Village of Grafton v. Rural Lorain County Water

• Citation: 316 F.Supp.2d 568
• Decision Date: 16 April 2004
• Docket Number: No. 1:02 CV 2038.,No. 1:02 CV 2037.,No. 1:02 CV 2039.,1:02 CV 2037.,1:02 CV 2038.,1:02 CV 2039.
• Parties: VILLAGE OF GRAFTON, et al., Plaintiffs, v. RURAL LORAIN COUNTY WATER AUTHORITY, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

316 F.Supp.2d 568

VILLAGE OF GRAFTON, et al., Plaintiffs, v. RURAL LORAIN COUNTY WATER AUTHORITY, et al., Defendants.

No. 1:02 CV 2037.

No. 1:02 CV 2038.

No. 1:02 CV 2039.

United States District Court, N.D. Ohio, Eastern Division.

April 16, 2004.

COPYRIGHT MATERIAL OMITTED

Gretchen A. Holderman, Lillie & Holderman, Richard G. Lillie, Lillie & Holderman, Cleveland, OH, Jay C. Marcie, Avon Lake, OH, for Plaintiffs.

Daniel D. Mason, Baumgartner & O'Toole, Dennis M. O'Toole, Baumgartner & O'Toole, Sheffield Village, OH, for Defendants.

MEMORANDUM OF OPINION AND ORDER

POLSTER, District Judge.

Before the Court are the following cross-motions for summary judgment:

1. Motion for Summary Judgment, filed by Village of Grafton and KNG, Ltd. ("Grafton's Motion") (Case No. 1:02 CV 2037, ECF No. 40; Case No. 1:02 CV 2039, ECF No. 11) and

2. Motion for Summary Judgment of Rural Lorain County Water Authority ("RLCWA's Motion") (ECF No. 41).¹

The parties have agreed that this case involves a legal issue which can be resolved entirely on written briefs.² For the following reasons, Grafton's Motion is DENIED and the RLCWA's Motion is GRANTED.

I. BACKGROUND³

The Rural Lorain County Water Authority ("RLCWA") is a political subdivision formed in 1974, pursuant to O.R.C. §§ 6119.01, et seq., to provide water and/or sewer service to rural areas located in southern Lorain County, Ohio, including Grafton and Eaton Townships. First Stip. ¶ 2; Second Stip., Ex. A. The Resolutions enacted by Grafton and Eaton Townships in anticipation of the creation of the RLCWA expressed the Townships' intention "that the entire territory of said Township be included within the proposed regional water district for southern Lorain County ... excluding, however, any and all existing water lines within said Township." Second Stip., Exs. C, D. At the time the RLCWA was created, Grafton owned and operated its own water distribution system, with water supplied by its own plant. Second Stip. ¶ 2. Additionally, the property that came to be known as Fox Run, undeveloped at the time, was located in Eaton Township.

In the late 1980s, the Shamrock Development Company ("Shamrock") purchased the Fox Run property. ECF No. 40, Ex. B, Affidavit of Kevin Flanigan ("Flanigan Aff.") ¶ 2. In June 1990, Fox Run, still undeveloped, was annexed into the Village of Grafton. First Stip. ¶ 5. Shortly thereafter, Shamrock entered negotiations with Grafton to develop Fox Run. Flanigan Aff. ¶ 4. In initiating these discussions, Shamrock relied upon its belief that water service would be provided by Grafton at lower rates than those that would be imposed by the RLCWA. Id. ¶ 5. Kevin Flanigan, a partner in Shamrock, bought out his partner and subsequently transferred the Fox Run property into KNG, Ltd. — a company of which he is currently a member and which company now owns and is developing Fox Run. Id. ¶¶ 7, 8.

In 1994, Grafton abandoned its water plant and began purchasing water from the RLCWA, pursuant to a series of Water Purchase Agreements. RLCWA's Motion, Ex. A ("Mahoney Aff.") ¶ 3. The first Agreement the parties entered is dated September 6, 1994. See Second Stip., Ex. G. ("1994 Agreement"). The 1994 Agreement shows that in order to receive RLCWA water, Grafton connected its own water distribution system to a 16-inch transmission line built by the RLCWA on Mennell Road in 1987 to handle the increased demand for water in the western and southern parts of the water district. Id., at 2. The 1994 Agreement required the RLCWA to provide, and Grafton to purchase, up to 275,000 gallons of water per day ("GPD") not to exceed 250 gallons per minute ("GPM"). Id.

In 1998, Grafton sought an increase to the aforementioned limits due to the proposed building of a new correctional facility within its municipality. Mahoney Aff. ¶ 4. On March 2, 1999, Grafton entered into a second Water Purchase Agreement with the RLCWA. Second Stip., Ex. F ("1999 Agreement"). In addition to the amounts set forth in the 1994 Agreement, the 1999 Agreement required the RLCWA to provide, and Grafton to purchase, a quantity of water not to exceed 250,000 GPD or 250 GPM. Id., at 2. This water was to be furnished from an existing water tank through an existing RLCWA transmission line at State Route 83 ("SR 83"). Id.

