Le-Ax Water Dist. v. City of Athens, Ohio

• Decision Date: 10 October 2003
• Docket Number: No. 02-3016.,02-3016.
• Parties: LE-AX WATER DISTRICT, Plaintiff-Appellee, v. CITY OF ATHENS, OHIO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

346 F.3d 701

LE-AX WATER DISTRICT, Plaintiff-Appellee, v. CITY OF ATHENS, OHIO, Defendant-Appellant.

No. 02-3016.

United States Court of Appeals, Sixth Circuit.

Argued: June 12, 2003.

Decided and Filed: October 10, 2003.

Petition for Rehearing Denied En Banc: December 30, 2003. Pursuant to Sixth Circuit Rule 206

ARGUED: Garry E. Hunter (argued and briefed), LAW DIRECTOR, Athens, Ohio, for Appellant.

Orla E. Collier III (argued and briefed), BENESCH, FRIEDLANDER, COPLAN & ARONOFF, Columbus, Ohio, for Appellee.

ON BRIEF: Garry E. Hunter, LAW DIRECTOR, Athens, Ohio, for Appellant.

Orla E. Collier III, BENESCH, FRIEDLANDER, COPLAN & ARONOFF, Columbus, Ohio, for Appellee.

Barry M. Byron, Willoughby, Ohio, Dennis M. O'Toole, Stephen P. Bond (briefed), BAUMGARTNER & O'TOOLE, Elyria, Ohio, for Amici Curiae.

Before: KEITH, MOORE, and GIBBONS, Circuit Judges.

MOORE, J., delivered the opinion of the court, in which KEITH, J., joined. GIBBONS, J. (pp. 710-712), delivered a separate dissenting opinion.

OPINION

KAREN NELSON MOORE, Circuit Judge.

The defendant City of Athens, Ohio ("Athens") appeals the district court's grant of summary judgment and of a declaratory judgment to the plaintiff Le-Ax Water District ("Le-Ax"), as well as the district court's denial of Athens's own motion for summary judgment. University Estates owns 825 acres of property outside of, but nearby, both Athens and Le-Ax. Both Athens and Le-Ax wish to supply water to University Estates, which seeks to develop its property into a golf-course community. After University Estates made arrangements for Athens to supply the necessary water, Le-Ax, a predominantly rural water district, brought this lawsuit, claiming that Athens's agreement to provide water service to University Estates violated Le-Ax's rights under 7 U.S.C. § 1926(b). For the reasons that follow, we REVERSE the district court's grant of summary judgment and of a declaratory judgment to Le-Ax, and we also REVERSE the district court's denial of summary judgment to Athens. We REMAND this case to the district court so that it may enter judgment in favor of Athens and dismiss the case.

I. OVERVIEW

A. Factual History

The Le-Ax Water District is a rural water district that was created by a judicial order upon a petition filed in the Athens County Court of Common Pleas in 1980, pursuant to OHIO REV.CODE ANN. § 6119.01. Joint Appendix ("J.A.") at 71-72. As a water district, Le-Ax is an independent political subdivision of the State of Ohio, governed by OHIO REV.CODE ANN. § 6119. Le-Ax's territory was described in the petition approved by that court.

Le-Ax, as a rural water district, assumed the debt that its predecessor owed to the United States Department of Agriculture ("USDA"). As a result, Le-Ax has been indebted to the USDA since its inception. Le-Ax subsequently incurred another debt to the USDA when it sold revenue bonds to the Rural Economic and Community Development Service ("RECDS"), which was formerly known as the Farmers Home Administration ("FmHA"). Bonds were issued on February 26, 1997, in the principal amount of $6,844,000 (at 4.5% interest), that will expire on February 1, 2037. J.A. at 309. The loans were not made in order to help Le-Ax finance the University Estates project and apparently have no connection in any way to the University Estates transaction.

University Estates owns 825 acres of property, all of which is outside the boundaries of both Le-Ax and Athens. University Estates plans to develop this property into a golf course and approximately 800 homes. The property is close to the boundaries of both Le-Ax and Athens; it borders Athens on Athens's northern side, and is, at its closest point, 1400 feet (roughly one third of a mile) from Le-Ax's boundary. J.A. at 230 (Aff. of Steven Mullaney). Le-Ax has taken no formal steps to change its boundaries to include University Estates's property, such as by filing a petition in state court under OHIO REV. CODE ANN. § 6119.051. In contrast, Athens has begun the process of changing its boundaries to include University Estates. On October 16, 2000, Athens's City Council authorized a development agreement with University Estates, pursuant to which Athens would annex University Estates and provide it with water. J.A. at 117-22 (Ordinance and Development Agreement).

