Rural Water Sewer v. City of Guthrie, et al

Filing

[9887357] Affirmed in Part and Reversed and Remanded; Terminated on the merits after oral hearing; Written, signed, published; Judges Gorsuch, Ebel, authoring judge and Matheson. Mandate to issue. [08-6003, 08-6066]

FILED
Appellate Case: 08-6003

Document: 01018681510

United States Court of Appeals
Date Filed: 07/25/2011 Page: 1
Tenth Circuit

July 25, 2011
PUBLISH

Elisabeth A. Shumaker
Clerk of Court

UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

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-DefendantAppellee,
v.
CITY OF GUTHRIE, an Oklahoma
Municipality; THE GUTHRIE PUBLIC
WORKS AUTHORITY, a public trust,
Defendants-CounterclaimantsThird-Party Plaintiffs-Appellants,
v.
DEPARTMENT OF AGRICULTURE,
Third-Party-DefendantAppellee,
and
COMMUNITY PROGRAM LOAN
TRUST 1987A, a Massachusetts Business
Trust,
Third-Party Defendant.

Nos. 08-6003, 08-6066

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 2

Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 05-cv-00786-R)

James C. Milton (Courtney Bru, with him on the briefs) Doerner, Saunders, Daniel &
Anderson, L.L.P., Tulsa, Oklahoma, 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, Oklahoma, 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,
Oklahoma 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

*

Judge Michael W. McConnell was the third member of the panel when this case
was orally argued and when the panel certified several questions to the Oklahoma
Supreme Court. Judge McConnell resigned his commission on August 31, 2009, and did
not participate in this opinion. Judge Scott M. Matheson, Jr. replaces Judge McConnell
on the panel. Judge Matheson has read the briefs, reviewed the previous oral argument
held in this case, and is fully advised on the premises of these appeals. No member of the
panel concludes that further oral argument is necessary.
2

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 3

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)).
3

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 4

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
4

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 5

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

5

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 6

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.
6

Appellate Case: 08-6003

A.

Document: 01018681510

Date Filed: 07/25/2011

Page: 7

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,

1

In 1987, the USDA sold Logan-1’s first four loans to a private entity, Third-Party
Defendant Community Program Loan Trust 1987A (“Trust”), pursuant to Congress’
direction, under the Omnibus Budget Reconciliation Act of 1986 (“OBRA”), Pub. L.
No. 99-509, § 1001, 100 Stat. 1874 (1986), to sell some of these loans to private lenders.
See Moongate Water Co. v. Butterfield Park Mut. Domestic Water Ass’n, 291 F.3d 1262,
1265 (10th Cir. 2002); Sequoyah Cnty., 191 F.3d at 1198. Congress later amended
OBRA to clarify that § 1926(b)’s protection of the borrowing rural water district from
competition continued to apply to these loans: “1926(b)[] shall be applicable to all notes
or other obligations sold or intended to be sold under” § 1001 of OBRA. Pub. L.
No. 100-233, § 803, 101 Stat. 1568 (1988); see also Moongate Water, 291 F.3d at 1265;
Sequoyah Cnty., 191 F.3d at 1198. Although the USDA sold Logan-1’s four loans in
August 1987, after Congress enacted OBRA but before its amendment, occurring in
January 1988, none of the parties here contend that § 1926(b)’s protections do not
continue to apply to the four Logan-1 loans that the USDA sold to the Trust. See
Moongate Water Co. v. Butterfield Park Mut. Domestic Water Ass’n, 125 F. Supp. 2d
1304, 1308-10 (D.N.M. 2000) (holding indebted water districts were still protected under
§ 1926(b) even when its loans were sold under OBRA, but prior to the amendment to
OBRA clarifying that the § 1926(b) protection attached to these loans continued), aff’d,
Moongate Water, 291 F.3d at 1264, 1265-67 . Thus, as to its first four loans now owned
by the Trust, Logan-1 “remains indebted on what were originally [USDA] loans.”
Moongate Water, 291 F.3d at 1267.
7

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 8

§ 1324.10(A)(4), to enter into loan agreements with the USDA,2 see 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 F. App’x
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. City of Guthrie, 253 P.3d 38, 41 (Okla.