By 2001, Grafton was regularly exceeding the limits of the parties' agreement. The RLCWA made repeated threats to take Grafton to court to enforce what the RLCWA believed to be its right to provide water service to certain areas located within Grafton. Grafton's Motion, Ex. C, Affidavit of Richard Kowalski ("Kowalski Aff.") ¶¶ 5, 6. The parties apparently resolved their dispute by entering into a third Water Purchase Agreement on March 5, 2002. Second Stip., Ex. E ("2002 Agreement"). The 2002 Agreement required the RLCWA to provide and Grafton to purchase, a quantity of water not to exceed 600,000 GPD or 650 GPM. Id., at 2. Grafton agreed to pay for a minimum of 300,00 GPD, and to pay "the current RLCWA rate plus 100% for any gallons in excess of 600,000 GPD." Id.

In order to provide this additional water, the RLCWA recognized the need to reinforce the supply lines. Mahoney Aff. ¶ 5. Accordingly, the RLCWA installed a 24-inch water line on Grafton Eastern Road between SR 83 and Island Road. This project, along with others, was financed by a promissory note dated January 16, 2002 in the amount of $3.25 million, guaranteed by the USDA, Rural Economic and Community Development Service (the "USDA loan"). See Mahoney Aff. ¶¶ 5-7 and Attachments.⁴ Of this $3.25 million loan, approximately $280,000 is attributed to the installation of the 24-inch line serving Grafton. Id. To secure this USDA loan, the RLCWA pledged all of its water service revenues. Case No. 1:02 CV 2039, ECF No. 1 ¶ 11.

On August 20, 2002, Council for Grafton enacted Ordinance No. 02.031 authorizing the development of Fox Run. First Stip. ¶ 7. In short order, Grafton, or KNG under Grafton's auspices, began installing water lines in Fox Run and is now providing water to the fledgling development.

On October 15, 2002, the RLCWA filed a verified complaint and sought a temporary restraining order enjoining Grafton and/or KNG from installing water lines in Fox Run. On the same day, Grafton filed a complaint seeking injunctive and declaratory relief to the effect that it had the exclusive right to serve Fox Run. The Court denied the RLCWA's motion for temporary restraining order because of the Court's conclusion that the RLCWA failed to show irreparable harm. See Case No. 1:02 CV 2039, ECF No. 6, at 1-2. The Court subsequently consolidated the two cases and issued a scheduling order with discovery and other deadlines and dispositive motion briefing schedule which included the filing of stipulated facts. Id., ECF No. 8 The scheduling order noted the parties' agreement that their dispute involved a legal question which could be resolved entirely on paper,⁵ and that there was no need for Defendant KNG to file any briefs separate from those filed by Grafton. Id., at 1. The scheduling order also noted the parties' agreement to work out interim arrangements for handling tap-in fees and proceeds from any retail water sales. Id., at 2.

According to the parties' stipulations, it has been estimated that approximately 30 new homes or businesses will be constructed in Fox Run.⁶ Second Stip. ¶ 4. A one-time tap-in fee will be charged to each new customer. Id. The RLCWA charges its customers $2,000 per tap-in ($750 of which covers the actual cost of the tap-in, the balance of which is earmarked for capital improvements for new tanks necessitated by new taps). Id. Grafton charges its customers $800 per tap-in. Id. The RLCWA supplies all of Grafton's water, for which Grafton pays a bulk rate of $11.50 per month per 5131 gallons of water (the average number of gallons used per month per customer). Id. The RLCWA charges its non-bulk customers $30.24 per month per 5131 gallons Second Stip. ¶ 4. The parties agree that if the Court concludes that Grafton or KNG's conduct in constructing the water lines to Fox Run does not violate § 1926(b)'s anti-curtailment provisions, the RLCWA will receive $224 less per year, per customer, in water service revenues. Id. Assuming at least 30 new customers, the RLCWA stands to lose a minimum of $6720 per year in revenues.⁷ Id.

The parties have filed the pending summary judgment motions, arguing that each has the right to provide water service to Fox Run. The RLCWA argues that Grafton's efforts to serve Fox Run (i.e., to install water lines, charge tap-in fees and purchase water at wholesale from the RLCWA and sell at retail to Fox Run residents) violates the federal statute that prohibits municipalities from curtailing the services of federally indebted rural water associations, 7 U.S.C. § 1926(b). Grafton counters that it has the exclusive right to serve Fox Run under the Ohio constitutional provision permitting municipalities to provide utility services to its residents. Grafton argues, in the alternative, that its provision of water service to Fox Run does not violate § 1926(b) because its curtailment of the RLCWA's services, if any, occurred when Grafton annexed Fox Run in 1990 — without any objection from the RLCWA and prior to the RLCWA's indebtedness to the federal government.

As a practical matter, the Court notes that this case is really about whether Grafton can continue to provide water to persons in previously undeveloped parts of Grafton at either the bulk rate (the rate charged by the RLCWA to Grafton) or at a markup similar to what the RLCWA charges its non-bulk customers. The parties agree that the RLCWA will continue to supply water to Grafton residents after the conclusion of this lawsuit. The parties are not fighting over the water supply itself. Rather, they are fighting over who will retain the tap-in fees and monthly revenues for serving these new customers. For reasons discussed...