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

CITY OF EUDORA, KANSAS Plaintiff, v. RURAL WATER DISTRICT NO. 4, DOUGLAS COUNTY, KANSAS, Defendant.

Case No. 14-2399-JAR-KGS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

March 23, 2016

MEMORANDUM AND ORDER

Plaintiff the City of Eudora, Kansas ("Eudora" or "the City") seeks declaratory relief regarding its right to exercise the right to provide water service within certain disputed areas and whether Defendant Rural Water District No. 4, Douglas County, Kansas ("Douglas-4" or "the District") lacks protection under 7 U.S.C. § 1926(b), specifically any protection related to the curtailment or limitation of water services by Eudora. This matter is before the Court on the parties' Cross-Motions for Summary Judgment (Docs. 25, 28). The Court held oral argument on the motions on October 26, 2105. For the reasons explained below, the Court directs the parties to submit supplemental briefs addressing the issue of whether this Court has Article III jurisdiction.

Procedural History

This declaratory judgment action stems from prior litigation between the parties involving multiple orders of this Court, a jury trial, and two decisions from the Tenth Circuit Court of Appeals. The procedural history of this case is mostly undisputed and the Court assumes the reader is familiar with the Tenth Circuit opinions that precipitate the matters before the Court. The Court will not restate the underlying facts in detail, but will provide excerpts from the proceedings and opinions as needed to frame its discussion of the matters presently before it. Moreover, the parties have helpfully stipulated to many facts and exhibits set forth in the Pretrial Order.¹

Underlying Litigation

In 2007, Douglas-4 sued Eudora under 42 U.S.C. § 1983, claiming Eudora violated Douglas-4's federal statutory rights. Highly summarized, the parties disputed whether Douglas-4 was entitled to protection under 7 U.S.C. § 1926(b), which prohibits municipalities from poaching rural water district's customers while a USDA-guaranteed loan is in repayment. As the Tenth Circuit explained, rural water districts "do not enjoy § 1926(b) protection unless state law authorizes the water district to incur federal obligations," and "[m]uch of the litigation between Douglas-4 and Eudora therefore revolved around whether Kansas law permits rural water districts to take out federal loans, or guarantees, or both."² The case went to trial resulting in a jury verdict and damages for Douglas-4, and the Court entered a Permanent Injunction Order restraining Eudora from further violations of § 1926(b).³

Eudora I

On appeal, the Tenth Circuit agreed with Eudora that this Court erred by not separating the necessity of the loan from the guarantee, holding that the necessity of the guarantee, not theloan was the salient question.⁴ The court rejected Douglas-4's cross-appeal argument that the "accept financial or other aid" clause in K.S.A. § 82a-619(g) (1997 & Supp. 2002), which contains no "necessary" requirement, gave Douglas-4 authority to obtain a USDA guarantee and its attendant § 1926(b) protection without making a necessity showing.⁵ The Tenth Circuit vacated the verdict, holding that this Court improperly instructed the jury on the meaning of "necessary," and remanded "for a new trial for the limited purpose of determining whether Douglas-4's cooperation to secure the federal guarantee was necessary for the purposes of its organization."⁶

Eudora II

Effective July 1, 2012, the Kansas legislature amended the relevant Kansas statute K.S.A. § 82a-619(g). On remand, the parties filed cross-motions for summary judgment and this Court ruled that the amendment did not apply retroactively. This Court also denied cross-motions for summary judgment, concluding that genuine issues of material fact precluded summary judgment on the "necessary" requirement. The Court certified the retroactivity question to the Tenth Circuit, which agreed to hear the appeal. The Court did not certify the summary judgment question of whether there was a genuine issue on the merits. Nevertheless, Douglas-4 urged the Tenth Circuit to expand the issues on appeal to include whether this Court committed error by denying Douglas-4's summary judgment motion because the undisputed evidence discloses that the Guarantee was necessary to obtain the Loan.

