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

720 F.3d 1269

RURAL WATER DISTRICT NO. 4, DOUGLAS COUNTY, KANSAS, Plaintiff–Appellant,

v.CITY OF EUDORA, KANSAS, Defendant–Appellee.

No. 12–3197.

United States Court of Appeals, Tenth Circuit.

July 1, 2013.

Steven M. Harris, Doyle Harris Davis & Haughey, Tulsa, OK (Michael D. Davis, Doyle Harris Davis & Haughey, Tulsa, OK, and John W. Nitcher, Riling Burkhead & Nitcher, Lawrence, KS, with him on the briefs) for Appellant.

Curtis Tideman (David Frye and Jeffrey R. King with him on the brief), Lathrop & Gage LLP, Overland Park, KS, for Appellee.

Before TYMKOVICH, Circuit Judge, HOLLOWAY, Senior Circuit Judge, and HOLMES, Circuit Judge.

TYMKOVICH, Circuit Judge.

This is the second appeal in a dispute involving Rural Water District No. 4 in Douglas County, Kansas and the City of Eudora, Kansas. The water district, Douglas–4, neighbors Eudora and contends Eudora is trying to poach Douglas–4's customers. Douglas–4 is currently indebted on a USDA-guaranteed loan, so Eudora's actions potentially violate a federal law which prohibits municipalities from poaching rural water districts' customerswhile a USDA-guaranteed loan is in repayment. Douglas–4 therefore sued Eudora under 42 U.S.C. § 1983, claiming Eudora violated Douglas–4's federal statutory right to be free from poaching. The case went to trial resulting in a jury verdict and damages for Douglas–4.

On appeal, we vacated the verdict. Rural Water Dist. No. 4, Douglas Cnty., Kan. v. City of Eudora, Kan., 659 F.3d 969 (10th Cir.2011) (Eudora I ). The appeal turned on a Kansas statute that prevents rural water districts from obtaining USDA loan guarantees unless those guarantees are “necessary.” Absent a showing the loan was necessary, Douglas–4 could not claim the anti-poaching protections granted by federal law. We held the jury was improperly instructed on the meaning of “necessary” and remanded for a new trial.

Soon after our decision, the Kansas legislature amended the relevant Kansas statute and removed the “necessary” requirement. The district court, considering cross-motions for summary judgment on remand, ruled that the amendment does not apply retroactively. The district court also denied summary judgment for both parties. The district court then certified the retroactivity question to us, which we accepted. Douglas–4, however, asks us to reach two additional issues, both of which come down to whether it deserves summary judgment on this record. If we agree to expand the scope of the appeal as Douglas–4 suggests, Eudora asks us to consider whether it, rather than Douglas–4, deserves summary judgment.

Exercising jurisdiction under 28 U.S.C. § 1292(b), we uphold the district court's conclusion that the amended Kansas statute does not apply retroactively. The “necessary” requirement therefore still binds Douglas–4. We also agree to take up the parties' arguments about the propriety of summary judgment. In that regard, we hold Douglas–4 fails the “necessary” requirement as a matter of law, entitling Eudora to summary judgment.

I. Background

A. The Johnson–6 Project

Douglas–4 is a rural water district organized under Kansas's Rural Water Districts Act. Sometime before 2002, Douglas–4 was running low on water and looking to buy from an adjoining rural water district known as “Johnson–6.” But getting water from Johnson–6 would require Douglas–4 to lay new pipes and build a new pumping station. The estimated cost for such improvements was $1.25 million. Douglas–4 received initial approval of a loan for the entire $1.25 million from the Kansas Department of Health and Environment (KDHE) at a 4.08% fixed interest rate for twenty years.

B. The Choice to Pursue a USDA Guarantee

Eudora is a Kansas municipality whose boundaries run up against Douglas–4's service area. In 2002, Eudora annexed a part of Douglas–4's service area. Douglas–4 saw Eudora's actions as a threat to its customer base.

In May 2003, Douglas–4's administrator, Scott Schultz, wrote a memo to Douglas–4's governing board proposing a new financing arrangement for the Johnson–6 project. Instead of borrowing $1.25 million from the KDHE, Schultz proposed borrowing $1 million from the KDHE and $250,000 through a private loan guaranteed by the USDA's Rural Development agency. Schultz argued the private, USDA-guaranteed loan was advantageous because federal law prohibits municipalities from poaching a rural water district's customer base while a USDA-guaranteed loan remains in repayment:

The service provided or made available through any [rural water district with a USDA-backed loan] shall not be curtailed or limited by inclusion of the area served by such [district] within the boundaries of any municipal corporation or other public body ... during the term of such loan....

