Rural Water District No. 5, Wagoner County, Oklahoma v. Coweta, City of et al

Filing 95

OPINION AND ORDER by Judge John E Dowdell ; granting 46 Motion in Limine; granting in part and denying in part 50 Motion in Limine (Re: 2 Complaint ) (SAS, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
RURAL WATER DISTRICT NO. 5
WAGONER COUNTY, OKLAHOMA,
Plaintiff,
v.
CITY OF COWETA; COWETA
PUBLIC WORKS AUTHORITY,
Defendants.

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Case No. 08-CV-252-JED-FHM

OPINION AND ORDER
The Court has for its consideration the following: (1) “Plaintiff’s Motion in Limine to
Exclude any Evidence or Argument that Wagoner-5 has an Obligation to Provide Fire Protection
in Order to Obtain 7 U.S.C. § 1926(b) Protection” (Doc. 46); and (2) “Plaintiff’s Motion in
Limine to Exclude the Proposed Testimony of Michael D. Kyser” (Doc. 50).
I.

Summary of Basic Issues in the Case
Plaintiff, Rural Water District No. 5 of Wagoner County, Oklahoma (“Wagoner-5”), filed

this case claiming that, as a debtor association under 7 U.S.C. § 1926(b), it has the exclusive
right to provide water service to all customers within its service area. Wagoner-5 alleges that it
acquired a loan from the United States Department of Agriculture (“USDA”) on June 15, 2007
and that Wagoner-5 therefore has the exclusive right to serve four customers whose service is at
issue in this action: Koweta Indian Clinic; Timber Ridge Crossing Subdivision; Celebration at
the Woods Subdivision; and Cedar Creek Village (the “disputed customers”). Defendant City of
Coweta (“City”) has provided water service to the disputed customers, and Wagoner-5 alleges

that the City’s service to those customers violates § 1926(b). Wagoner-5 brings claims for
damages and equitable relief under 42 U.S.C. § 1983 and 7 U.S.C. § 1926(b). 1
To be entitled to protection against competition under § 1926(b), a rural water association
“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.” Rural Water Sewer & Solid Waste
Mgmt., Dist. No. 1, Logan County v. City of Guthrie, 654 F.3d 1058, 1062 (10th Cir. 2011)
(“Logan-1). “Any ‘doubts about whether a water association is entitled to protection from
competition under § 1926(b) should be resolved in favor of the . . . indebted party seeking
protection for its territory.’” Id. at 1062-63 (citations omitted). “If the water district is entitled to
protection, it must then prove that its services were curtailed or limited by the competing entity.”
Rural Water Dist. No. 4, Douglas County, Kansas v. City of Eudora, Kansas, 659 F.3d 969, 976
(10th Cir. 2011) (“Eudora”). The Court previously granted summary judgment to Wagoner-5 on
the first element quoted above. As such, it is established for purposes of this case that: “since
June 15, 2007, [Wagoner-5] has been indebted to the USDA on a loan made for the purpose of
constructing water facilities to meet the needs of residents within its service area.” (Doc. 90 at
17-18).
The Court determined that the second element – whether Wagoner-5 “made service
available” to the disputed customers – remains a disputed fact issue for the jury in this case. (See
1

(b) Curtailment or limitation of service prohibited

The service provided or made available through any such [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.
2

id. at 18). In analyzing this element, the focus is “primarily on whether the water association has
in fact ‘made service available,’ i.e. on whether the association has proximate and adequate
‘pipes in the ground’ with which it has served or can serve the disputed customers within a
reasonable time.” Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow, Oklahoma,
191 F.3d 1192, 1203 (10th Cir. 1999). A rural “water association meets the ‘pipes-in-theground’ 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.’” Id.
(quoting Bell Arthur Water Corp. v. Greenville Utilities Comm’n, 173 F.3d 517, 526 (4th Cir.
1999)). “This is essentially an inquiry into whether a water association has the capacity to
provide water service to a given customer.” Sequoyah, 191 F.3d at 1203.
“Even where a rural water district meets the ‘pipes in the ground’ test, ‘the cost of [its]
services may be so excessive that it has not made those services ‘available’ under § 1926(b). . . .
Thus, costs may not be unreasonable, excessive, and confiscatory.” Eudora, 659 F.3d at 980-81
(citations omitted).

It is the City’s burden “to show that the water district’s rates are

unreasonable, excessive, and confiscatory.” Id. at 981. The reasonableness of costs is based on
the totality of the circumstances, including a number of factors which may help guide a fact
finder in its determination regarding costs. Id.
II.

Motion in Limine to Exclude Fire Protection Evidence
In both of its limine motions, Wagoner-5 argues that the Court should exclude any

evidence or argument that Wagonter-5 has any obligation to provide fire protection.