On July 1, 2013, the Tenth Circuit handed down its decision in Eudora II, affirming this Court's conclusion that Amended 84a-619(g) did not apply retroactively, and thus the "necessary" requirement still bound Douglas-4.⁷

The court also obliged Douglas-4's request, and exercised its discretion to address the proposed additional issues. In a classic case of "be careful what you wish for," however, the court sided with Eudora, finding that "no reasonable jury could find in favor of Douglas-4 on the 'necessary' question."⁸ The court affirmed this Court's denial of summary judgment to Douglas-4, but reversed its denial of summary judgment to Eudora, and further directed, "On remand, the district court should enter summary judgment in Eudora's favor on the question of whether Douglas-4's USDA guarantee was 'necessary to carry out the purpose of its organization' and otherwise proceed in a manner consistent with this opinion."⁹

Post-Eudora II

On July 9, 2013, after the Tenth Circuit issued Eudora II, but before the mandate issued, Douglas-4 passed the following resolution:

In light of the changes to K.S.A. 82a-619(g) passed in 2012 by the Kansas Legislature, and the recent decision by the Tenth Circuit announced on July 1, 2013, the Board of Directors for Douglas County Rural Water District No. 4 hereby re-adopt, ratify, re-affirm and re-authorize all documents, contracts, motions, resolutions, representations, certifications, cooperation given and/or granted, and the receipt of all financial aid in the form of a guarantee or other aid from the United States Department of Agriculture, relative to the loan transaction made and entered intoby and between the District and the First State Bank & Trust, to finance a part of the improvement of and addition to the RWD4 pipeline system enabling it to purchase water from Consolidated Rural Water District No. 6, Johnson County, Kansas under its June 5, 2002 Water Supply Contract, and, further, to direct John Nitcher to notify the USDA and First State Bank & Trust that the District desires and requests that the USDA and First State Bank & Trust re-adopt, ratify, re-affirm and re-authorize all documents, contracts, motions, resolutions, representations, certifications, cooperation given and/or granted, and the receipt of all financial aid in the form of guarantee or other aid from the United States Department of Agriculture, relative to the loan transaction made and entered into by and between the District and First State Bank & Trust, to finance a part of the improvement of and addition to the Douglas-4 pipeline system enabling it to purchase water from Consolidated Rural Water District No. 6, Johnson County, Kansas under its June 5, 2002 Water Supply Contract. The motion containing both resolutions was approved unanimously.¹⁰

On July 30, 2013, the USDA sent a letter addressed to First State Bank & Trust regarding "Rural Water District #4, Douglas County," stating, in part: "As of the date of this letter, USDA, Rural Development reaffirms its loan guarantee as executed via loan note guarantee dated June 15, 2004. A copy of the loan guarantee is attached for your convenience."¹¹

After the Tenth Circuit issued its mandate in Eudora II, Court staff emailed counsel to request that Eudora, as the prevailing party, submit a proposed order in accordance with the Circuit's mandate. Counsel submitted a proposed order and Douglas-4 objected under D. Kan. Rule 58.1, submitting its own proposed order that added language that the guarantee was not necessary, "but only as it relates to facts and circumstances prior to July 1, 2012" (the date the statute was revised). Douglas-4 also requested language that the general necessary requirement respecting cooperation with the USDA has now been specifically removed as a result of thelatest statutory amendments. This extra language and/or ruling does not appear in Eudora II, which directed this Court "to enter summary judgment in Eudora's favor on the question of whether Douglas-4's USDA guarantee was 'necessary to carry out the purposes of its organization' and otherwise proceed in a manner consistent with this opinion."

Accordingly, on September 5, 2013 this Court entered an Order of Final Judgment on Remand, dismissing with prejudice all claims by Douglas-4 against Eudora, including the holding that "Plaintiff [Douglas-4] is not entitled to any protection under 7 U.S.C. § 1926(b).¹² The Order further stated "[t]o the extent that Defendant [Eudora] brought counterclaims against Plaintiff, such claims have been either previously dismissed without prejudice or rendered moot by the Tenth Circuit's Opinion in this case. Accordingly, this Judgment disposes of all claims of all of the parties."¹³

On June 18, 2014, First State Bank & Trust sent a letter addressed to Douglas-4, stating in part:

Pursuant to one Promissory Note dated June 15, 2004, on Loan No. 4233686, First State Bank and Trust lent to Rural Water District No. 4, Douglas County, Kansas, the principal amount of Two Hundred Fifty Thousand Dollars ($250,000.00) to be repaid in 120 monthly consecutive principal and interest payments of $1,794.52, beginning July 15, 2004, with interest calculated on the unpaid principal balances at an initial discounted interest rate of 6.020% per annum and 120 monthly consecutive principal and interest payments of $1,918.74 each, beginning July 15, 2014, with interest calculated on the unpaid principal balances at an interest rate of 7.520% per annum, with said borrower's final payment to be due on June 15, 2024, which would be for all principal and accrued interest not yet paid, together with any other unpaid

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