7 U.S.C. § 1926(b). This restriction helps rural water districts to maintain a revenue stream through which to pay back their loans. See Sequoyah Cnty. Rural Water Dist. No. 7 v. Town of Muldrow, 191 F.3d 1192, 1196 (10th Cir.1999).

Schultz's memo (which he affirmed in deposition and trial testimony) states that the USDA-backed loan would have a higher interest rate than the already-approved KDHE loan and would cost $5,000 to $10,000 more in closing and professional fees. “Really, the only motivation for this loan,” he said, “is the potential for annexation protection.” Aple. Addendum at 49. Schultz also told the board, “[W]e are going to proceed with the project regardless of the financing issues—if an obstacle surfaces on getting the [federal loan guarantee], we will simply take the entire loan from KDHE as originally planned.” Id. at 51.

Based on Schultz's recommendation, the board approved a plan to finance $1 million through the KDHE and $250,000 through a private bank loan with a USDA guarantee. Douglas–4 eventually got both loans and the guarantee. When Eudora nonetheless threatened to poach Douglas–4's customer base in the annexed area, Douglas–4 filed a § 1983 complaint, alleging violation of 7 U.S.C. § 1926(b).

C. The Litigation Before the First Appeal

In prior cases involving rural water districts, we have held that such districts do not enjoy § 1926(b) protection unless state law authorizes the water district to incur federal obligations. See, e.g., Pittsburg Cnty. Rural Water Dist. No. 7 v. City of McAlester, 358 F.3d 694, 717–19 (10th Cir.2004). Much 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.

The question at trial, as framed by the district court, was whether the USDA-guaranteed private loan was “necessary” as required by a Kansas statute that gives rural water districts power to “cooperate with and enter into agreements with the secretary of the United States department of agriculture or the secretary's duly authorized representative necessary to carry out the purposes of its organization.” K.S.A. § 82a–619(g) (emphasis added). If the loan was not “necessary to carry out the purposes of its organization,” then Douglas–4 would not merit § 1926(b) protection.

Eudora objected, arguing that the necessity of the loan (i.e., to build the Johnson–6 project) was never at issue, just the necessity of the federal guarantee on that loan. The district court overruled the objection, stating that the loan and the guarantee were “one and the same” for purposes of this case.

The district court therefore instructed the jury to consider whether the loan guaranteed by the USDA was necessary, not whether the guarantee itself was necessary. The jury found the loan necessary (presumably to fund the Johnson–6 project) and gave a verdict in favor of Douglas–4.

D. The First Appeal

On appeal, Eudora again argued that the district court erred by not separating the necessity of the loan from the guarantee.We agreed with Eudora on this question, holding that the necessity of the guarantee, not the loan, was the salient question. Eudora I, 659 F.3d at 977.

We also addressed a cross-appeal argument from Douglas–4 regarding K.S.A. § 82a–619(g), the subsection creating the “necessary” requirement. That subsection actually contains two clauses, one containing the “necessary” requirement and another which has no such requirement. At that time, the entire subsection provided as follows:

Every district incorporated under this act ... shall have the power to * * * cooperate with and enter into agreements with the secretary of the United States department of agriculture or the secretary's duly authorized representative necessary to carry out the purposes of its organization; and to accept financial or other aid which the secretary of the United States department of agriculture is empowered to give pursuant to 16 U.S.C., secs. 590r, 590s, 590x–1, 590x-a and 590x3, and amendments thereto....

K.S.A. § 82a–619(g) (1997 & Supp.2002) (emphasis added). Douglas–4 claimed that the “accept financial or other aid” clause, which contains no “necessary” requirement, gave it authority to obtain a USDA guarantee and its attendant § 1926(b) protection without making a necessity showing.

We rejected that argument because the cross-referenced federal statutes—“16 U.S.C., secs. 590r, 590s, 590x–1, 590x-a and 590x–3”—had been repealed in 1961. Moreover, they had been replaced with what we characterized as a “radically different statutory scheme” with different numbering, so “amendments thereto” could not plausibly encompass the new federal regime. Eudora I, 659 F.3d at 977 n. 5.

After resolving various other issues not relevant here, we 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.” Id. at 980.

E. Developments on Remand

Our discussion in Eudora I of § 82a–619(g)'s “accept financial or other aid” clause apparently prompted the Kansas legislature to propose a statutory amendment:

The supplemental note [to the...