Rural Wtr Dist No 2 Creek Cnty v. City of Glenpool, et al

Filing

[10014745] Reversed and Remanded. Terminated on the merits after oral hearing. Written, signed, published. Judges Tymkovich, Baldock, author; and Gorsuch. Mandate to issue. [11-5154]

FILED
Appellate Case: 11-5154

Document: 01018941311

United States Court of Appeals
Date Filed: 10/30/2012 Circuit 1
Tenth Page:

October 30, 2012
PUBLISH

Elisabeth A. Shumaker
Clerk of Court

UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

RURAL WATER DISTRICT NO. 2,
CREEK COUNTY, OKLAHOMA, an
agency and legally constituted
authority of the State of Oklahoma,
Plaintiff-Appellant,
v.

No. 11-5154

CITY OF GLENPOOL, an Oklahoma
Municipality, THE GLENPOOL
UTILITY SERVICES AUTHORITY, a
public trust,
Defendants-Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
(D.C. No. 4:11-CV-00441-JHP-PJC)

Steven M. Harris (Michael D. Davis with him on the brief), Doyle Harris Davis &
Haughey, Tulsa, Oklahoma, for Appellant.
Lowell Peterson (James C. Milton, Hall, Estill, Hardwick, Gable, Golden &
Nelson, P.C., Tulsa, Oklahoma, with him on the brief), City Attorney, City of
Glenpool, Glenpool, Oklahoma, for Appellees.

Before TYMKOVICH, BALDOCK, and GORSUCH, Circuit Judges.

BALDOCK, Circuit Judge.

Appellate Case: 11-5154

Document: 01018941311

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Congress enacted 7 U.S.C. § 1926(b) as part of a federal statutory scheme to
extend loans and grants to certain associations providing water service to farmers,
ranchers, and other rural residents. Section 1926(b) prohibits other water utilities
from encroaching upon services provided by federally indebted water associations.
Plaintiff, Rural Water District No. 2 Creek County, Oklahoma, a rural water provider
covered by § 1926(b), and Defendant Glenpool Utility Services Authority, a public
trust created to provide water service, and its beneficiary, Defendant City of
Glenpool, entered into a Settlement Agreement under which Plaintiff agreed not to
file a civil action pursuant to § 1926(b) during the term of the agreement unless
Defendants defaulted on their contractual obligations. Subsequently, Plaintiff filed
the present civil action pursuant to 42 U.S.C. § 1983 alleging Defendants violated
§ 1926(b).

The district court dismissed the action for lack of subject matter

jurisdiction. Our jurisdiction arises under 28 U.S.C. § 1291, and our review is de
June v. Union Carbide Corp., 577 F.3d 1234, 1238 (10th Cir. 2009). On

novo.

appeal, we must determine whether Plaintiff’s agreement not to file a civil action
against Defendants, absent default, deprives us of subject matter jurisdiction under
28 U.S.C. § 1331, where a state court has not yet determined whether Defendants
defaulted. 1

We hold such agreement does not deprive us of subject matter

1

A motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.
R. Civ. P. 12(b)(1) may take one of two forms. A facial attack “looks only to the
factual allegations of the complaint in challenging the court’s jurisdiction.”
(continued...)
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jurisdiction. Accordingly, we reverse and remand.
I.
Our story begins nearly a half century ago in Creek County, Oklahoma. In
1964, the county commissioners incorporated Plaintiff to provide water service. The
Farmers Home Administration (FmHA) thereafter loaned Plaintiff the funds to
construct a rural water system. Three years later, Plaintiff annexed additional
territory in two counties, including an area later known as Eden South. In 1983,
Defendant City of Glenpool annexed new areas into its city limits, including the area
of Eden South. Defendants filed the first lawsuit in this saga a year later, requesting
a declaratory judgment that Defendants enjoyed the exclusive right to furnish water
to Eden South. Plaintiff counterclaimed, also seeking a declaratory judgment that
it possessed the exclusive right to furnish water to Eden South. The district court
held that neither party had an exclusive right to furnish water to Eden South. Both

