Financial Guar. Ins. Co. v. City of Fayetteville, Ark., 90-2808

• Decision Date: 11 September 1991
• Docket Number: No. 90-2808,90-2808
• Citation: 943 F.2d 925
• Parties: FINANCIAL GUARANTY INSURANCE COMPANY, Appellant, v. The CITY OF FAYETTEVILLE, ARKANSAS; the City of West Fork, Arkansas; Washington County, Arkansas; Northwest Arkansas Resource Recovery Authority, Appellees, Vickie Kelley; Katherine E. Barnhart; Carl Brooks (Cross-Claimants Below), Appellees, Union National Bank, Little Rock, Arkansas (Cross-Claimant Below), Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 925

943 F.2d 925

FINANCIAL GUARANTY INSURANCE COMPANY, Appellant, v. The CITY OF FAYETTEVILLE, ARKANSAS; the City of West Fork Arkansas; Washington County, Arkansas; Northwest Arkansas Resource Recovery Authority, Appellees Vickie Kelley; Katherine E. Barnhart; Carl Brooks (Cross-Claimants Below), Appellees Union National Bank, Little Rock, Arkansas (Cross-Claimant Below), Appellee.

No. 90-2808.

United States Court of Appeals Eighth Circuit.

Submitted June 13, 1991.

Decided Sept. 11, 1991.

Robert Rifkind, New York City, argued (Brian Frasier, New York City, and Larry Burks, Little Rock, Ark., on brief), for appellant.

Marshall Evans, Fayetteville, Ark., argued (Kent Hirsch, Springdale, Ark., on brief), for appellees.

Before BEAM, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and URBOM, ^* Senior District Judge.

FLOYD R. GIBSON, Senior Circuit Judge.

Financial Guaranty Insurance Company (FGIC) appeals the district court's ¹ dismissal of this case for lack of jurisdiction. We affirm.

I. BACKGROUND

The unique factual circumstances that gave rise to this litigation are extraordinarily important to our decision. We rely heavily on the district court's description of the events that precipitated this litigation.

In early 1980 some governmental units in Northwest Arkansas began considering alternatives to solid waste disposal in land fills. To this end, on August 30, 1980, the Northwest Arkansas Resource Recovery Authority ("the Authority") was formed pursuant to Arkansas law. The cities of Fayetteville and West Fork were the initial members of the Authority; Washington County became a member a short time later.

The purpose of the Authority was to finance, plan and construct an incinerator in which solid waste generated by the citizens of the governmental units would be burned. Initially, the plan was to use the heat generated by the incinerator to produce steam for sale to the University of Arkansas or other entities. When that plan did not materialize, it was decided that the heat would be used to generate electricity and sales arrangements were made with public utilities in the area.

In 1985, the Quorum Court of Washington County and the governing bodies of the two cities approved ordinances which authorized the Authority to issue up to $25,000,000 in Solid Waste Management Revenue Bonds, Series 1985. On December 31, 1985, the Authority issued bonds totaling $22,405,000.00 with the proceeds to be used to finance the development and construction of the project.

Financial Guar. Ins. Co. v. City of Fayetteville, 749 F.Supp. 934, 935 (W.D.Ark.1990).

By early 1986, the Authority had selected a contractor to plan, build, and operate the facility. In late 1986, the City of Fayetteville had acquired a site for the project, and on December 30, 1986, the bonds were remarketed at a fixed rate and the proceeds were made available for use on the project.

As a condition to the issuance and remarketing of the bonds, [FGIC] insured repayment of the bonds. Under the policy, FGIC is obligated to pay any principal or interest on the bonds if the Authority does not pay such principal or interest when due. In that event, FGIC shall become the owner of the bonds evidencing the indebtedness paid or the right to payment of principal or interest on such bonds, and shall be fully subrogated to all of [the] bondholders' rights.

Id. at 936. As a further condition to the remarketing of the bonds, a memorandum, signed by Marian R. Orton, chairman of the Authority board and a member of Fayetteville's board of directors, was distributed to potential bond purchasers. The memorandum stated that the members of the Authority assumed responsibility for the Authority's expenses and financing requirements.

As a further condition of the issuance of the bonds and insurance policy, the Fayetteville City Attorney sent an opinion letter to the trustee, Union National Bank of Little Rock, stating

that the City of Fayetteville was unconditionally obligated under the terms of a contract known as the "Waste Supply Agreement" entered into on December 22, 1986, to charge, collect and pay from sanitation fund revenues all tipping fees due under the agreement not only owed as a result of the waste generated by the City of Fayetteville but also any such fees not paid by the other parties, and that this obligation continued whether the project was completed or functioning.

