Rural Water Dist. No. 1 v. Wilson

• Decision Date: 22 March 2001
• Docket Number: Nos. 98-3337,98-3340,No. 1,P,99-3075,1,s. 98-3337
• Citation: 243 F.3d 1263
• Parties: (10th Cir. 2001) RURAL WATER DISTRICT NO. 1, ELLSWORTH COUNTY, KANSAS, commonly known as Post Rock Rural Water District, also known as Ellsworth County Rural Water Districtlaintiff-Appellant and Cross-Appellee, v. CITY OF WILSON, KANSAS, Defendant-Appellee and Cross-Appellant. & 99-3084
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1263

243 F.3d 1263 (10th Cir. 2001)

RURAL WATER DISTRICT NO. 1, ELLSWORTH COUNTY, KANSAS, commonly known as Post Rock Rural Water District, also known as Ellsworth County Rural Water District No. 1, Plaintiff-Appellant and Cross-Appellee, v. CITY OF WILSON, KANSAS, Defendant-Appellee and Cross-Appellant.

Nos. 98-3337, 98-3340, 99-3075 & 99-3084

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

March 22, 2001

APPEAL FROM UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS. (D.C. No. CV-96-1297-WEB)

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Victor S. Nelson, of Victor S. Nelson, P.A., Wichita, Kansas, for the appellant.

Allen G. Glendenning, of Watkins, Calcara, Rondeau, Friedeman, Bleeker, Glendenning & McVay, Chtd, Great Bend, Kansas, for the appellee.

Before HENRY, BRISCOE, Circuit Judges, and ALLEY, District Judge.¹

HENRY, Circuit Judge.

Plaintiff Rural Water District No. 1, Ellsworth County, Kansas (commonly known as Post Rock Rural Water District) brought this case alleging that defendant City of Wilson, Kansas, (the City) violated 7 U.S.C. 1926(b) by providing domestic water service to customers in Post Rock's service area. Post Rock sought declaratory and injunctive relief under 28 U.S.C. 2201 and 2202. Post Rock appeals the district court's refusal to grant a permanent injunction preventing the City from providing domestic water service in Post Rock's service area. Post Rock also appeals the district court's refusal to award all of its attorney fees and expenses under 42 U.S.C. 1988. The City cross-appeals the district court's decision to grant a contingent injunction concerning the City's provision of water service in the Purma Addition. The City further appeals the district court's award of partial attorney fees to Post Rock under 1988. We exercise jurisdiction pursuant to 28 U.S.C. 1291, and affirm in part, reverse in part, and remand.

I.

The City is a municipal corporation in Ellsworth County, Kansas. Post Rock is a rural water district formed on March 5, 1979. Post Rock has the legal right pursuant to 7 U.S.C. 1926(c) to provide water service "to all of Ellsworth County except the incorporated cities, including the City of Wilson as it existed on March 5, 1979." Aplt. App. I at 147. The City owns and operates groundwater wells, water treatment systems, and water distribution systems within the Wilson city limits and within areas annexed into the City since January 1995. Pursuant to 1926(c), customers within Post Rock's service area must receive water service from Post Rock or provide their own water; they may not connect to the City water system unless Post Rock is unable to provide service or releases them from the water district.

To receive water service, Post Rock requires prospective customers to submit an application for a benefit unit, accompanied by an $800 application fee.² This purchase of a benefit unit makes the prospective customer a part owner of the district. With a portion of the application fee, Post Rock hires an independent engineering firm to determine whether the customer can be adequately served by Post Rock "without curtailing service to existing Post Rock customers. If the engineer finds that there is sufficient capacity to serve the potential user and determines what additions will be required to the system, Post Rock then calculates the cost of adding the potential user to the system." Aplt. App. I at 151. Under this policy, the customer pays all of the costs of adding his property to Post Rock's water system.

This appeal concerns three properties in Post Rock's service area: the Purma Addition, the Prairie Estates Addition, and the Branda property. Purma Addition is located outside the 1979 Wilson city limits. On April 20, 1995, the City annexed Purma Addition. In December 1995, the City extended its municipal water system to Purma Addition and in July 1997, it began providing water service to the two duplexes in Purma Addition. Although Post Rock had the ability to deliver water to Purma Addition, Post Rock had no water pipes in Purma Addition at the time of trial. At the time of trial, no one in Purma Addition had made a formal application to Post Rock for water service. A Post Rock study showed it would take two to five days to establish service to the duplexes, at a cost of $32,000.