The

argument is based on established Tenth Circuit law which provides that 7 U.S.C. § 1926(b) was
not enacted for the purposes of fire protection, but for the purpose of providing potable water.
As a result, there is a line of cases establishing that, in determining whether Wagoner-5 has

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“made service available” (i.e., whether it has met the “pipes in the ground” test), water needs for
fire protection are not to be considered. Logan-1, 654 F.3d at 1066-67 (collecting cases). In
Logan-1, the Circuit summarized that line of cases and noted that the law does not require a rural
water district to provide fire protection to its customers in order to obtain the protection of §
1926(b). Id. Thus, a rural water district’s “ability to provide fire protection is simply not
relevant to the specific question of whether [the water district] has adequate pipes in the ground
to ‘make service available’ for purposes of the § 1926(b) protection from competition.” Id. at
1066.
The City concedes that Wagoner-5 is not required to provide water for fire protection in
order to obtain protection under § 1926(b), but the City argues that “the cost of water for fire
protection is relevant to the § 1926(b) analysis.” (Doc. 60 at 2). In support of its argument, the
City cites the Eudora case. In Eudora, the water district appealed the district court’s jury
instruction that the water district’s cost of fire protection services may be considered when
evaluating the reasonableness of its costs of services. Id. at 981-82. The Tenth Circuit affirmed
the district court’s decision to give the jury instruction in that case. Id. The court provided the
following reasoning:
It is well established that a water district's ability to provide water for fire
protection is not a factor the court should analyze when determining whether the
district has made service available. But in cases where a water district's fees
are at issue and the fact-finder must—as we have previously held—analyze these
costs under the totality of the circumstances, an inspection of the nature and
cost of all services offered by the water district might very well include an
inquiry into costs associated with fire protection.
Should a water district decide to provide fire-protection services, its pricing
of such services could also bear on several of the factors outlined in Rural
Water District No. 1. A water district may charge excessive fees for fire
protection where no competing provider exists, or it may charge higher fees for
fire protection only to lowball its fees for residential water. Perhaps it charges a
flat fee for all water service when only some of its customers receive fire
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protection, thus providing more benefits to some customers over others. The cost
of fire protection within the district's broader pricing scheme could allow the
district to yield more than a fair profit, establish a rate that is disproportionate to
the services rendered, or establish an arbitrary classification between various
users. We therefore find no legal error in the district court's conclusion that fireprotection services may be considered solely to determine whether Douglas–4's
prices for water service were unreasonable, excessive, and confiscatory.
Of course, at no time does a water district's decision to provide or forgo fireprotection services affect its ability to establish that it has sufficient “pipes in the
ground” to make service available, and it is up to the party challenging the water
district's § 1926(b) protection to prove that the water district's costs are
unreasonable, excessive, and confiscatory. Moreover, costs must be examined
individually for each property. Thus, the relationship between fire-protection
services and costs is highly context-specific.
Id. at 982 (citations and internal brackets omitted).
The “factors” referenced in the above quote from Eudora are the four non-exclusive
factors identified in Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of Wilson,
Kansas, 243 F.3d 1263, 1271 (10th Cir. 2001) (“Ellsworth”), for guiding the determination of the
reasonableness of costs of providing water service. See Eudora, 659 F.3d at 981-82 (citing
Ellsworth case). Those factors are: “(1) whether the challenged practice allows the district to
yield more than a fair profit; (2) whether the practice establishes a rate that is disproportionate to
the services rendered; (3) whether other, similarly situated districts do not follow the practice;
[and] (4) whether the practice establishes an arbitrary classification between various users.”
Eudora, 659 F.3d at 981 (quoting Ellsworth, 243 F.3d at 1271).
Wagoner-5 asserts that the court’s ruling in Eudora does not render the cost of water for
fire protection relevant where Wagoner-5 does not and is not providing any fire protection
services. (Doc. 70 at 1-4). Wagoner-5 also analyzes the Ellsworth factors in terms of fireprotection services and notes that, “because Wagoner-5 does not provide fire-protection service