2

In pertinent part, Okla. Stat. tit. 82, § 1324.10 provides:

A. Every district incorporated hereunder . . . shall have power to:
....
4. Borrow money and otherwise contract indebtedness for the
purposes set forth in this act, and, without limitation of the
generality of the foregoing, to borrow money and accept grants
from the United States of America, or from any corporation or
agency created or designated by the United States of America,
and, in connection with such loan or grant, to enter into such
agreements as the United States of America or such corporation
or agency may require; and to issue its notes or obligations
therefor, and to secure the payment thereof by mortgage, pledge
or deed of trust on all or any property, assets, franchises, rights,
privileges, licenses, rights-of-way, easements, revenues, or
income of the said district.
(Footnote omitted.) See Pittsburg Cnty., (No. 107,468) 358 F.3d at 701 (noting that the
Oklahoma legislature enacted Okla. Stat. tit. 82, § 1324.10(A)(4) in response to
Congress’ enactment of 7 U.S.C. § 1926(b)).
8

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 9

2010). In reaching that conclusion, the Oklahoma Supreme Court determined the
following: The Oklahoma legislature enacted statutes that permit the creation of rural
water districts with designated service areas, but the legislature has not provided these
districts with an exclusive franchise to provide water service in those areas. See id. at
45-46 & 46 n.10. The state legislature also authorized these rural water districts to
borrow money and enter into contracts. See id. at 46. And in borrowing money, a
district may obtain financing from the USDA, even if such an agreement requires
§ 1926’s protection from competition. See id. at 46-47. That protection, however, is
granted, not by the state legislature, but instead by Congress. See id. at 44-48, 52 (relying
on Glenpool, 861 F.2d at 1216). Therefore, “article 5, section 51 is neither implicated nor
violated as no action by the Oklahoma Legislature has been taken that grants an exclusive
right to a water district.” Id. at 48. Moreover, §1926(b)’s protection “is a qualified not an
exclusive right, limited in time and in scope” by “preclud[ing] competitive water services
only while a district remains indebted to the USDA [and] to the extent that a competitor’s
services would curtail or limit the indebted district’s ability to provide water services and
repay its loans.” Id. at 49. Further, noting that a rural water district can only invoke
§ 1926(b)’s protection if it has made water service available, the Oklahoma Supreme
Court determined that, “[a]t most, section 1926(b) ordains a dual water authority function
within a municipal area for a period of time.” Id. at 49-50.
In light of the Oklahoma Supreme Court’s resolution of our certified question, we
affirm the district court’s determination that Logan-1’s § 1926(b) protection does not
9

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 10

violate the Oklahoma Constitution. Logan-1 has thus established that it has been
continually and validly indebted, since 1976, on loans obtained from the USDA.
B.

Whether Logan-1 has provided or made water service available
In order to establish that it has adequately made water service available, Logan-1

must first show that it has the legal right to provide water service. See Sequoyah Cnty.,
191 F.3d at 1201 n.8; see also Moongate Water, 420 F.3d at 1084-85. Here, no one
disputes that Logan-1 has a right under Oklahoma law to provide water service within its
assigned territory.
Logan-1 must also establish that it has in fact “provided or made [water service]
available,” 7 U.S.C. § 1926(b). See Sequoyah Cnty., 191 F.3d at 1201-03. This inquiry
“focus[es] primarily on whether [Logan-1] . . . has proximate and adequate ‘pipes in the
ground’ with which it has served or can serve the disputed customers within a reasonable
time.” Id. at 1203; see also Butterfield Park, 291 F.3d at 1267-68; Rural Water Dist.
No. 1, 243 F.3d at 1270.
[A] water association meets the “pipes-in-the-ground” test by demonstrating
that it has adequate facilities within or adjacent to the area to provide service
to the area within a reasonable time after a request for service is made. This
is essentially an inquiry into whether a water association has the capacity to
provide water service to a given customer.
Sequoyah Cnty., 191 F.3d at 1203 (quotation, citation omitted); see also Pittsburg Cnty.,
358 F.3d at 713; Butterfield Park, 291 F.3d at 1268; Rural Water Dist. No. 1, 243 F.3d at
1270. Further, Logan-1 “must have made service available prior to the time an allegedly
encroaching association began providing service in order to be eligible for § 1926(b)
10

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 11

protection.” Sequoyah Cnty., 191 F.3d at 1202 (quotation, alterations omitted).
The district court determined that, in this case, there were disputed issues of fact
remaining as to whether Logan-1 had made services available to the customers at issue
before Guthrie began providing those customers with water. The parties do not challenge
that determination on appeal. In granting Logan-1 partial summary judgment, however,
the district court made several legal determinations as to how it intends to resolve that
factual question. Guthrie challenges two of those legal conclusions here.
1. The “made service available” determination should be decided on a
customer-by-customer basis in this case
Guthrie first challenges the district court’s determination that it will decide
whether Logan-1 made services available on a customer-by-customer basis, rather than on
an area-wide basis. We need not set forth a per se rule here but, instead, conclude that the
district court was correct in applying a customer-by-customer basis in this case because
Logan-1 specifically alleged that Guthrie violated § 1926(b) by providing water to certain
customers located in Logan-1’s service area. That is a more narrow claim than if Logan-1
had instead alleged that § 1926(b)’s protection from competition applied to protect entire
areas within its designated service area. We, therefore, need not decide here whether
Logan-1 could make such an area-wide claim.
Moreover, the manner that Logan-1 pled its § 1926(b) claim, on a customer-bycustomer basis, is consistent with how prior Tenth Circuit cases have addressed the
question of whether an indebted rural water district has “made service available” for

