless, validate Logan-1's loan agreements with the USDA that include section 1926(b) protection from competition in this case involving provision of a rural public water service?

After careful examination of the Oklahoma Rural Water Districts Act, Okla. Stat. tit. 82, §§ 1324.1 through 1324.35 (2001 & Supp.2009), under which the District was created, this Court finds no language purporting to grant an exclusive franchise by the Oklahoma Legislature to a district. Following the reasoning in Glenpool Util. Serv's Auth. v. Creek County Rural Water Dist. No. 2, 861 F.2d 1211 (10th Cir.1988), cert. den., 490 U.S. 1067, 109 S.Ct. 2068, 104 L.Ed.2d 633 (1989), this Court holds that an indebted rural water district's right to temporarily exclude a competitor's water service within its district is a right bestowed upon the indebted rural water district by Congress pursuant to the terms of the USDA loan agreement; therefore, article 5, section 51 of the Oklahoma Constitution is not implicated. Furthermore, because article 5, section 51 neither precludes nor prohibits enforcement of USDA loan agreements with the accompanying section 1926(b) protection, certified question two is rendered moot.1

FACTS

¶ 2 Pursuant to the Oklahoma Statutes, title 20, section 1604(A)(2), the federal court has submitted " [t]he facts relevant to the question[s], showing fully the nature of the controversy out of which the question[s] arose." Those facts are repeated here, substantially verbatim.

¶ 3 In 1972, the Logan County Board of Commissioners, acting pursuant to state law, created Appellee, Logan-1 as " a non-profit association" that would provide water to rural Logan County, except for the area of the county located within the city limits of Guthrie, Oklahoma, as those limits existed at that time. Appellants, Guthrie, already provided water service to the City itself.

¶ 4 Beginning in 1976, Logan-1 obtained several loans from the USDA. These loans were part of a program established in 1961, when " Congress amended the Consolidated Farm and Rural Development Act, 7 U.S.C. §§ 1921-2009n, to allow nonprofit water associations to borrow federal funds for ‘ the conservation, development, use, and control of water ... primarily serving ... rural residents.’ " Moongate Water Co. v. Dona Ana Mut. Domestic Water Consumers Ass'n, 420 F.3d 1082, 1084 (10th Cir.2005)(quoting

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7 U.S.C. § 1926(a)(1)).2 Logan-1 obtained a total of five of these loans, two in 1976, and one each in 1978, 1982 and 2003.3

¶ 5 Sometime in 2003, a land developer approached Guthrie seeking water service for his planned development, the Pleasant Hills Apartments. No one disputes that this development is located within the geographic territory that the Logan County Commissioners assigned to Logan-1 in 1972. Nonetheless, it was Guthrie that subsequently extended its water system in order to provide Pleasant Hills with water service.

¶ 6 As a result, Logan-1 sued Guthrie, in July 2005, claiming that Guthrie had unlawfully encroached on Logan-1's service area, which was protected from competition by section 1926(b) and the terms of its loan agreements which had been authorized by the Oklahoma Legislature pursuant to title 82, section 1324.10(A)(4).4Section 1926(b) protects any rural water district that remains indebted on loans obtained from the USDA from competition from other water districts " within the borrowing entity's service area." Dona Ana Mut. Domestic Water Consumers Ass'n. v. City of Las Cruces, 516 F.3d 900, 903 (10th Cir.2008) (Doña Ana). Also known as the " Anti-Curtailment" provision, section 1926(b) specifically provides:

The service provided or made available through any [indebted rural water] association shall not be curtailed or limited by inclusion of the area served by such association within the boundaries of any municipal corporation or other public body, or by the granting of any private franchise for similar service within such area during the term of such loan; nor shall the happening of any such event be the basis of requiring such association to secure any franchise, license, or permit as a condition to continuing to serve the area served by the association at the time of the occurrence of such event.

7 U.S.C. § 1926(b). ¶ 7 Section 1926(b)'s protection serves two goals. See Pittsburg County, 358 F.3d at 715. First, it provides for:

greater security for the federal loans made under the program ... By ‘ protecting the territory served by such an association['s] facility against competitive facilities, which might otherwise be developed with the expansion of the boundaries of municipal and other public bodies into an area served by the rural system,’ § 1926 protects the financial interests of the United States, which is a secured creditor of the water association, from reduction of the water association's revenue base.

Id. (emphasis added). The second interest served by section 1926(b)'s protection from competition is the " promotion of rural water development ‘ by expanding the number of

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potential users of such systems, thereby decreasing the per-user cost.’ " Id.

¶ 8 " [T]o receive the protection against competition provided by § 1926(b) a water association must (1) have a continuing indebtedness ... [under loans obtained from] the [federal government], and (2) have provided or made available service to the disputed area." Moongate Water, 420 F.3d at 1084. Thus, the Tenth Circuit Court has held that a water district's service area protected from competition under section 1926(b) is not necessarily the entire geographic area granted to the district under state law, but is instead the area (1) for which the water district has a right under state law to provide service and (2) has actually done so, or could do so in a reasonable time. See Sequoyah County, 191 F.3d at 1201-03.

¶ 9 In addition to these principles defining the protection which section 1926(b) affords rural water districts from competition, state law cannot change the service area to which the protection applies after that federal protection has attached. See Pittsburg County, 358 F.3d at 715. For instance, " where the federal § 1926 protections have attached, § 1926 preempts local or ‘ state law [that] can be used to justify a municipality's encroachment upon [a] disputed area in which an indebted association is legally providing service under state law.’ " Id. (quoting Rural Water Sys. No. 1 v. City of Sioux Ctr., 967 F.Supp. 1483, 1529 (1997), cited with approval in Sequoyah, 191...

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