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and makes no charges for fire-protection services, the cost of fire protection service has no
relevance in this case.” (Id. at 3-4). Wagoner-5 applies the factors as follows:
1. Wagoner-5 does not yield more than a fair profit for fire-protection services as
it does not provide such service and makes no charges for such service.
2. Wagoner-5 does not charge a rate for fire-protection services which is
disproportionate to the fire-protection service rendered because it does not render
fire-protection services and makes no charges for such services.
3.
Wagoner-5’s practice of not providing fire-protection service is consistent
with similarly-situated rural water districts because most Oklahoma rural water
districts do not provide fire-protection services.
4.
Wagoner-5’s practice of not providing fire-protection services does not
create an arbitrary classification between users because Wagoner-5 does not
provide fire-protection services to any customers.
(See Doc. 70 at 3-4).
At a hearing in this case, the parties provided arguments relating to the fire protection
issue. Counsel for the City acknowledged that the facts of this case are different than Eudora,
but argued that fire protection is relevant to the § 1926(b) analysis. The City’s principal
argument (both at the hearing and in its briefing) is that evidence regarding fire protection
services will be relevant to Wagoner-5’s request that the Court transfer the water line now owned
by the City to Wagoner-5 for purposes of transitioning the disputed customers’ water service
from the City to Wagoner-5.2 Both parties have submitted that the transition of services issue is
an equitable issue to be decided by the Court, and then only in the event that the jury finds in
favor of Wagoner-5 on its 42 U.S.C. § 1983 claim that the City provided water service to those
customers in violation of 7 U.S.C. § 1926(b).

2

For example, in its Response, the City states: “Depending on the exact relief requested by
[Wagoner-5], the City opposes the motion and requests direction from the Court.” (Doc. 60 at
2). Throughout the briefing, the City asserts that the “fire protection issue” is relevant to
forfeiture. (See id. at 6-9).
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In essence, the City argues that it would be inequitable to transfer those City lines to
Wagoner-5 because the City has a duty to provide fire protection to customers within the City
limits and thus, even if Wagoner-5 prevails on its § 1926(b) claim, the City should be permitted
to keep the water lines for purposes of providing fire protection services. Wagoner-5 argues
several points in response to the City’s contention, including: (1) that the City did not expend the
costs of infrastructure to connect to the homes within the disputed customers’ subdivisions, as
the cost of that was borne by developers and the lines were then transferred to the City at no cost
to the City; (2) if the City had not violated § 1926(b) by encroaching on Wagoner-5’s territory,
the developers would have transferred the lines to Wagoner-5 at no cost; and (3) the City may
connect its fire-protection equipment to the existing fire hydrants within the subdivisions,
regardless of who owns the water lines.
To the extent that fire protection is relevant to the forfeiture issue, which the parties have
agreed is an issue to be determined by the Court only in the event (and after) the jury finds in
favor of Wagoner-5 on its § 1926(b) claim, the Court defers ruling on the admissibility of fire
protection in that remedy phase (if such a phase becomes necessary due to a jury verdict in favor
of Wagoner-5), until after the jury trial.
As to the admission of evidence regarding fire protection services in the jury trial, the
City suggests that plaintiff’s expert’s opinion is premised upon an assumption that the lines
within the subdivision will be conveyed to Wagoner-5, such that Wagoner-5 will have only to
connect its nearest lines to the subdivision. (See Doc. 60 at 7). However, the City’s analysis on
that point makes it clear that the “fire protection issue” appears to be relevant principally to the
determination of forfeiture, which is an issue to be determined (if ever) by the Court. For
example, the City ends its argument with the suggestion that “it would make sense for the City to

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retain ownership of its existing lines so it could continue the current level of fire protection.”
(Id.).
The Court agrees with Wagoner-5 that, because it does not provide fire protection service
and does not charge for any fire protection service, the factors and considerations relied upon by
the court in Eudora are distinguishable. Because it has not elected to provide fire protection
service and does not charge for such service, the pricing and profit considerations that were of
potential concern in Eudora are not presented here. The Eudora analysis appears conditioned
upon the water district actually providing and charging for fire protection service such that the
costs for such service could be relevant to the costs of overall water service. For example, in
Eudora, the court noted that (1) analysis of the “costs of all services offered by the water
district might very well include an inquiry into costs associated with fire protection”; (2)
“Should a water district decide to provide fire-protection services, its pricing of such
services could also bear on several of the [Ellsworth] factors”; (3) “A water district may charge
excessive fees for fire protection . . . or it may charge higher fees for fire protection only to
lowball its fees for residential water”; (4) “Perhaps it charges a flat fee for all water service when
only some of its customers receive fire protection, thus providing more benefits to some
customers over others”; (5) “The cost of fire protection within the district’s broader pricing
scheme could allow the district to yield more than a fair profit, establish a rate that is
disproportionate to the services rendered, or establish an arbitrary classification between various
users”. Eudora, 659 F.3d at 982 (emphasis added). Each of these statements in Eudora reflects
that the cost of fire protection service is relevant only when the water district provides and/or
charges for such service, and they are inapplicable here because Wagoner-5 does not provide or
charge for fire protection service.