Prairie Estates Addition is also located outside the 1979 Wilson city limits. At the time of trial, the City had not annexed Prairie Estates, but had studied the feasibility of running water pipes into the area. At the time of trial, Post Rock had not received a formal application for water service from anyone in Prairie Estates. Post Rock had no water pipes in Prairie Estates, but there was testimony that it would take three to six days to provide water service. At the time of trial, no houses had been built in Prairie Estates and none were planned in the immediate future. Post Rock could not state whether it would have the capacity to serve Prairie Estates in the future.

The Branda property was annexed into the City in 1992. Before January 19, 1995, the City provided water service only to a house on the property. After January 19, 1995, the City also provided service to another building on the property. At the time of trial, Post Rock had not received an application for water service and had not done a cost analysis of providing water service to the property.

On February 6, 1997, Post Rock filed an amended complaint in federal district court alleging the City violated 7 U.S.C. 1926(b) by providing water service in Post Rock's service area and seeking declaratory and injunctive relief under 28 U.S.C. 2201 and 2202. In its trial brief, Post Rock asserted it was entitled to relief under 42 U.S.C. 1983 and requested attorney fees pursuant to 42 U.S.C. 1988.

After a bench trial, the district court entered judgment on October 27, 1998, concluding that Post Rock properly brought its claim for a violation of 1926(b) under 42 U.S.C. 1983. The district court determined that the City was encroaching on Post Rock's service area, but concluded that Post Rock was not making service available because it charged customers for building water system infrastructure. The district court entered a contingent injunction as to Purma Addition, enjoining the City from providing water service if Post Rock agreed to provide service at a reasonable cost. The district court denied Post Rock relief as to Prairie Estates because Post Rock had not shown when, if ever, there would be domestic water users in that area and whether Post Rock would have the capacity to serve those users. The district court also denied Post Rock relief as to the Branda property because Post Rock had not shown it could serve the property and had not made service available. Post Rock filed a motion for attorney fees, expenses, and expert witness fees under 1988. The district court concluded that Post Rock was a prevailing party under 1988 and awarded Post Rock 25 percent of its claimed fees and expenses because it had prevailed on only a portion of its claim.

II.

Post Rock appeals the district court's denial of injunctive relief, which we review for abuse of discretion. See Roe v. Cheyenne Mountain Conference Resort, Inc., 124 F.3d 1221, 1230 (10th Cir. 1997). "The discretionary decision is 'not left to a Court's "inclination," but to its judgment; and its judgment is to be guided by sound legal principles.'" Id. (quoting Albemarle Paper Co. v. Moody, 422 U.S. 405, 416 (1975)). "The court's discretion is to be exercised in light of the purposes of the statute on which plaintiff's suit is based." Id. To the extent the district court determined questions of law in interpreting a statute, we exercise de novo review. Ute Indian Tribe v. Utah, 114 F.3d 1513, 1520 (10th Cir. 1997).

Protection from competition under 7 U.S.C. 1926(b)

Post Rock is a rural water district incorporated by the Ellsworth County Board of County Commissioners to develop and provide water service to the rural residents within its territory, pursuant to Kan. Stat. Ann. 82a-613 (1997). Kansas law authorizes rural water districts to borrow money from the federal government. Kan. Stat. Ann. 82a-619(b) (1997). "As part of the Consolidated Farm and Rural Development Act, 7 U.S.C. 1921-2009n, Congress authorized the Secretary of Agriculture to make or insure loans to nonprofit water service associations for 'the conservation, development, use, and control of water.'" Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow, 191 F.3d 1192, 1194 (10th Cir. 1999) (quoting 7 U.S.C. 1926(a)), cert. denied, 120 S. Ct. 1532, 1548 (2000). In accordance with these provisions, Post Rock borrowed money from the Farmer's Home Administration (FmHA).³

Section 1926 applies to rural water districts receiving loans from the FmHA. That statute provides that "[t]he 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." 7 U.S.C. 1926(b). By enacting 1926(b), Congress intended to protect rural water districts from competition to encourage rural water development and to provide greater security for and thereby increase the likelihood of repayment of FmHA loans. See Sequoyah County, 191 F.3d at 1196; Bell Arthur Water Corp. v. Greenville Utils. Comm'n, 173 F.3d 517, 523 (4th Cir. 1999). Section 1926(b) is broadly construed to protect rural water districts from competition with other water service providers. See Adams County Reg. Water Dist. v. Village of Manchester, Ohio, 226 F.3d 513, 518 (6th Cir. 2000) (stating that 1926(b) "should be given a liberal interpretation that protects rural water associations indebted to the FmHA from municipal encroachment") (internal quotation marks omitted); Bell Arthur, 173 F.3d at 520, 526 (noting Congress intended by ...