Public Water Supply Dist. No. 10 of Cass County v. City of Peculiar, WD

• Decision Date: 16 June 1998
• Docket Number: No. WD,WD
• Citation: 971 S.W.2d 849
• Parties: PUBLIC WATER SUPPLY DISTRICT NO. 10 OF CASS COUNTY, Missouri, Respondent, v. CITY OF PECULIAR, Missouri, Appellant. 54531.
• Court: Missouri Court of Appeals

Page 849

971 S.W.2d 849

PUBLIC WATER SUPPLY DISTRICT NO. 10 OF CASS COUNTY Missouri, Respondent, v. CITY OF PECULIAR, Missouri, Appellant.

No. WD 54531.

Missouri Court of Appeals,

Western District.

June 16, 1998.

Motion for Rehearing and/or Transfer to

Supreme Court July 28, 1998.

James E. Thompson, Jr., Crouch, Spangler & Douglas, Harrisonville, for appellant.

Jeremiah D. Finnegan, Kansas City, Charles E. Hight, Harrisonville, for respondent.

Before EDWIN H. SMITH, P.J., and SMART and ELLIS, JJ.

ELLIS, Judge.

The City of Peculiar ("Peculiar") appeals from an order of summary judgment against it and in favor of Public Water Supply District No. 10 of Cass County ("PWSD"). PWSD is engaged in the business of owning, operating, and maintaining a public water supply system in Cass County. Peculiar maintains and operates a municipal water supply system.

In 1983, PWSD issued three series of bonds, all of which were purchased by the United States of America acting through the Farmers Home Administration ("FmHA") of the United States Department of Agriculture. The bonds were to mature in 2018. With the proceeds, PWSD constructed water lines and began to serve water to residents within its district.

On July 15, 1987, PWSD reacquired all the bonds from the FmHA. The bonds bore the following inscription: "Acknowledged as of the date hereof the full payment and discharge of the series bond as evidenced by the cancelled series bonds attached hereto." Each bond had the word "Cancelled" stamped across its face. In order to repurchase the bonds, PWSD issued Water System Revenue Refunding Bonds, Series 1987. These bonds were sold to various purchasers, none of whom were federal governmental agencies.

When PWSD was formed in the 1970's, its boundaries were adjacent to Peculiar. Since then, Peculiar has annexed parts of PWSD's original service areas. Consequently, the boundaries of PWSD and Peculiar now overlap in some places, and Peculiar is furnishing water service to some customers within the annexed area. As a result, PWSD filed a petition in the circuit court of Cass County requesting the court issue a permanent injunction prohibiting Peculiar from providing or offering water service within the service area of PWSD until November 1, 2018. The petition also requested Peculiar stop serving customers it has been serving in the water district "as soon as the plaintiff has taken the necessary steps to be able to serve such customers with water." Peculiar filed its answer and both parties subsequently filed summary judgment motions. The circuit court granted PWSD's motion for summary judgment and denied Peculiar's. Peculiar appeals that judgment.

In its first point, Peculiar alleges the trial court erred in granting PWSD's motion for summary judgment because PWSD does not have the exclusive right to service customers in the areas annexed by Peculiar. PWSD contends that, pursuant to federal statute, Peculiar can neither solicit nor serve customers in the overlapping service area.

One of the federal statutes at issue is 7 U.S.C. § 1926(b) which provides:

The service provided or made available through such [water district] 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 [i.e. FmHA bond purchase]; 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. (emphasis added)

7 U.S.C. § 1926(b) (1988).

There is no question, and the parties concede, that § 1926(b) prohibited the City of Peculiar from serving customers in PWSD's territory after PWSD became indebted to the federal government in 1983 and before it repurchased its bonds in 1987. The dispositive issue in Peculiar's Point I is whether PWSD is still afforded the protection of § 1926(b).

Our standard of review requires us to give Peculiar the benefit of all reasonable inferences from the record. ITT Commercial Finance v. Mid-America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). The propriety of summary judgment is solely an issue of law which we review de novo on the law and the record submitted. Id.

The Secretary of the United States Department of Agriculture is authorized to make or insure loans to "associations ... to provide for ... the conservation, development, use, and control of water ..." 7 U.S.C. § 1926(a)(1) (1988). Pursuant to this provision, PWSD sold three series of bonds to FmHA for total proceeds of $853,500. The bonds were to mature in 2018. Pursuant to § 1926(b), quoted above, during the term of the loan, PWSD had the exclusive right to solicit and serve customers in its service area.

