Sewer v. City of Guthrie

• Citation: 654 F.3d 1058
• Decision Date: 25 July 2011
• Docket Number: 08–6066.,Nos. 08–6003,s. 08–6003
• Parties: RURAL WATER SEWER AND SOLID WASTE MANAGEMENT, DISTRICT NO. 1, LOGAN COUNTY, OKLAHOMA, an agency and legally constituted authority of the State of Oklahoma, Plaintiff–Counter–Defendant–Appellee,v.CITY OF GUTHRIE, an Oklahoma Municipality; The Guthrie Public Works Authority, a public trust, Defendants–Counterclaimants–Third–Party Plaintiffs–Appellants,v.Department of Agriculture, Third–Party–Defendant–Appellee,andCommunity Program Loan Trust 1987A, a Massachusetts Business Trust, Third–Party Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

654 F.3d 1058

RURAL WATER SEWER AND SOLID WASTE MANAGEMENT, DISTRICT NO. 1, LOGAN COUNTY, OKLAHOMA, an agency and legally constituted authority of the State of Oklahoma, Plaintiff–Counter–Defendant–Appellee,

v.CITY OF GUTHRIE, an Oklahoma Municipality; The Guthrie Public Works Authority, a public trust, Defendants–Counterclaimants–Third–Party Plaintiffs–Appellants,

v.Department of Agriculture, Third–Party–Defendant–Appellee,andCommunity Program Loan Trust 1987A, a Massachusetts Business Trust, Third–Party Defendant.

Nos. 08–6003

08–6066.

United States Court of Appeals, Tenth Circuit.

July 25, 2011.

James C. Milton (Courtney Bru, with him on the briefs) Doerner, Saunders, Daniel & Anderson, L.L.P., Tulsa, OK, for Defendants–Appellants City of Guthrie and The Guthrie Public Works Authority.Michael D. Davis (Steven M. Harris, with him on the brief) Doyle Harris Davis & Haughey, Tulsa, OK, for Plaintiff–Appellee Rural Water, Sewer and Solid Waste Management District No. 1.Steven K. Mullins (John C. Richter, United States Attorney & Kay Sewell, Assistant United States Attorney, on the brief) United States Attorney's Office, Oklahoma City, OK, for Third–Party Defendant–Appellee Department of Agriculture.Before GORSUCH, EBEL and MATHESON ^*, Circuit Judges.

EBEL, Circuit Judge.

This case involves a dispute between two water service providers over which one of them is entitled to serve certain customers located in and around Guthrie, Oklahoma. Plaintiff–Appellee Rural Water, Sewer and Solid Waste Management District No. 1 of Logan County (“Logan–1”) claims that its right to serve these customers is grounded in state law, but is protected from competition from encroaching water districts by a federal statute, 7 U.S.C. § 1926(b). Section 1926(b) protects rural water providers like Logan–1, which are indebted on loans obtained from the United States Department of Agriculture (“USDA”). Logan–1 contends that Defendants–Appellants City of Guthrie and its Guthrie Public Works Authority (collectively “Guthrie”) violated § 1926(b) by extending water service to customers located in Logan–1's designated service area.

In these appeals, Guthrie challenges several district court orders. Having jurisdiction to review some of these orders under 28 U.S.C. § 1292(b), and jurisdiction to review others under Fed.R.Civ.P. 54(b) and 28 U.S.C. § 1291, we AFFIRM in part, REVERSE in part, and REMAND this case to the district court.

I. BACKGROUND

“In 1961 Congress amended the Consolidated Farm and Rural Development Act, 7 U.S.C. §§ 1921–2009n, to allow nonprofit water associations to borrow federal funds for ‘the conservation, development, use, and control of water ... primarily serving ... rural residents.’ ” Moongate Water Co. v. Dona Ana Mut. Domestic Water Consumers Ass'n, 420 F.3d 1082, 1084 (10th Cir.2005) (quoting 7 U.S.C. § 1926(a)(1)). Originally the Farmers Home Administration (“FmHA”) administered these loans. See Pittsburg Cnty. Rural Water Dist. No. 7 v. City of McAlester, 358 F.3d 694, 701 & n. 1 (10th Cir.2004). Since 1994, however, the USDA has operated this loan program, see id. at 701 n. 1, through its Rural Utilities Service. See Rural Water Dist. No. 1, Ellsworth Cnty. v. City of Wilson, 243 F.3d 1263, 1269 n. 3 (10th Cir.2001) (citing 7 C.F.R. § 1780.3(a)).

Beginning in January 1976, Logan–1 obtained a series of five forty-year loans from the USDA—two in 1976, and one each in 1978, 1982 and 2003. Logan–1 is a non-profit association created in 1972 by the Logan County Board of Commissioners to provide water service to parts of Logan County, but not within the Guthrie city limits as those limits existed at that time.

In order to provide greater security for the loans the USDA makes, as well as to promote rural water development, see Pittsburg Cnty., 358 F.3d at 715, Congress, as part of the Consolidated Farm and Rural Development Act, through 7 U.S.C. § 1926(b) prohibited “other water utilities from competing with the borrowing entity within the borrowing entity's service area,” Dona Ana Mut. Domestic Water Consumers Ass'n v. City of Las Cruces, 516 F.3d 900, 902–03 (10th Cir.2008). In 2005, Logan–1 sued Guthrie, claiming Guthrie had encroached on Logan–1's service area, in violation of § 1926(b), by providing water to customers located in Logan–1's service area.

