Chesapeake Ranch Water v. Board of Com'Rs

• Decision Date: 16 March 2005
• Docket Number: No. 04-1205.,04-1205.
• Citation: 401 F.3d 274
• Parties: CHESAPEAKE RANCH WATER COMPANY, Plaintiff-Appellant, v. THE BOARD OF COMMISSIONERS OF CALVERT COUNTY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

401 F.3d 274

CHESAPEAKE RANCH WATER COMPANY, Plaintiff-Appellant, v. THE BOARD OF COMMISSIONERS OF CALVERT COUNTY, Defendant-Appellee.

No. 04-1205.

United States Court of Appeals, Fourth Circuit.

Argued: November 30, 2004.

Decided: March 16, 2005.

COPYRIGHT MATERIAL OMITTED

ARGUED: William Roger Truitt, Piper Rudnick, L.L.P., Baltimore, Maryland, for Appellant. Jefferson Vaughan Wright, MILES & STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellee. ON BRIEF: ON BRIEF: John E. Griffith, Jr., Dorothy M. Guy, Piper Rudnick, L.L.P., Baltimore, Maryland, for Appellant. E. Hutchinson Robbins, Jr., Todd M. Reinecker, Miles & Stockbridge, P.C., Baltimore, Maryland, for Appellee.

Before WILKINS, Chief Judge, SHEDD, Circuit Judge, and Norman K. MOON, United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed by published opinion. Chief Judge WILKINS wrote the opinion, in which Judge SHEDD and Judge MOON joined.

OPINION

WILKINS, Chief Judge:

The Chesapeake Ranch Water Company (Chesapeake) appeals an order of the district court granting summary judgment in favor of the Board of Commissioners of Calvert County, Maryland (the County) in this action seeking protection under a provision of the Consolidated Farm and Rural Development Act of 1961 (CFRDA), see 7 U.S.C.A. § 1926(b) (West 1999). Chesapeake argues that § 1926(b) prohibits the County from providing water service to two new commercial developments presently under construction adjacent to Chesapeake's service area. Finding no merit to Chesapeake's arguments, we affirm.

I.

A recitation of the facts appears in the opinion of the district court. See Chesapeake Ranch Water Co. v. Bd. of Comm'rs of Calvert County, 301 F.Supp.2d 424, 425-26 (D.Md.2004). We recount them briefly here.

Chesapeake is a nonprofit water association formed in 1960 to provide drinking water and fire protection services to citizens in Calvert County. In 1961, the County, which under Maryland law has plenary authority over water and sewer matters within its borders, see Md. Ann.Code art. 25, §§ 3(c), 3D(b) (Supp.2004), granted Chesapeake authority to provide water service to a subdivision known as Chesapeake Ranch Estates. On three subsequent occasions during 1998 and 1999, the County expanded Chesapeake's franchise area to include lots in Lusby Town Square, a subdivision adjacent to Chesapeake Ranch Estates.

In response to substantial growth in Calvert County, a number of new developments are being constructed in the county. At issue here are two new developments, the Lusby Town Center and the Patuxent Business Park, which are under construction adjacent to, but not within, Chesapeake's existing franchise area. In 2001, Chesapeake presented a formal offer to the County to provide water service to the new developments. The County rejected the offer. Instead, the County resolved to and has begun the process of extending the County-owned Solomons water facility to provide service to the new developments. The Solomons facility is located approximately two miles from the developments.

Alleging that the County's proposed extension of the Solomons facility violates both § 1926(b) and Maryland state law, Chesapeake filed this action seeking broad injunctive relief to prevent the County from continuing with its plan to provide service to the new developments. The district court granted summary judgment in favor of the County on the federal claim, ruling that § 1926(b) afforded Chesapeake no basis for relief against the County. The court then declined to exercise supplemental jurisdiction over the remaining state law claims, see 28 U.S.C.A. § 1367(c)(3) (West 1993), dismissing those claims without prejudice.¹

II.