Standing in Athens's way, however, is this lawsuit — for Le-Ax also wishes to supply University Estates with water and claims that 7 U.S.C. § 1926(b) vests Le-Ax with the right to serve University Estates. Although Le-Ax does not currently supply University Estates with water (the property as of yet has no access to water from any supplier) and does not currently have lines extending into University Estates's territory, Le-Ax claims that it could supply University Estates with water almost immediately. Le-Ax refers to an eight-inch water main that it owns, which is immediately adjacent to the University Estates site. Supplemented by two nearby storage tanks, the eight-inch transmission line, Le-Ax claims, can provide water to University Estates at a rate far exceeding the estimates of University Estates's expected usage. A pressure-reducing valve, a tap in, and a pumping station will be necessary to connect the eight-inch main to University Estates. However, there was unrebutted testimony that the valve is an apparently minor and inexpensive addition and the tap-ins and the pumping station (as part of the water apparatus internal to the site) are to be provided by the developer of the property, not the water supplier. J.A. at 553 (Dep. Test. of John Collins).

B. Procedural History

On November 16, 2000, Le-Ax filed this lawsuit in the United States District Court for the Southern District of Ohio, alleging that the proposed water supply arrangement between Athens and University Estates would violate 7 U.S.C. § 1926(b). Upon cross-motions for summary judgment and an in-court hearing, the district court granted summary judgment to Le-Ax and issued a declaratory judgment that the provision of water from Athens to University Estates would violate 7 U.S.C. § 1926(b). This timely appeal followed.

II. ANALYSIS

A. Standards of Review

This court reviews a grant of summary judgment de novo. Bukowski v. City of Akron, 326 F.3d 702, 707 (6th Cir.2003). Although the district court's denial of a motion for summary judgment is usually treated as a nonappealable interlocutory order, when "an appeal from a denial of summary judgment is presented in tandem with a grant of summary judgment, this court has jurisdiction to review the propriety of the district court's denial of summary judgment." Hamad v. Woodcrest Condo. Ass'n, 328 F.3d 224, 235 (6th Cir.2003) (quotation omitted). The district court's denial of summary judgment based on purely legal grounds is reviewed de novo. Id. at 235-36. Summary judgment is appropriate where the "pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

B. Background to 7 U.S.C. § 1926(b)

Over forty years ago, Congress passed the Agricultural Act of 1961, Pub.L. No. 87-128, 75 Stat. 294, which sought to preserve and protect rural farm life in a number of respects. Title III of the Act (which is known as the Consolidated Farm and Rural Development Act) was concerned largely with issues of agricultural credit. Title III contained two sections that are at issue here, sections 306(a) and 306(b). Section 306(a) of the Act, now codified at 7 U.S.C. § 1926(a), made federal loans available to water service associations. Section 306(b), now codified at 7 U.S.C. § 1926(b), protected the recipients of such loans from competition, to a certain extent. The text of section 306(b) reads:

The service provided or made available through any such 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). This provision prevents local governments from expanding into a rural water association's area and stealing its customers; the legislative history states that the statutory provision was intended to protect "the territory served by such an association facility against [other] competitive facilities" such as local governments, as otherwise rural water service might be threatened by "the expansion of the boundaries of municipal and other public bodies into an area served by the rural system." S.Rep. No. 87-566, at 67 (1962), reprinted in 1961 U.S.C.C.A.N. 2243, 2309.

The concept of economies of scale is an integral part of § 306(b)'s rationale; by protecting a rural water association's customer base, the provision allows such associations to spread their fixed costs over a large group of users. In so doing, the statute aims to prevent rural water costs from becoming prohibitively expensive to any particular user, to develop a system providing fresh and clean water to rural households, and to protect the federal government as insurer of the loan. Id. ("By including service to other rural residents, the cost per user is reduced and the loans are more secure in addition to the community benefits of a safe and adequate supply of running household water."); see also Lexington — S. Elkhorn Water Dist. v. City of Wilmore, 93 F.3d 230, 233 (6th Cir.1996) (stating that the Act "safeguard[s] the financial viability of rural associations and Farmers Home Administration...