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To the extent that Wagoner-5’s expert’s calculations of costs to provide water service are
premised upon an assumption that the subdivision’s water lines will be transferred to Wagoner-5
to provide that water service, it would be appropriate and relevant for the City to cross-examine
the expert regarding those underlying assumptions and the increase in costs to Wagoner-5 if it
has to lay parallel lines within the subdivision. But the City has not explained or provided any
coherent argument as to why such cross-examination is dependent upon any mention of
Wagoner-5’s ability (or inability) to provide water protection services, much less any nexus
between such evidence and the relevant issue of whether Wagoner-5’s prices for water service
are “unreasonable, excessive, and confiscatory.” In short, the City has not identified for the
Court the specific types of evidence it intends to present as to fire protection and has not
explained why any such evidence is relevant under Eudora given that Wagoner-5 does not
provide, or charge rates for, fire protection service.
Accordingly, to the extent that fire protection services are relevant to equitable and
forfeiture issues to be determined by the Court following a jury trial, the Court defers a ruling on
the admissibility of such evidence in the equitable phase to that time. In all other respects, the
Court grants the Motion in Limine (Doc. 46) at this time, and evidence regarding Wagoner-5’s
ability to provide fire protection services or the cost of the City’s provision of fire protection
services is excluded. Because it has not been made clear to the Court what the exact nature of
any fire protection services evidence may be, or its relevance to the critical issue of whether the
costs of water service are “unreasonable, excessive, and confiscatory,” this ruling is without
prejudice to reconsideration during the course of trial.

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III.

Plaintiff’s Motion in Limine to Exclude Proposed Testimony of Michael Kyser
A.

Opinions Regarding Fire Protection

For the same reasons set forth in Section II above, the Court finds that the opinions of
Michael Kyser, the City’s expert, regarding fire protection should be excluded. Any opinions by
Mr. Kyser that Wagoner-5 could not provide sufficient water for fire protection to the disputed
customers and that the cost for Wagoner-5 to provide water for fire protection would be
exorbitant are excluded at this time. As noted above, a rural water district’s “ability to provide
fire protection is simply not relevant to the specific question of whether [the water district] has
adequate pipes in the ground to ‘make service available’ for purposes of the § 1926(b) protection
from competition.” Logan-1, 654 F.3d at 1066. In addition, the City has not provided an
adequate explanation to support a proposition that such evidence is relevant under Eudora given
that Wagoner-5 does not provide, or charge rates for, fire protection service. Hence, the Court
finds that Mr. Kyser’s opinions relating to Wagoner-5’s ability to provide fire protection services
and the cost to Wagoner-5 to provide such fire protection services would unduly confuse and
prejudice the jury, given that (1) Wagoner-5’s ability (or inability) to provide adequate water for
fire protection is not relevant to whether it has made service available to the disputed customers,
and (2) it is undisputed that Wagoner-5 does not provide or charge for fire protection services.
Thus, the Motion in Limine as to Mr. Kyser (Doc. 50) is granted in part, as to his
proposed opinions regarding fire protection. As with plaintiff’s other limine motion, to the
extent that fire protection service may be relevant to equitable and forfeiture issues to be
determined by the Court following a jury trial, the Court defers a ruling on the admissibility of
such evidence to that time.

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B.

Ability to Provide Potable Water

Wagoner-5 also requests that Mr. Kyser’s opinions concerning Wagoner-5’s ability to
provide potable water should be excluded. In support, Wagoner-5 argues that Mr. Kyser’s
opinions are based upon an assumption that all disputed customers will be served by Wagoner-5.
Wagoner-5 argues that Mr. Kyser’s opinion is premised upon an “all or nothing” approach and
does not consider the ability to provide water to each of the disputed customers, it must be
excluded because the determination of whether Wagoner-5 meets the pipes in the ground test is
“essentially an inquiry into whether a water association has the capacity to provide water service
to a given customer.” See Sequoyah, 191 F.3d at 1203 (quoting Bell Arthur Water Corp., 173
F.3d at 526 (4th Cir. 1999)). In response, the City argues that Mr. Kyser’s opinion is that
Wagoner-5 does not have the ability to serve any of the disputed customers so that there need not
be a customer-by-customer analysis.
The Court has reviewed the parties’ submissions on the issue and concludes that
Wagoner-5’s challenge to Mr. Kyser’s opinions regarding Wagoner-5’s ability (or inability) to
provide potable water to the disputed customers goes to the weight of the evidence rather than its
admissibility. Thus, the alleged problems with Mr. Kyser’s opinion on that point are the proper
subject of cross-examination, rather than exclusion. The issue of whether Wagoner-5 has made
service available to the disputed customers (any one or more of them) is the central issue in this
case and Mr. Kyser’s opinion is directly relevant to that issue, even though that opinion is
disputed (and is the proper subject of cross-examination) by Wagoner-5.
Accordingly, the Motion in Limine (Doc. 50) is denied in part to the extent it seeks
exclusion of Mr. Kyser’s testimony on potable water.

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IT IS SO ORDERED this 30th day of September, 2013.

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