11

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 12

purposes of § 1926(b). For example, in Sequoyah County, the plaintiff rural water district
alleged that a competing municipal water provider violated § 1926(b) by providing water
service to specific customers in the rural water district’s assigned territory. See 191 F.3d
at 1194-95, 1197. This court, in that case, thus addressed the rural water district’s
§ 1926(b) claim on a customer-by-customer basis. See id. at 1203-06; see also Butterfield
Park, 291 F.3d at 1263-64 (addressing a dispute under § 1926(b) about which competing
water provider had the right to serve a particular customer); cf. Rural Water Dist. No. 1,
243 F.3d at 1267, 1271-72 (addressing whether a rural water district made service
available to three specific properties within its service area). Similarly, this court, in
Pittsburg County, remanded a § 1926(b) claim to the district court with instructions to
consider whether the rural water district had made service available to each of the specific
customers at issue in that case. See 358 F.3d at 713-14; see also id. at 716 (addressing the
defendant water district’s sales to customers in an area de-annexed from the purportedly
protected rural water district); Sequoyah Cnty., 191 F.3d at 1201 n.6 (noting on remand
that the district court would have to consider, among other things, whether the rural water
district “demonstrate[d] that it ‘made service available’ to the customers that Defendants
allegedly began serving before the repurchase date” of the rural water provider’s loans
obtained from the USDA). The Eighth Circuit has also applied the “pipes in the ground”
test customer by customer. See Pub. Water Supply Dist. No. 3 of Laclede Cnty. v. City
of Lebanon, 605 F.3d 511, 521-23 (8th Cir. 2010). Therefore, given the way that
Logan-1 alleged and argued its § 1926(b) claims in this case, the district court did not err
12

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 13

in concluding that it would decide whether Logan-1 had “made services available” on a
customer-by-customer basis.
2. Whether Logan-1 can provide fire protection to the disputed customers is
irrelevant to the question of whether Logan-1 made service available to them
for purposes of § 1926(b)
Guthrie next argues that the district court, in addressing whether Logan-1 made
service available to the disputed customers, must consider that Logan-1 is required by
state and federal law to provide its customers with fire protection, but cannot do so. The
district court, however, held that Logan-1 was not legally obligated to provide fire
protection. We agree.
Guthrie asserts that 7 C.F.R. § 1780.57 mandates that Logan-1 provide fire
protection. But that regulation provides only that “[w]ater facilities” financed by the
USDA “should have sufficient capacity to provide reasonable fire protection to the extent
practicable.” 7 C.F.R. § 1780.57(d) (emphasis added). See Rural Water Dist. No. 4 v.
City of Eudora, 604 F. Supp. 2d 1298, 1329 (D. Kan. 2009) (rejecting similar argument),
clarified on reconsideration, 2009 WL 1360182 (D. Kan. 2009).
7 C.F.R. § 1780.57 also provides more generally that “[f]acilities financed by the
[USDA] will be designed and constructed in accordance with sound engineering
practices, and must meet the requirements of Federal, State and local agencies.” Relying
on this regulation, Guthrie further contends that Oklahoma law requires Logan-1 to
provide fire protection. But in support of that argument, Guthrie cites to two Oklahoma
administrative regulations, one addressing “[w]ater main design for all systems providing
13

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 14

fire protection,” Okla. Admin. Code 252:626-19-3 (emphasis added), and the other
addressing “[w]ater main design for systems providing domestic water only,” which
“applies only to water systems without full fire protection capabilities,” id. 252:626-19-4
(emphasis added). Because these regulations clearly anticipate that some water systems
will provide fire protection, while others will not, the district court correctly rejected
Guthrie’s argument that Oklahoma law, as set forth in these regulations, requires Logan-1
to provide fire protection.
Despite correctly concluding that neither federal nor state law requires Logan-1 to
provide fire protection to its customers, the district court nevertheless held that, in light of
7 C.F.R. § 1780.57(d)’s language—“[w]ater facilities” financed by the USDA “should
have sufficient capacity to provide reasonable fire protection to the extent
practicable”—the court could consider, as one factor in deciding whether Logan-1 has
made service available, if it was practicable for Logan-1 to provide “reasonable fire
protection.” See Sequoyah Cnty., 191 F.3d at 1203-05 (considering evidence regarding
rural water district’s physical capacity to provide disputed customers with both potable
water and with fire protection). We disagree with the district court’s conclusion.
Logan-1’s ability to provide fire protection is simply not relevant to the specific question
of whether Logan-1 has adequate pipes in the ground to “make service available” for
purposes of the § 1926(b) protection from competition.3 See Rural Water Dist. No. 4, 604
3