Id. Fayetteville, West Fork, and Washington County were parties to the Waste Supply Agreement (hereinafter "the agreement"), which also provided that the members of the Authority would deliver specified amounts of solid waste to the project and provided for the payment of tipping fees to the Authority. These tipping fees were the primary source of income to the Authority, and were to provide the funds from which the Authority would pay the principal and interest on the bonds.

Construction of the project was begun in early 1987 and in January of that year public opposition to the incinerator grew. Initially, the opposition focused on the location of the project, but, as public opposition increased, environmental concerns and the effect on Fayetteville sanitation rates became central issues in the controversy. Apparently in an effort to quell the public outcry which had reached shrill proportions by this point, the [A]uthority and the cities proposed and considered alternate sites for the project but, in each instance, that only served to shift the focus of the public opposition to other locations in the area. On October 8, 1987, the Authority directed the contractor to place a moratorium on all discretionary spending.

Id.

Throughout 1987, public opposition to the construction of an incinerator increased. Finally, a non-binding referendum was held in Fayetteville on March 8, 1988; fifty-seven percent of those voting voted against construction of the project. The next day, the Fayetteville board of directors elected to withdraw from the Authority. Two days after Fayetteville's withdrawal, the Authority voted to discontinue all work on the project, and four days after that, the trustee, Union National Bank of Little Rock, informed the Authority and FGIC that a default (apparently, Fayetteville's withdrawal from the Authority) had occurred. By this time, over seven million dollars of the bond proceeds had been spent on unrecoverable costs.

[T]he City of Fayetteville agreed not only to pay the tipping fees which it was obligated to pay under the agreement, but also unconditionally guaranteed the tipping fee obligations assumed by Washington County and by West Fork. In § 401(e) of the agreement, the city agreed that its obligation to pay not only its tipping fees, but those of the other governmental units was "absolute and unconditional" and that they would be "maintained and collected without any offset, abatement, credit or deduction whatsoever."

Section 401(c) of the agreement provides that the obligation of the governmental units to pay the tipping fees shall be payable solely out of income received by the cities and the county from charges for the disposal of garbage and trash (sanitation fund revenues). However, because of an ambiguity in the agreement, it is not totally clear that the City of Fayetteville is obligated to pay tipping fees only out of sanitation revenue funds.

* * * * * *

In an attempt to fund these expenses and to repay the unrecoverable bond proceeds expended on the project, on August 15, 1989, the City of Fayetteville passed Ordinance No. 3444 which substantially raised the rates paid by its citizens for trash pickup and disposal. It appears from the ordinance that it supplements other ordinances or sections of ordinances which had previously been passed to authorize the collection of fees from its citizens for provision of these services. In other words, Ordinance No. 3444 appears to be, in effect, a surcharge on sanitation rates to collect funds to be utilized in paying the withdrawal expenses. In fact, the ordinance specifically provides that that is the purpose of it.

* * * * * *

Passage of the ordinance and collection of the sanitation fee surcharge has caused the opposition of certain Fayetteville citizens to be shifted into multiple litigation in both state and federal courts. On August 28, 1989, a citizen filed a lawsuit in Washington County Chancery Court alleging, among other things, that the ordinance and the funds collected by it was an illegal exaction violative of certain provisions of the Arkansas [C]onstitution and Arkansas statutes. Since that time, it appears that that lawsuit has ballooned into an all encompassing claim by certain taxpayers and ratepayers, as alleged representatives of a class, that most of the actions ... taken by the City of Fayetteville were in violation of the Arkansas [C]onstitution and other applicable Arkansas law.

Id. at 937-38.

On May 25, 1990, FGIC filed suit against the Authority and the three governmental entities that formed the Authority. Count I of the suit sought a declaration that the agreement was valid and enforceable as to the governmental entities; Count II sought a declaration that the Authority was obligated to pay the trustee, and Count III alleged that, if the agreement was invalid, the governmental entities had breached warranties representing that the agreement was valid. FGIC further asked the district court to order the governmental units to pay the Authority and the Authority to pay the trustee, as required by the agreement, or in the alternative, damages for the breach of the warranties.

Fayetteville agreed with FGIC that the central issue was whether Fayetteville was obligated to pay the shortfall and whether Ordinance 3444 was valid pursuant to Arkansas law. Fayetteville also agreed that the ordinance was valid and that the city had a...