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City of Eudora, Kansas v. Rural Water District No. 4

United States Court of Appeals, Tenth Circuit

November 16, 2017

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

         Appeal from the United States District Court for the District of Kansas (D.C. No. 2:14-CV-02399-JAR)

          Steven M. Harris, Doyle Harris Davis & Haughey, Tulsa, Oklahoma (Michael D. Davis and S. Max Harris, Doyle Harris Davis & Haughey, Tulsa, Oklahoma; and John W. Nitcher, Riling Burkhead & Nitcher, Lawrence, Kansas, with him on the briefs), appearing for Appellant.

          Curtis L. Tideman (Mark A. Samsel, with him on the brief), Lathrop & Gage LLP, Overland Park, Kansas, appearing for Appellee.

          Before BRISCOE, MATHESON, and PHILLIPS, Circuit Judges.

          BRISCOE, Circuit Judge.

         Defendant Rural Water District No. 4, Douglas County, Kansas ("Douglas-4") appeals the district court's order granting summary judgment in favor of Plaintiff City of Eudora, Kansas ("Eudora") in this declaratory judgment action. This is the third appeal arising out of a dispute between Douglas-4 and Eudora over which entity can provide water service to certain areas near Eudora, Kansas (the "Service Area"). See Rural Water Dist. No. 4, Douglas Cty. v. City of Eudora (Eudora II), 720 F.3d 1269 (10th Cir. 2013); Rural Water Dist. No. 4, Douglas Cty. v. City of Eudora (Eudora I), 659 F.3d 969 (10th Cir. 2011). We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

         I.

         In 2002, Douglas-4 was the water service provider for the Service Area, but was running low on water. Douglas-4 decided to purchase water from an adjacent rural water district, "Johnson-6." The project required laying new pipes and building additional pumping stations at an estimated cost of $1.25 million. To finance the project, Douglas-4 received initial approval for a $1.25 million loan from the Kansas Department of Health and Environment (KDHE) with a fixed rate and twenty-year term.

         That same year, Eudora annexed the Service Area. The annexation positioned Eudora to potentially assume Douglas-4's water customers pursuant to Kan. Stat. Ann. (K.S.A.) § 12-527 (1987), a Kansas statute that permits municipalities to replace a rural water district as the water service provider.[1]

         Understanding that it was facing a potential loss of customers, Douglas-4's governing board reduced its KDHE loan to $1 million and sought the remaining $250, 000 from a private, USDA-guaranteed loan. Douglas-4 believed that such a loan would come with federal protection under 7 U.S.C. § 1926(b), which prevented municipalities from assuming water customers while a USDA-guaranteed loan was in repayment. Douglas-4 eventually secured a USDA-guaranteed loan for $250, 000 from First State Bank & Trust and proceeded with the Johnson-6 project. Both the KDHE loan and the USDA-guaranteed loan had twenty-year repayment terms, beginning in 2004 and ending in 2024.

         Between 2004 and 2007, Douglas-4 and Eudora entered into negotiations in an attempt to resolve the disputed Service Area, but the discussions were not successful. In September 2007, Eudora moved to enforce its rights under K.S.A. § 12-527 to replace Douglas-4 as the water service provider for the Service Area.

         Eudora I

         On September 27, 2007, Douglas-4 filed suit in the United States District Court for the District of Kansas to prevent Eudora from taking its water customers in the Service Area. Douglas-4 argued that 7 U.S.C. § 1926(b) provided protection to rural water districts like Douglas-4, and K.S.A. § 82a-619(g) gave Douglas-4 the authority to accept such protection.

         At the time, § 82a-619(g) had two clauses. The first clause allowed Douglas-4 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 the second clause allowed Douglas-4 "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.A., secs. 590r, 590s, 590x-1, 590x-a and 590x-3, and amendments thereto." K.S.A. § 82a-619(g) (1997).

         After a ten-day trial, the district court directed the jury to determine "whether the loan guaranteed by [the] Federal Government was necessary." Eudora I, 659 F.3d at 977 (quoting the record) (alteration in original). The jury returned a special verdict in favor of Douglas-4, concluding the loan guaranteed by the federal government was necessary, and Eudora appealed.

         In Eudora I, we distinguished the private bank's loan from the federal government's ...


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