We address only whether Logan-1 has adequate pipes in the ground to make water
service available for purposes of §1926(b). This court has recognized that, even though a
water district has pipes in the ground to provide water service upon request, “the cost of
14

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 15

F. Supp. 2d at 1313, 1317, 1328-29 (holding “fire protection is irrelevant to whether a
water district has made service available”); Rural Water Dist. No. 1 v. City of Ellsworth,
995 F. Supp. 1164, 1167 n.2 (D. Kan. 1997) (indicating that rural water district’s ability
to provide fire protection “has no effect on its rights under § 1926(b)”); N. Shelby Water
Co. v. Shelbyville Mun. Water & Sewer Comm’n, 803 F. Supp. 15, 23 (E.D. Ky. 1992)
(holding, prior to enactment of § 1780.57, that “[t]he adequacy of the water service North
Shelby is presently able to provide, including fire protection, is irrelevant to a
determination whether North Shelby is entitled to the protections of § 1926(b)”); Rural
Water Dist. No. 3 v. Owasso Utils. Auth., 530 F. Supp. 818, 823 (N.D. Okla. 1979)
(noting § 1926(b) “was not enacted for the purposes of fire protection—it was enacted to
provide means of securing a safe and adequate supply of running household water”
(quotation omitted)); cf. Rural Water Dist. No. 1, 243 F.3d at 1272 (noting that City’s
plan to run water pipes into site of planned development only for fire protection did not
encroach on rural water district’s service rights as to that site); Sequoyah Cnty., 191 F.3d
at 1204 n.10 (noting “that the United States District Court for the Northern District of
[Iowa] recently held that, because § 1926(b) was not enacted to supply fire protection, a
water association’s capacity to provide fire protection is irrelevant to its entitlement to
protection from competition under § 1926(b)” (citing Rural Water Sys. No. 1 v. City of

those services may be so excessive that it has not made those services ‘available’ under
§1926(b).” Rural Water Dist. No. 1, 243 F.3d at 1271. But none of the parties on appeal
raise an issue regarding the cost of Logan-1’s provision of water service and so we have
no occasion to address that question here.
15

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 16

Sioux Ctr., 29 F. Supp. 2d 975, 992-94 (N.D. Iowa 1998), aff’d in part, rev’d in part on
other grounds, 202 F.3d 1035 (8th Cir. 2000))).4
C.

Conclusion as to Logan-1’s claims asserted against Guthrie
To summarize,5 to invoke § 1926(b)’s protection from competition, Logan-1 must

establish 1) its continued indebtedness under loans obtained from the USDA, and 2) that
it has made service available. Based upon the Oklahoma Supreme Court’s decision in
response to our certified question, we hold that Logan-1 has established its continued
indebtedness. As to the question of whether Logan-1 has made service available, we
conclude that determination must, in this case, be made on a customer-by-customer basis.
We further conclude that whether Logan-1 can provide fire protection to the customers in
dispute is irrelevant to the question of whether Logan-1 has made water service available
to them for purposes of 7 U.S.C. § 1926(b).6
4

Like this court, the Sixth and the Eighth Circuits apply the “pipes in the ground”
test for determining §1926(b)’s protection against competition. See Le-Ax Water Dist. v.
City of Athens, 346 F.3d 701, 706 (6th Cir. 2003) (discussing both Sixth and Eighth
Circuit cases).
5

We decline to address the issue raised by Logan-1, as an appellee, challenging the
district court’s determination that the applicable two-year statute of limitations will limit
Logan-1’s recovery of damages for any § 1926(b) violation, because Logan-1 did not file
a cross-appeal raising this question. See Lombardi v. Small Bus. Admin., 889 F.2d 959,
962 (10th Cir. 1989).
6

Nothing in our opinion addresses whether the federal government can, or should,
consider the fire protection offered or made available by a rural water district in
determining whether to make a loan to a rural district under § 1926. Nor do we address a
situation where fire protection was explicitly included in a contract between the USDA
and a rural water district. The loan agreements at issue here between Logan-1 and the
USDA did not require Logan-1 to offer fire protection.
16

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 17

III. GUTHRIE’S COUNTERCLAIM AND THIRD-PARTY COMPLAINT
Guthrie also challenges the district court’s decision to dismiss, for procedural
reasons, Guthrie’s third-party complaint against the USDA and Guthrie’s counterclaims
asserted against Logan-1.
A.