In 1986, Congress enacted the Omnibus Budget Reconciliation Act ("OBRA"). Section 1001 of OBRA required the Secretary of the Department of Agriculture to sell a portion of outstanding debt of rural water districts. Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99-509, Title I, § 1001(a), 100 Stat. 1874 (1986). Congress subsequently amended OBRA with enactment of Pub.L. No. 100-233. This amendment required the Secretary of the Department of Agriculture to extend a right of first refusal to the water district before selling the debt of that district to third parties. Agricultural Credit Act of 1987, Pub.L. No. 100-233, Title VIII, § 803, 101 Stat. 1714 (1988). The amendment also added the following provision (hereinafter referred to as "subsection (g)"):

(g) Applicability of Prohibition on Curtailment or Limitation of Service--Section 306(b) of the Consolidated Farm and Rural Development Act (7 U.S.C.1926(b)) shall be applicable to all notes or other obligations sold or intended to be sold under this section.

Id.

After the initial adoption of OBRA, FmHA sent notice to PWSD of its intent to sell the bonds PWSD had issued in 1983. PWSD chose to repurchase the bonds rather than have them sold to a third party. To finance the repurchase, PWSD issued Water System Revenue Refunding Bonds to various non-government purchasers, with total proceeds of $865,000.

PWSD contends it should still be afforded the protection of § 1926(b) because the repurchase falls within the plain language of subsection (g). It points out that subsection (g) states the service area protection is to be applicable to obligations "sold or intended to be sold under this section [meaning § 1001(a) of OBRA]." Pursuant to OBRA, FmHA sold the bonds PWSD had issued in 1983 back to PWSD. Therefore, PWSD reasons its transaction with FmHA falls within the meaning of subsection (g). Peculiar, on the other hand, contends the fact that the bonds were marked "Cancelled" and "Acknowledged as of the date hereof the full payment and discharge of the series bond as evidenced by the cancelled series bonds attached hereto" is of paramount importance.

Section 1926(a) gives FmHA the authority to "make or insure" loans to rural water districts. Section 1926(b) provides service area protection to the rural water districts "during the term of such loan." PWSD extinguished its indebtedness to FmHA in July, 1987 when it repurchased the 1983 bonds, and FmHA returned them, marked "Cancelled." Based on the plain language of the statute, when the term of the FmHA loan ended, so did PWSD's § 1926(b) service area protection. While we recognize that the service territory protection provisions have historically enjoyed broad construction, City of Grand Junction v. Ute Water Conservancy Dist., 900 P.2d 81, 94 (Colo.1995); Bell Arthur Water Corp. v. Greenville Utilities Comm'n, 972 F.Supp. 951, 959 (E.D.N.C.1997), where the language of the statute is clear and unambiguous, there is no room for construction. State ex rel. Division of Transportation v. Sure-Way Transportation, Inc., 948 S.W.2d 651, 656 (Mo.App. W.D.1997).

PWSD nonetheless argues that subsection (g), passed in January, 1988, six months after its repurchase of the bonds from FmHA, was a "clarifying amendment" intended to apply to all transactions under OBRA, regardless of when they occurred. PWSD contends, therefore, that subsection (g) is applicable and extends § 1926(b) service area protection to its 1987 refinancing. PWSD cites no authority for its assertion that subsection (g) should be applied retroactively, and we have found none. However, even if we assume, arguendo, that subsection (g) is applicable to PWSD's July, 1987 transaction, we conclude that it does not extend service area protection to PWSD during the term of its 1987 bond indebtedness.

As noted previously, subsection (g) was an attempt by the legislature to ensure rural water districts would receive § 1926(b) protection if a loan were sold or was intended to be sold pursuant to OBRA. Of course, subsection (g) seems to anticipate a scenario where FmHA sells a rural water district's loan to a third party. The water district is still indebted, just not to the federal government. Subsection (g) extended § 1926(b) protection to those loans sold under OBRA. Neither subsection (g) nor any other statutory language mentions service area protection in the event a water district takes advantage of its right of first refusal and decides to refinance its loan through issuance of refund bonds or a conventional bank loan.

PWSD relies on the decision of the Colorado Supreme Court in City of Grand Junction v. Ute Water Conservancy Dist., 900 P.2d 81 (Colo.1995). In 1988, the Ute Water Conservancy District opted to reacquire a bond, which was originally issued for $3 million, at a discount rate of $1.5 million. Ute "expressly structured the transaction to prevent a merger and to keep the bond outstanding, rather than simply extinguish the debt." Id. at 86. The Colorado Supreme Court...