The CFRDA is part of the Agricultural Act of 1961, which Congress enacted for the purposes, among others, of improving and protecting farm prices and promoting agricultural development. See S.Rep. No. 87-566, at 1 (1961), reprinted in 1961 U.S.C.C.A.N. 2243, 2243. Section 1926 of the CFRDA "specifically authorizes federal loans to nonprofit water service associations to promote the `conservation, development, use, and control of water' to assist farmers, ranchers, farm tenants, and other rural residents." Bell Arthur Water Corp. v. Greenville Util. Comm'n, 173 F.3d 517, 519 (4th Cir.1999) (quoting 7 U.S.C.A. § 1926(a)(1)). "By including water service to `other rural residents' as part of an agricultural program, Congress intended (1) to reduce peruser cost resulting from the larger base of users, (2) to provide greater security for the federal loans made under the program, and (3) to provide a safe and adequate supply of water." Id. at 519-20.

Congress sought to protect federally indebted, nonprofit water associations from "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." S.Rep. No. 87-566, at 67, 1961 U.S.C.C.A.N. at 2309. Accordingly, Congress enacted § 1926(b), which provides:

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.A. § 1926(b). To qualify for protection under § 1926(b), the water association must establish that (1) it is an "association" within the meaning of the CFRDA, (2) it has a qualifying federal loan outstanding, and (3) it has provided water service or made it available to the disputed area. See Le-Ax Water Dist. v. City of Athens, Ohio, 346 F.3d 701, 705 (6th Cir.2003).

The protection afforded by § 1926(b) is limited to the area in which the association provides or makes available water service and to the time period during which its federal loan is outstanding. See Bell Arthur, 173 F.3d at 520. Additionally, § 1926(b) protects against only certain forms of competitive behavior, including "curtailment or limitation of the associations' service areas through annexation or through the imposition of conditions for service such as the requirement of a franchise, license, or permit." Id.

Chesapeake argues that summary judgment in favor of the County was inappropriate for three reasons: (1) the County's plan to provide service to the new developments would limit or curtail Chesapeake's service by invading a location to which Chesapeake has made service available; (2) the County's plan to tap into the aquifer from which Chesapeake presently draws its water supply would limit or curtail Chesapeake's ability to serve its existing franchise area; and (3) disputed issues of material fact existed as to the scope of Chesapeake's franchise area. We address each of these arguments in turn.

A.

Chesapeake first argues that § 1926(b) affords it the exclusive privilege of providing water service to the new developments. As a threshold matter, we note that neither party disputes that Chesapeake is a qualifying "association" under the statute. Nor do the parties question that Chesapeake has a qualifying federal loan outstanding. Therefore, this issue turns on whether Chesapeake has provided or made available water service to the new developments.

The district court ruled that because the new developments were not within the geographic boundaries of the franchise area formally granted to Chesapeake by the County, § 1926(b) did not afford Chesapeake the exclusive privilege of serving the new developments. The court reasoned that Chesapeake could not use the protections of § 1926(b) "offensively" to expand the geographic boundaries of its franchise area; the statute could only be used "defensively" to protect the territory already within its franchise area. See Chesapeake Ranch Water, 301 F.Supp.2d at 427-29. Chesapeake contends that the district court interpreted § 1926(b) too narrowly. Because the locations of the new developments were adjacent to Chesapeake's existing franchise area, and because Chesapeake was physically capable of providing water service to the new developments, Chesapeake contends that it had already made available water service to the developments, and thus it was entitled to protection under § 1926(b) from competition by the County. We disagree.

The test for whether a water association has provided or made available water service for purposes of § 1926(b) varies among the courts of appeals. Some courts have held that a water association has provided or made available service if it can demonstrate (1) the physical capability to provide service to the area within a reasonable time, and (2) the legal right under state law to serve the area. See Rural Water Sys. # 1 v. City of Sioux Ctr., 202 F.3d 1035, 1037 (8th Cir.2000); cf. Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow, 191 F.3d 1192, 1203 (10th Cir.1999) (focusing primarily on whether water association "has proximate and adequate `pipes in the ground' with which it has served or can serve the disputed customers within a reasonable time"). Other courts permit an association to prove that it has provided or made available service by demonstrating that it has a duty (not merely a right) under state law to provide service to the disputed area. See North Alamo Water Supply Corp. v. City of San Juan, Tex., 90 F.3d 910, 915-16 (5th Cir.1996) (per curiam); cf. Glenpool Util. Servs. Auth. v. Creek County Rural Water Dist. No. 2, 861 F.2d 1211, 1214 (10th Cir.1988) (holding that water association had made available water service "by virtue of its line adjacent to the property and its responsibilities...