Dismissal of Guthrie’s third-party complaint against the USDA
In its third-party complaint against the USDA, Guthrie sought declaratory and

injunctive relief under the Administrative Procedures Act (“APA”), 5 U.S.C. §§ 701-706.
These claims are based generally on two theories: 1) Logan-1 did not have authority,
under Oklahoma law, to agree to the § 1926(b) protection from competition because the
protection was contrary to Okla. Const. art. 5, § 51. 2) But if Logan-1 did have state-law
authority to agree to the § 1926(b) protection, then the USDA is now obligated to invoke
the graduation clause in the 2003 loan agreement which, according to Guthrie, requires
Logan-1 to repay that loan immediately.7
7

Each of the loans Logan-1 obtained from the USDA contained graduation clauses
which were not identical but provided something to the effect that
[i]f at any time it shall appear to the Government that Borrower may be able
to obtain a loan from a responsible cooperative or private credit source at
reasonable rates and terms for loans for similar purposes and periods of time,
Borrower will, at the Government’s request, apply for and accept such loan in
sufficient amount to repay the Government.
(Aplt. App. at 745.) Guthrie’s graduation-clause theory of recovery is limited to the 2003
loan agreement because the USDA transferred its first four loans with Logan-1 to the
Trust. Before doing so, the USDA eliminated any right the Trust might have to invoke
the graduation clauses in those agreements and the USDA waived its own right to invoke
these clauses:
17

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 18

The district court dismissed these claims on sovereign immunity grounds and for
lack of standing. This court will review these decisions de novo. See Normandy
Apartments, Ltd. v. U.S. Dep’t of Housing & Urban Dev., 554 F.3d 1290, 1296 (10th Cir.
2009) (sovereign immunity); Day v. Bond, 500 F.3d 1127, 1132 (10th Cir. 2007)
(standing).
1. Guthrie’s claims based upon the Oklahoma constitution
Ordinarily, this court must resolve jurisdictional issues, such as sovereign
immunity and standing, “before addressing the merits of the claim, even if the
[jurisdictional] question[s] [a]re difficult and we could easily decide the merits.” Starkey
ex rel. A.B. v. Boulder Cnty. Soc. Servs., 569 F.3d 1244, 1259 (10th Cir. 2009); see also
The Trust shall not have the right to compel any Borrower to prepay a Loan
solely by reason of such Borrower’s ability to refinance its unpaid
indebtedness under the Loan at reasonable rates and terms, and the
Government hereby waives, relinquishes and agrees not to exercise any such
right it may have under any of the instruments, contracts or agreements herein
described or under any Federal law or regulations.
(Id. at 1121-22 (quotation, alteration omitted).) In its amended third-party complaint,
Guthrie originally named both the Trust and the USDA as defendants. Guthrie also
challenged the USDA’s authority to waive the graduation clauses in these loan
agreements. But the district court held that the relevant six-year statute of limitations
barred any challenge Guthrie asserted to the USDA’s transfer of the first four loans to the
Trust, which occurred in 1987. See 28 U.S.C. § 2401(a) (providing generally that “every
civil action commenced against the United States shall be barred unless the complaint is
filed within six years after the right of action first accrues”). And the district court later
granted Guthrie’s motion to dismiss the Trust from this litigation. On appeal, the parties
do not challenge either of these decisions. Therefore, as to Guthrie’s theory of recovery
based upon the graduation clauses in the loan agreements, the four loans that the USDA
sold to the Trust in 1987 are no longer at issue and we address here only Guthrie’s
third-party claims based upon the graduation clause contained in the USDA’s 2003 loan
agreement with Logan-1.
18

