Rural Water Dist. No. 4, Douglas Cnty. v. City of Eudora

• Decision Date: 19 June 2012
• Docket Number: Case No. 07–2463–JAR.
• Parties: RURAL WATER DISTRICT NO. 4, Douglas County, Kansas, Plaintiff, v. CITY OF EUDORA, KANSAS, Defendant.
• Court: U.S. District Court — District of Kansas

875 F.Supp.2d 1260

RURAL WATER DISTRICT NO. 4, Douglas County, Kansas, Plaintiff,

v.CITY OF EUDORA, KANSAS, Defendant.

Case No. 07–2463–JAR.

United States District Court,

D. Kansas.

June 19, 2012.

John W. Nitcher, Riling, Burkhead & Nitcher, Chtd., Massachusetts, Lawrence, KS, Michael D. Davis, Steven M. Harris, Doyle Harris Davis & Haughey, Tulsa, OK, for Plaintiff.

Curtis L. Tideman, Lathrop & Gage, LLP, Overland Park, KS, David R. Frye, Lathrop & Gage, LLP, Kansas City, MO, Jeffrey R. King, Independence, KS, for Defendant.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, District Judge.

Rural Water District No. 4, Douglas County, Kansas (“Douglas–4” or “the District”) brought this suit against the City of Eudora, Kansas (“the City” or “Eudora”), under 42 U.S.C. § 1983, alleging the City violated Douglas–4's exclusive right to provide water service to current and prospective customers in violation of 7 U.S.C. § 1926(b). By order of the Tenth Circuit filed September 26, 2011, 659 F.3d 969 (10th Cir.2011), this case was remanded for further proceedings solely on the issue of whether Douglas–4's cooperation to secure a federal guarantee was necessary to carry out the purposes of the organization. This matter is before the Court on the parties' cross-motions for summary judgment (Docs. 461, 468).¹ The Court heard oral argument on February 16, 2012, at which time it took the matter under advisement. Douglas–4 supplemented its submissions (Doc. 482), citing a recent amendment to the controlling statute, K.S.A. § 82a–619(g), and Eudora responded. After reviewing the parties' arguments and submissions, the Court is prepared to rule. For the reasons explained in detail below, the Court denies both parties' motions, and certifies for interlocutory appeal under 28 U.S.C. § 1292(b) the question of whether the recent amendment to § 82a–619(g) is retroactive and thus effectively eliminates the “necessity” issue from the case.

I. Summary Judgment Standard

Summary judgment is appropriate if the moving party demonstrates that there is “no genuine issue as to any material fact” and that it is “entitled to a judgment as a matter of law.” ² In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party.³ “There is no genuine issue of material fact unless the evidence, construed in the light most favorable to the nonmoving party, is such that a reasonable jury could return a verdict for the nonmoving party.”⁴ A fact is “material” if, under the applicable substantive law, it is “essential to the proper disposition of the claim.” ⁵ An issue of fact is “genuine” if “ ‘the evidence is such that a reasonable jury could return a verdict for the non-moving party.’ ” ⁶

The moving party initially must show the absence of a genuine issue of material fact and entitlement to judgment as a matter of law.⁷ In attempting to meet this standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim.⁸

Once the movant has met this initial burden, the burden shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” ⁹ The nonmoving party may not simply rest upon its pleadings to satisfy its burden.¹⁰ Rather, the nonmoving party must “set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.” ¹¹ To accomplish this, the facts “must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein.” ¹²Rule 56(c)(4) provides that opposing affidavits must be made on personal knowledge and shall set forth such facts as would be admissible in evidence.¹³ The non-moving party cannot avoid summary judgment by repeating conclusory opinions, allegations unsupported by specific facts, or speculation.¹⁴” “Where, as here, the parties file cross-motions for summary judgment, we are entitled to assume that no evidence needs to be considered other than that filed by the parties, but summary judgment is nevertheless inappropriate if disputes remain as to material facts.” ¹⁵

Finally, summary judgment is not a “disfavored procedural shortcut”; on the contrary, it is an important procedure “designedto secure the just, speedy and inexpensive determination of every action.” ¹⁶ In responding to a motion for summary judgment, “a party cannot rest on ignorance of facts, on speculation, or on suspicion and may not escape summary judgment in the mere hope that something will turn up at trial.”