1

(...continued)
Muscogee (Creek) Nation v. Okla. Tax Comm’n., 611 F.3d 1222, 1227 n.1 (10th Cir.
2010). A factual attack, on the other hand, “goes beyond the factual allegations of
the complaint and presents evidence in the form of affidavits or otherwise to
challenge the court’s jurisdiction.” Id. Plaintiff contends Defendants presented a
facial attack. But Defendants did not attack the sufficiency of the amended
complaint. Rather, Defendants claimed the terms of the Settlement Agreement
deprived the district court of jurisdiction. In a case such as this, where the court is
presented with a factual attack on the complaint, “a district court may not presume
the truthfulness of the complaint’s factual allegations.” Holt v. United States, 46
F.3d 1000, 1003 (10th Cir. 1995). Instead, “[a] court has wide discretion to allow
affidavits, other documents, and a limited evidentiary hearing to resolve disputed
jurisdictional facts under Rule 12(b)(1).” Id.
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parties appealed. We reversed in part and remanded. Glenpool Util. Servs. Auth.
v. Creek Cnty. Rural Water Dist. No. 2, 861 F.2d 1211 (10th Cir. 1988). We held
7 U.S.C. § 1926(b) precluded Defendants from curtailing Plaintiff’s service in Eden
South. Id. at 1217. Consistent with our mandate, the district court on remand
entered judgment for Plaintiff and enjoined Defendants from curtailing Plaintiff’s
service area.
That judgment, however, did not end the parties’ differences. On remand,
Plaintiff requested the district court impose a constructive trust on the water lines
Defendants constructed to the subject property and award damages in the amount of
the water tap fees Defendants collected. The district court denied this relief and
declared that Defendants remained the owners of all water lines and easements
relating to the subject property. Plaintiff again appealed. This time we affirmed the
district court, holding Defendants’ acts were not sufficiently wrongful to require
them to transfer ownership of the water lines to Plaintiff. Glenpool Util. Serv. Auth.
v. Creek Cnty. Rural Water Dist. No. 2, 1992 WL 37327, *4 (10th Cir. 1992)
(unpublished). We did, however, note that our decision left the parties in an unusual
position. Plaintiff had the exclusive right to provide water service to Eden South,
but it did not own the water lines in place. We stated, “Surely there is incentive for
these two nonprofit public bodies to work out a solution that would not require the
District to build duplicate lines.” Id.
The parties did arrive at such a solution. On March 2, 1992, Plaintiff and
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Defendants entered into a Settlement Agreement. Defendants agreed to make certain
payments to Plaintiff during a 20-year term. In return, Plaintiff granted Defendants
permission to provide water service within the “area of agreement.” Plaintiff further
agreed it would not claim any § 1926(b) exclusive right to provide water service in
the “area of agreement” during the period of the Settlement Agreement except in the
case of Defendants’ default. If Defendants failed or refused to pay or perform, and
the failure or refusal was not cured within 30 days, Defendants then owed Plaintiff
a remedy, which might include specific performance, injunctive relief, monetary
damages, termination of the agreement, receipt of water lines, and/or reinstatement
of full rights of exclusivity. Plaintiff exercised its right to request an audit of
Defendants’ records. Plaintiff then sent Defendants a notice of default, contending
Defendants failed to provide a proper accounting and failed to make appropriate
payments in conformity with the Settlement Agreement.
Plaintiff next filed this lawsuit asserting its right to be the exclusive water
service provider, as granted it by virtue of § 1926(b). In its amended complaint,
Plaintiff alleges Defendants are selling water within its geographical boundaries, a
portion of which coincides with the “area of agreement.” Defendants filed a motion
to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject
matter jurisdiction. In their motion, Defendants argued the district court lacked
subject matter jurisdiction for two reasons.