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 19

id. at 1259-60; Carolina Cas. Ins. Co. v. Pinnacol Assurance, 425 F.3d 921, 923-24, 92728 (10th Cir. 2005). But the Supreme Court, in Steel Co. v. Citizens for a Better
Environment, 523 U.S. 83, 98-100 (1998),
recognized an exception to the general rule–that jurisdiction must be
established before turning to the merits . . . . Occasionally a court may rule
that a party loses on the merits without first establishing jurisdiction because
the merits have already been decided in the court’s resolution of a claim over
which it did have jurisdiction. In that circumstance, resolution of the merits
is “‘foreordained,” so the court is not producing an advisory opinion. Rather,
it is merely parroting a prior decision. Such parroting is not an improper
aggrandizement of power by the court. The court is not overreaching to decide
an issue; after all, the issue has already been decided.
Starkey, 569 F.3d at 1260 (citation omitted).
That exception applies here to Guthrie’s claims asserted against the USDA based
upon the asserted conflict between § 1926(b) and the Oklahoma Constitution. The
Oklahoma Supreme Court, in resolving our certified question raised by Logan-1’s
§ 1926(b) claims against Guthrie, over which we clearly have jurisdiction, rejected the
merits of that argument. The Oklahoma Supreme Court’s decision also resolves the
merits of Guthrie’s third-party claims based on the same theory. We therefore need not
address whether the United States has waived its sovereign immunity as to these claims,
nor do we need to decide whether Guthrie has standing to assert them. Instead, we affirm
the district court’s dismissal of Guthrie’s claims against the USDA which are based upon
the alleged § 1926(b)/Oklahoma Constitution conflict, but we do so based on these

19

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 20

claims’ merit, or more precisely on their lack of merit.8 We, therefore, remand these
claims to the district court with instructions to dismiss them with prejudice.9
2. Guthrie’s claims based upon the graduation clause in the 2003 loan
agreement
We must still address our jurisdiction to consider Guthrie’s third-party claims
against the USDA seeking to enforce the graduation clause in the 2003 loan agreement.

8

These claims include Guthrie’s claims seeking the following declarations: that
Okla. Stat. tit. 82, § 1324.10 “is unconstitutional under the Oklahoma Constitution to the
extent that it provides the Plaintiff with the authority to enter into loan agreements with
the USDA that carry with them exclusive rights to serve a particular territory, its service
area—an area broader than its existing customers”; “that complying with state law is a
contractual condition precedent upon which § 1926(b) funding is based[,] and that under
Oklahoma law,” Logan-1 “is without the authority to enter into an agreement that grants
exclusive rights to an entity[,] and that by applying the appropriate contractual analysis
required by the Spending Clause cases,” Logan-1 “has failed to meet a condition
precedent for § 1926(b) funding”; “that the loan agreements upon which [Logan-1] bases
its claims are void for reasons that they are based upon misrepresentations by [Logan-1]
to the USDA regarding [Logan-1’s] state-law authority to borrow funds under a contract
that carries with it exclusive rights”; “that the loan agreements . . . are void for the
reason[] that they exceed the authority of [Logan-1] under Oklahoma law,” and that
Logan-1 “violated Oklahoma law in entering into its agreements with the USDA.” (Aplt.
App. at 1123-24.) These claims further include Guthrie’s claim seeking injunctive relief
in the form of a “judgment preventing the USDA from entering into any further
agreement with [Logan-1] that carries with it exclusive rights under 7 U.S.C. § 1926(b).”
(Id. at 1125.)
9

The district court dismissed these claims on sovereign immunity and standing
grounds, without specifying whether that dismissal was with or without prejudice. But a
dismissal on sovereign immunity grounds or for lack of standing must be without
prejudice. See Governor of Kan. v. Kempthorne, 516 F.3d 833, 846 (10th Cir. 2008)
(sovereign immunity); Brereton v. Bountiful City Corp., 434 F.3d 1213, 1216 (10th Cir.
2006) (standing); see also Garman v. Campbell Cnty. Sch. Dist. No. 1, 630 F.3d 977, 988
(10th Cir. 2010) (noting that, “[g]enerally a dismissal for lack of subject matter
jurisdiction is without prejudice”), petition for cert. filed, 79 U.S.L.W. 3629 (U.S. Apr.
15, 2011) (No. 10-1283).
20

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 21

We conclude that the United States has not waived its sovereign immunity as to these
claims.
Generally, the United States, through the APA, has waived its sovereign immunity
to “[a]n action in a court of the United States seeking relief other than money damages.”
5 U.S.C. § 70210; see also Robbins v. U.S. Bureau of Land Mgmt., 438 F.3d 1074, 1080
(10th Cir. 2006) (noting that 5 U.S.C. § 702 “waives sovereign immunity in most suits for
nonmonetary relief against the United States, its agencies, and its officers” (quotation
omitted)). Nevertheless, the APA limits this waiver of sovereign immunity in the last
sentence of 5 U.S.C. § 702, which provides that the APA does not “confer[] authority to
grant relief if any other statute that grants consent to suit expressly or impliedly forbids
the relief which is sought.” See Kempthorne, 516 F.3d at 841 n.4; Robbins, 438 F.3d at
1080. “Thus, we must read the APA in conjunction with other jurisdictional statutes
10