II. Uncontroverted Facts and Procedural History

Douglas–4 is a quasi-municipal corporation organized pursuant to K.S.A. § 82a–616(a), for the primary purpose of providing water service to the residents within its geographical boundaries (“Douglas–4's Territory”). Its purpose under Kansas law is to provide water to “promote the public health, convenience and welfare” of the community.¹⁷ Eudora owns and operates water treatment and distribution facilities located in Douglas County, Kansas.

Douglas–4 needed to borrow funds for the construction of water facilities to enable it to purchase water from Johnson County Consolidated Rural Water District No. 6 (the “Johnson–6 Project”). The Johnson–6 Project was projected to cost $1.25 million, most of which Douglas–4 was required to borrow because it lacked sufficient cash reserves.

In May 2003, Scott Schultz, District Administrator for Douglas–4, prepared a Memorandum for Douglas–4's Board of Directors discussing financing options for the Johnson–6 Project.¹⁸ By way of background, Schultz stated that the Board had previously approved the Johnson–6 Project, “with financing of $1.25 million from the KDHE [Kansas Department of Health and Environment] revolving loan fund at a fixed interest rate of 4.08% over 20 years.” Because KDHE loans do not provide water districts with any protection against annexation by cities, however, Schultz proposed that Douglas–4 obtain part of the $1.25 loan from a private bank guaranteed by Rural Development. Schultz recommended the Board “carve off the pump station part of our project” that could be financed with a $250,000 private loan and the remaining $1 million loan from KDHE as planned. Schultz explained that “[t]he point of this loan would be to gain negotiating leverage,” and “[t]he only reason I can think of that anyone would do a guaranteed loan from Rural Development is for annexation protection.” Although the cost of splitting the financing this way would exceed the amount needed for the KDHE loan by $5000 to $10,000, Schultz stated that the total would be less since the term of the private loan would be ten years rather than twenty. Schultz concluded by explaining that “I want you to know that we are going to proceed with the project regardless of the financing issues—if an obstacle surfaces on getting the Rural Development guaranteed loan, we will simply take the entire loan from KDHE as originally planned.” Finally, Schultz stated, “[i]f it costs you a little more in fees and interest rates, but saves hundreds of thousands of dollars down the road by allowing us to negotiate on an even par with the cities, it will pay off handsomely.”

Douglas–4 borrowed the $250,000 necessary for the Johnson–6 Project from a private lender, First State Bank & Trust located in Tonganoxie, Kansas (“the Bank”). In order to obtain the $250,000 loan from the Bank (“the Bank Loan”), Douglas–4 cooperated with the Bank and the United States Department of Agriculture(“USDA”) to obtain a USDA guarantee for the benefit of the Bank. The USDA provided the Bank a Conditional Commitment for Guarantee on September 17, 2003, in advance of the disbursement of any loan proceeds. ¹⁹ The Conditional Commitment required the Bank, among other things, to close on the Bank Loan, disburse funds and for the Johnson–6 Project to be substantially completed before the Loan Guarantee was executed.²⁰

A six-month promissory loan was executed by Douglas–4 in favor of the Bank on September 11, 2003, for the actual construction of the pump station. The note was extended by agreement to June 15, 2004, and thereafter, the twenty-year Bank Loan was made on that date, and the Loan Note Guarantee was provided on August 26, 2004.²¹ On July 23, 2003, Ken Pierce, Senior Vice President of the Bank, signed a Lender's Credit Evaluation that stated

The lender has review [sic] the audited financial statements of the District and the financial feasibility analysis. The lender is comfortable in making the loan with a Rural Development Guarantee. Without this guarantee the lender would not be able to make a loan to the District. The lender has prepared their own internal review and would not make a loan without the guarantee. ²²

Pierce also executed a Lender's Certification that states, “Lender would not make the loan without an Agency Guarantee.” ²³ Pierce avers that

An essential and necessary requirement of [the Bank Loan] ... was that [the Bank Loan] be guaranteed by the United States Department of Agriculture—Rural Development. Without such a guarantee, [the Bank Loan] would not have been made.... As a necessary part of securing the said Loan Note Guarantee, [the Bank] was required to certify to [the USDA] that [the Bank] would not make the loan to Douglas–4 without the above described Loan Note Guarantee.... In point of fact, [the Bank] would not make the loan to Douglas–4 without the above-described Loan Note Guarantee.²⁴

Douglas–4 utilized the proceeds from the Bank Loan to construct a pump station and a related portion of the soft costs that was an integral part of the Johnson–6 Project.

In his declaration submitted in support of Douglas–4's Motion for Summary Judgment, Pierce further avers that...