First, Defendants contended the

Settlement Agreement was “insufficient by itself to convey federal jurisdiction.”
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Alternatively, Defendants asserted Plaintiff’s § 1926(b) claim was not yet ripe. The
district court granted the motion to dismiss without an opinion.
II.
Defendants admitted at oral argument that Plaintiff alleged a violation of its
rights under § 1926(b). Regardless, Defendants believe the district court correctly
dismissed the action based on a provision of the Settlement Agreement.

The

agreement provides that, in the absence of default over the term of the agreement,
Plaintiff agrees that it will not make a claim of exclusivity as to the “area of
agreement.” Defendants contend the state law question of whether a default or
breach of contract occurred must be decided before Plaintiff’s federal claim may
proceed. Plaintiff, on the other hand, contends the district court erred because
Defendants in truth simply raised the terms of the Settlement Agreement as an
affirmative defense, rather than as a bar to federal court jurisdiction.
“Federal courts are courts of limited jurisdiction; they must have a statutory
basis for their jurisdiction.” Morris v. City of Hobart, 39 F.3d 1105, 1111 (10th Cir.
1994). In this case, that statutory basis is § 1926(b). Defendants correctly argue that
enforcement of the Settlement Agreement is a matter for a state court, unless some
independent basis for federal jurisdiction exists. Kokkonen v. Guardian Life Ins.
Co., 511 U.S. 375, 382 (1994). But Plaintiff’s amended complaint alleges a violation
of a statutory right—much more than a mere state law breach of contract claim.
Plaintiff and Defendants agreed at oral argument that Plaintiff’s amended complaint
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alleges the elements of a § 1926(b) claim. Specifically, Plaintiff alleged in its
amended complaint that (1) it is indebted to the United States Department of
Agriculture and (2) it has provided or made service available. Rural Water Sewer
& Solid Waste Mgmt. Dist. No. 1, Logan Cnty., Okla. v. City of Guthrie, 654 F.3d
1058, 1062 (10th Cir. 2011). Plaintiff also alleges Defendants have limited or
curtailed that service. Despite Plaintiff alleging the elements of a statutory cause of
action, Defendants contend that the Settlement Agreement bars this lawsuit until a
state court has litigated the issue of breach of the Settlement Agreement.
Defendants’ assertion does not relate to our subject matter jurisdiction, but
instead relates to an affirmative defense to Plaintiff’s § 1926(b) claim. Indeed,
Federal Rule of Civil Procedure 8(c) lists a “release” as an affirmative defense to a
lawsuit. And “[a] defense, however valid, does not oust the district court of subject
matter jurisdiction.” S. New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123,
132 (2d Cir. 2010). The explanation is simple enough: “once the court’s jurisdiction
has been properly invoked in the plaintiff’s complaint, the assertion of such a
defense is relevant only to whether the plaintiff can make out a successful claim for
relief, and not to whether the court has original jurisdiction over the claim itself.”
Id., see also Onischuk v. Johnson Controls, Inc., 182 F. App’x. 532, 533 (7th Cir.
2006) (unpublished) (concluding that although legal issues involving formation,
construction, and enforcement of settlement agreements are matters of state law, the
validity of a prior settlement does not affect a federal court’s jurisdiction). Because
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Plaintiff has alleged Defendants violated its rights pursuant to § 1926(b), the district
court had subject matter jurisdiction over the lawsuit. We emphasize our decision
does not reach the merits of the parties’ dispute. Defendants may raise the relevant
provision of the Settlement Agreement as an affirmative defense to Plaintiff’s federal
claim.
III.
For much the same reasons, Defendants’ claim of ripeness also fails.
Defendants contend Plaintiff’s federal claim is not ripe because Plaintiff cannot
assert that federal claim until a state court adjudicates the breach of settlement
agreement claim. Defendants posit the adjudication of the § 1926(b) claim, without
first allowing a state court determination of the existence of a breach of the
Settlement Agreement, amounts to a “premature adjudication” and “abstract
disagreement” that we should avoid.
“The ripeness doctrine aims to prevent the courts, through avoidance of