5 U.S.C. §702 provides, in pertinent part, as follows:

A person suffering legal wrong because of agency action, or adversely affected
or aggrieved by agency action within the meaning of a relevant statute, is
entitled to judicial review thereof. An action in a court of the United States
seeking relief other than money damages and stating a claim that an agency or
an officer or employee thereof acted or failed to act in an official capacity or
under color of legal authority shall not be dismissed nor relief therein be
denied on the ground that it is against the United States or that the United
States is an indispensable party. The United States may be named as a
defendant in any such action, and a judgment or decree may be entered against
the United States . . . . Nothing herein (1) affects other limitations on judicial
review or the power or duty of the court to dismiss any action or deny relief on
any other appropriate legal or equitable ground; or (2) confers authority to
grant relief if any other statute that grants consent to suit expressly or
impliedly forbids the relief which is sought.
21

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 22

waiving sovereign immunity in order to determine whether those statutes forbid the relief
sought in the case at hand.” Robbins, 438 F.3d at 1080 (quotations omitted).
In Robbins, this court considered the interaction of the APA with the federal
Tucker and Little Tucker Acts.
The Tucker Act, 28 U.S.C. § 1491, provides that “[t]he United States Court of
Federal Claims shall have jurisdiction to render judgment upon any claim
against the United States founded . . . upon any express or implied contract
with the United States.” Id. § 1491(a)(1). The Little Tucker Act, 28 U.S.C.
§ 1346(a)(2), grants federal district courts concurrent jurisdiction over contract
claims against the government where plaintiffs seek no more than $10,000 in
damages. The Supreme Court has long held that neither the Tucker Act nor
the Little Tucker Act authorize relief other than money damages for such
contract claims.
Robbins, 438 F.3d at 1080-81 (footnote omitted). Reading the APA’s waiver of
sovereign immunity with the Tucker Acts’ waiver, Robbins held “that the Tucker and the
Little Tucker Act, ‘impliedly forbid’ federal courts from ordering declaratory or
injunctive relief, at least in the form of specific performance, for contract claims against
the government, and that the APA thus does not waive sovereign immunity for such
claims.” Id. at 1082 (footnote omitted); see also McKay v. United States, 516 F.3d 848,
851 (10th Cir. 2008) (noting that, “in the contract context, a distinct line of authority
preserves the sovereign’s immunity from being compelled to perform obligations it
prefers to breach and compensate financially, holding that what are ‘in essence’ claims
for breach of contract cannot circumvent the Tucker Act and its prohibition on equitable
relief by being artfully pled as something else”).
In this case, Guthrie’s claims seeking the enforcement of the graduation clause in
22

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 23

Logan-1’s 2003 loan agreement with the USDA are claims seeking equitable relief in the
nature of specific performance.11 The United States has not waived its sovereign
immunity as to such claims. Therefore, sovereign immunity bars these claims and we
affirm the district court’s dismissal of these claims without prejudice.
3.
Conclusion as to Guthrie’s third-party claims asserted against the
USDA
In summary, we affirm the dismissal of Guthrie’s claims against the USDA
alleging that Logan-1 had no authority under Oklahoma law to agree to 7 U.S.C.
§ 1926(b)’s protection from competition. But we do so based on the merits of those
claims and so we remand them for the district court to dismiss those claims with
prejudice. We further conclude that, because the United States has not waived its
11

These include Guthrie’s claims asserted against the USDA seeking a declaration
that Logan-1 “has the financial capability to retire or refinance the loans that originated
with its loan agreements with the USDA,” and that Logan-1 “should retire or refinance
the loans that originated with its loan agreements with the USDA,” as well as Guthrie’s
claim asserted against the USDA seeking injunctive relief in the form of judgments
requiring the USDA “to enforce, against [Logan-1], the requirement that [Logan-1]
perform its duties and obligations under the graduation requirements of its [2003] loan[]
and either retire or refinance its federal indebtedness,” and “to take the necessary steps
required to enforce the graduation provisions of the [2003] loan contract.” (Aplt. App. at
1124-25.) On appeal, Guthrie does not further assert its claim against the USDA seeking
a judgment “requiring [Logan-1] to perform its duties and obligations under the
graduation requirements of its [2003] loan[] and either retire or refinance its federal
indebtedness.” (Id. at 1125 (emphasis added).) And so we do not address that claim.
Before the district court, it appears that Guthrie sought to amend its third-party complaint
to add claims against the USDA seeking the enforcement of the graduation clause based
upon USDA regulations addressing the USDA’s periodic review of loans for possible
graduation. But Guthrie does not appeal the district court’s decision denying its motion
to amend. We, therefore, also do not address whether the United States waived its
sovereign immunity to claims resting, not on the 2003 loan agreement’s graduation
clause, but instead on USDA regulations addressing loan graduation generally.
23

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 24

sovereign immunity, the district court properly dismissed without prejudice Guthrie’s
claims against the USDA seeking declaratory and injunctive relief based upon the
graduation clause in the 2003 loan agreement.
B.