The district court granted Logan–1 partial summary judgment on its § 1926(b) claims, making several legal conclusions that Guthrie challenges now on appeal. The district court certified these interlocutory decisions for immediate appeal under 28 U.S.C. § 1292(b), and this court accepted the appeal, see Fed. R.App. P. 5.

In addition to Logan–1's § 1926(b) claims against Guthrie, Guthrie filed counterclaims against Logan–1 and a third-party complaint against the USDA. The district court dismissed Guthrie's counterclaim and third-party claims for procedural reasons. Guthrie also challenges those determinations now on appeal. Although the district court's dismissal of Guthrie's counterclaim and third-party complaint did not dispose of all of the claims at issue in this case, the district court certified its dismissal of those particular claims as final and appealable under Fed.R.Civ.P. 54(b).

II. LOGAN–1'S § 1926(b) CLAIMS AGAINST GUTHRIE

Section 1926(b) states:

The service provided or made available through any [indebted rural water] 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). Although this case does not specifically involve the “inclusion of [Logan–1's service] area ... within the boundaries of any municipal corporation or other public body,” “the granting of any private franchise for similar service[s] in [Logan–1's service] area,” or any “event ... requiring [Logan–1] to secure any franchise, license, or permit as a condition to continuing to serve [its] area,” id., this court has applied § 1926(b) broadly to protect an indebted rural water district against competition from municipalities encroaching upon the rural water district by other, “similar means.” Glenpool Util. Servs. Auth. v. Creek Cnty. Rural Water Dist. No. 2, 861 F.2d 1211, 1214 (10th Cir.1988) (quotation omitted); see also Pittsburg Cnty., 358 F.3d at 714–15; Sequoyah Cnty. Rural Water Dist. No. 7 v. Town of Muldrow, 191 F.3d 1192, 1197 (10th Cir.1999). Thus, we have previously applied § 1926(b) in cases like this one, where an indebted rural water district sought protection against encroachment by a neighboring municipality allegedly providing water service to the rural water district's customers or potential customers. See Rural Water Dist. No. 1, 243 F.3d at 1267–69; Sequoyah Cnty., 191 F.3d at 1194, 1197–1201. See generally Adams Cnty. Reg'l Water Dist. v. Vill. of Manchester, 226 F.3d 513, 518 (6th Cir.2000) (“Most of the cases arising under § 1926(b) have involved a municipality's attempt to encroach on a rural water association's area of service. Courts have uniformly understood the section as forbidding such encroachment, concluding that § 1926(b) should be given a liberal interpretation that protects rural associations indebted to the [USDA] from municipal encroachment.” (quotation omitted; citing cases)).

To be entitled to § 1926(b)'s protection from competition, Logan–1 must establish 1) its continuing indebtedness on loans obtained from the USDA and 2) that it has provided or at least made water service available. See Pittsburg Cnty., 358 F.3d at 713; Sequoyah Cnty., 191 F.3d at 1197. Any “doubts about whether a water association is entitled to protection from competition under § 1926(b) should be resolved in favor of the [USDA]-indebted party seeking protection for its territory.” Pittsburg Cnty., 358 F.3d at 715 (quotation, alteration omitted); see also Sequoyah Cnty., 191 F.3d at 1197. We address each of these requirements in turn. The district court, in addressing this two-pronged inquiry, granted Logan–1 partial summary judgment, making several legal determinations which Guthrie challenges now on appeal. We review those legal determinations de novo. See Pittsburg Cnty., 358 F.3d at 713.

A. Logan–1 has a continuing indebtedness under loans it obtained from the USDA

On appeal, Guthrie does not dispute that Logan–1 has been continually indebted, since 1976, on loans obtained from the USDA.¹ Instead, Guthrie argues that Logan–1's indebtedness is invalid. More specifically, Guthrie claims that § 1926(b)'s protection against competition is contrary to the Oklahoma Constitution, which provides that “[t]he Legislature shall pass no law granting to any association, corporation, or individual any exclusive rights, privileges, or immunities within this State.” Okla. Const. art. 5, § 51. While the Oklahoma legislature has authorized Logan–1, under Okla. Stat. tit. 82, § 1324.10(A)(4), to enter into loan agreements with the USDA, ²see Sequoyah Cnty., 191 F.3d at 1194, Guthrie contends that § 1324.10(A)(4) violates Okla. Const. art. 5, § 51 to the extent it authorizes Logan–1 to enter into loans that must, as a matter of federal law, protect the rural water district from competition under 7 U.S.C. § 1926(b).

The Oklahoma Supreme Court accepted our certification of this question, see Rural Water Sewer & Solid Waste Mgmt., Dist. No. 1 v. City of Guthrie, 344 Fed.Appx. 462 (10th Cir.2009) (unpublished), and concluded that a rural water district could agree to § 1926(b)'s protection without violating the Oklahoma Constitution. See Rural Water Sewer & Solid Waste Mgmt., Dist. No. 1 v....