premature adjudication, from entangling themselves in abstract disagreements.”
Tarrant Reg’l Water Dist. v. Herrmann, 656 F.3d 1222, 1249 (10th Cir. 2011)
(internal quotation marks omitted). “[I]n determining whether a claim is ripe, a court
must look at (1) the fitness of the issue for judicial resolution and (2) the hardship
to the parties of withholding judicial consideration. Id. “A case meets the first
prong if it does not involve uncertain or contingent events that may not occur at all
(or may not occur as anticipated).” Chavez ex rel M.C. v. N.M. Pub. Educ. Dep’t,
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621 F.3d 1275, 1281 (10th Cir. 2010). “The second prong addresses whether the
challenged action is a direct and immediate dilemma for the parties.” Id. (internal
quotation marks omitted).
In their motion to dismiss, Defendants relied primarily on two cases to support
their view. First, they cited our decision in Salt Lake Tribune Publishing Co., LLC
v. Management Planning, Inc., 454 F.3d 1128 (10th Cir. 2006), for the proposition
that the ripeness doctrine applies in contract claims where a particular claim is
contingent upon facts that have not been developed, or events that have not yet
occurred. In that case, we determined that a plaintiff’s claim for damages from an
allegedly inflated purchase price was not yet ripe because the claim depended upon
two contingent events. Importantly, the plaintiff had not yet paid the allegedly
inflated price. Likewise, in this case, Defendants believe the § 1926(b) claim is not
ripe because a contingent event exists—a state court must determine whether
Defendants violated the Settlement Agreement. This argument, reminiscent of their
first argument, must fail. Plaintiff’s § 1926(b) claim is ripe. As mentioned above,
Plaintiff alleged (1) a continuing indebtedness on loans obtained from the USDA and
(2) Plaintiff has provided or made service available. Moreover, Plaintiff alleges
Defendants have limited or curtailed that service. Each of these allegations has
allegedly occurred. A prior state judicial determination of default of the Settlement
Agreement is not an element of a § 1926(b) claim. Whether Plaintiff may properly
bring the lawsuit because of a prior release is not a jurisdictional bar, but an
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affirmative defense for the reasons set forth above.
The second case Defendants relied on heavily in the district court was Public
Water Supply District No. 10 of Cass County, Missouri v. City of Peculiar, Missouri,
345 F.3d 570 (8th Cir. 2003). In that case, the Eighth Circuit held a § 1926(b) claim
was not ripe because the case would benefit from further factual development. The
Eighth Circuit concluded the water district did not satisfy the hardship prong because
it alleged a speculative injury. The only possible injury to the water district was
dissolution, and no petition for dissolution had been filed, nor could the court
conclude a petition would ever be filed. In the present case, however, Plaintiff has
alleged an injury that is not speculative—that Defendants are curtailing the service.
Nonetheless, Defendants believe Plaintiff’s federal claims “face an obstacle
that remove[s] the dispute from the federal court’s Article III jurisdiction.”
According to Defendants, Plaintiff must prove a breach of the Settlement Agreement
in order to reinstate and enforce its rights of exclusivity. Thus, Defendants argue,
a state court adjudication that no breach of contract exists would eliminate Plaintiff’s
§ 1926(b) claim. Defendants misinterpret the ripeness doctrine. Defendants and
Plaintiff agree Plaintiff alleged a cause of action pursuant to § 1926. Taking the
facts Plaintiff alleged in the amended complaint as true, we agree Plaintiff has
alleged a cause of action pursuant to § 1926(b). No alleged facts are contingent upon
any future events. Plaintiff is indebted to the USDA and it has provided or made
service available.

Whether the specific provisions of a settlement agreement
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preclude Plaintiff’s claim on the merits does not relate to ripeness. Plaintiff met its
burden to show its claim is ripe. If Defendants believe that Plaintiff’s claim is
precluded because of the language of the Settlement Agreement, such an assertion
relates to the merits of the action, not to the ripeness of the § 1926 claim.
Accordingly, the judgment of the district court is—
REVERSED and REMANDED.

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