Dismissal of Guthrie’s counterclaims against Logan-1
Guthrie asserted counterclaims against Logan-1 based on the same two theories

underlying its third-party complaint against the USDA—1) Logan-1’s loan agreements
with the USDA were void because Logan-1 lacked authority under state law to agree to
the § 1926(b) protection from competition that was part of those loan agreements; and
2) the graduation clause in the 2003 loan agreement should be enforced, requiring
Logan-1 to repay its indebtedness to the USDA. After dismissing Guthrie’s third-party
claims against the USDA based on the Government’s sovereign immunity and Guthrie’s
lack of standing (an issue we need not address), the district court dismissed Guthrie’s
counterclaims against Logan-1, under Fed. R. Civ. P. 19, for failure to join an
indispensable party—the USDA.
1. Counterclaim based upon the alleged conflict between 7 U.S.C. § 1926(b)
and the Oklahoma Constitution
Based upon the Oklahoma Supreme Court’s decision rejecting the merits of
Guthrie’s state constitutional argument, we affirm the district court’s dismissal of
Guthrie’s first counterclaim, not because Guthrie cannot join the USDA, but because, as
previously explained, this argument lacks legal merit. In doing so, however, we again
remand that claim so that the district court can clarify that this dismissal on the merits is

24

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 25

with prejudice.
2. Counterclaim based upon graduation clause in the 2003 loan agreement
In its opening brief on appeal, Guthrie focused exclusively on the district court’s
decision to dismiss Guthrie’s counterclaim premised on the Oklahoma Constitution.
Guthrie does not address the dismissal of its counterclaim based on the graduation clause
until its reply brief and then only fleetingly. In light of that, we conclude Guthrie has
waived any argument challenging the dismissal of its counterclaim based upon the
graduation clause in the 2003 loan agreement.12 See M.D. Mark, Inc. v. Kerr-McGee
Corp., 565 F.3d 753, 768 n.7 (10th Cir. 2009). We, thus, affirm the district court’s
dismissal of this counterclaim without prejudice.
IV. CONCLUSION
A.

The district court’s entry of partial summary judgment in favor of Logan-1
on its § 1926(b) claims against Guthrie
To summarize, based upon the Oklahoma Supreme Court’s decision in response to

our certified questions, we AFFIRM the district court’s determination that Logan-1
established its continued indebtedness under loans obtained from the USDA. Based upon
the circumstances presented here, we also AFFIRM the district court’s conclusion that the
“made service available” determination should be made on a customer-by-customer basis.
Further, we AFFIRM the district court’s decision that Logan-1 is not legally required to
provide fire protection. But we REVERSE the district court’s determination that whether
12

Even if we were to address the merits of this claim, however, we would affirm
the district court’s decision.
25

Appellate Case: 08-6003

Document: 01018681510

Date Filed: 07/25/2011

Page: 26

it is practicable for Logan-1 to provide fire protection is one factor to be considered in
deciding whether Logan-1 has made service available. We REMAND Logan-1’s
§ 1926(b) claims asserted against Guthrie for further proceedings consistent with this
opinion.
B.

The district court’s dismissal of Guthrie’s claims against the USDA and
Logan-1
We also AFFIRM the district court’s dismissal of Guthrie’s third-party claims for

equitable relief asserted against the USDA, based upon the alleged conflict between
§ 1926(b)’s protection from competition and the Oklahoma Constitution. But we do so,
not for lack of jurisdiction, but instead for lack of merit. We, therefore, REMAND these
claims so the district court can clarify that the dismissal of these claims is with prejudice.
We AFFIRM the district court’s dismissal without prejudice of Guthrie’s third-party
claims for equitable relief against the USDA, based upon the graduation clause contained
in the USDA’s 2003 loan agreement.
We similarly AFFIRM the dismissal of Guthrie’s counterclaim asserted against
Logan-1, based upon the alleged § 1926(b)/Oklahoma Constitution conflict, but we do so
again based on that claim’s lack of merit. We, therefore, REMAND this counterclaim so
the district court can also dismiss it with prejudice.

26