Village of Grafton v. Rural Lorain Water ( 2005 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0365p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiffs-Appellants, -
VILLAGE OF GRAFTON; KNG, LTD.,
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No. 04-3643
v.
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RURAL LORAIN COUNTY WATER AUTHORITY, et al., -
Defendants-Appellees. -
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Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
Nos. 02-02037; 02-02039—Dan A. Polster, District Judge.
Submitted: June 7, 2005
Decided and Filed: August 23, 2005
Before: SILER and GIBBONS, Circuit Judges; LAWSON, District Judge.*
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COUNSEL
ON BRIEF: Gretchen A. Holderman, LILLIE & HOLDERMAN, Cleveland, Ohio, Richard G.
Lillie, BENESCH, FRIEDLANDER, COPLAN & ARONOFF, Cleveland, Ohio, for Appellants.
Daniel D. Mason, Dennis M. O’Toole, BAUMGARTNER & O’TOOLE, Sheffield Village, Ohio,
for Appellees.
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OPINION
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SILER, Circuit Judge. The Village of Grafton (“Village” or “Grafton”) and KNG, Ltd.
appeal the district court’s grant of summary judgment to Rural Lorain County Water Authority
(“RLCWA”) regarding RLCWA’s right to provide water services to Fox Run Subdivision (“Fox
Run”), a recently developed property that was annexed by the Village in 1990. For the reasons
discussed hereafter, we AFFIRM.
*
The Honorable David M. Lawson, United States District Judge for the Eastern District of Michigan, sitting
by designation.
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No. 04-3643 Village of Grafton, et al. v. Rural Page 2
Lorain County Water Auth., et al.
BACKGROUND
RLCWA was formed in 1974 to provide water and/or sewer service to rural areas in Ohio,
pursuant to Ohio Revised Code § 6119.01 et seq. Fourteen townships and two villages filed a
petition to organize RLCWA. The Lorain County Court of Common Pleas approved RLCWA’s
organization plan and found that it was “necessary, that it and the plan for the operation of . . .
[RLCWA] [were] conducive to the public health, safety, convenience, and welfare and that the plan
for [its] operation . . . [was] economical, feasible, fair, and reasonable.” RLCWA asserts that its
approved water service area included the areas constituting Fox Run and the Village, although the
Village was not specifically listed in the petition to organize RLCWA. Eaton and Grafton
Townships each passed Resolutions to express their intentions that “the entire territory of [the]
Township[s] be included within the proposed regional water district for southern Lorain County to
be known as [RLCWA]; excluding, however, any and all existing water lines within [the]
Township[s].” The land that is now called Fox Run was in Eaton Township until June 1990, when
it was legally annexed by the Village.
The Village operated its own water plant when RLCWA was established, and it continued
to supply its own water until 1994, when its plant was closed. In September 1994, the Village and
RLCWA executed the first of three Water Purchase Agreements, and the Village’s water distribution
system was connected to a RLCWA transmission line. Thereafter, RLCWA supplied water to the
Village, and the Village distributed this water. In March 1999 and March 2002, RLCWA and the
Village executed additional water purchase agreements to increase the amounts of water that could
be purchased by the Village.
In January 2002, RLCWA obtained a $3.25 million loan from the U.S. Department of
Agriculture, Rural Economic and Community Development Service (“RECDS”), which was
formerly known as the Farmers Home Administration. Approximately $280,000 of this loan was
used to install a water line that was made necessary by the Village’s increasing water demands.
Fox Run, the property in dispute, consists of approximately twenty-nine acres and is now
owned by KNG. Plans and negotiations to develop this property began in the early 1990s, and the
original owners believed “that water services to Fox Run would be provided by the Village of
Grafton at rates substantially lower than those which would be charged by RLCWA.” In April 1990,
the Village passed “a Resolution of Intent to Supply Services upon Annexation and Declaring an
Emergency,” in which it resolved to provide water and sewer services to the Fox Run area if the
Lorain County Commissioners approved the annexation.
Although Fox Run was annexed in 1990, it was not developed for over twelve years. In
August 2002, the Village accepted Fox Run’s dedication plat. Thereafter, the water lines were
installed, and the Village began to provide water to the development. The parties agree, however,
that “RLCWA has a transmission line running up to the Fox Run subdivision” and that it “could run
service lines from the existing lines into [Fox Run] and supply water to [Fox Run] overnight.”
In October 2002, the Village and KNG filed a complaint for injunctive relief and declaratory
judgment against RLCWA, its Board of Trustees, and John Does I-V. On the same day, RLCWA
also filed a complaint for injunctive relief and declaratory judgment. These cases were consolidated,
and the parties moved for summary judgment. As the court observed:
[T]his case is really about whether [the Village] can continue to provide water to
persons in previously undeveloped parts of [the Village] at either the bulk rate (the
rate charged by RLCWA to [the Village]) or at a markup similar to what the
RLCWA charges its non-bulk customers. The parties agree that RLCWA will
continue to supply water to [Village] residents after the conclusion of this lawsuit.
No. 04-3643 Village of Grafton, et al. v. Rural Page 3
Lorain County Water Auth., et al.
The parties are not fighting over the water supply itself. Rather, they are fighting
over who will retain the tap-in fees and monthly revenues for serving these new
customers.
RLCWA currently supplies water to the Village at a monthly bulk rate of $11.50 per 5,131 gallons
of water (the average number of gallons used by a consumer in a month). RLCWA’s non-bulk
customers are charged $30.24 per month per 5,131 gallons. RLCWA also charges its customers a
one-time tap-in fee of $2,000. Because the parties estimate that Fox Run will include approximately
thirty new homes and businesses, RLCWA’s annual income from this area will be approximately
$6,720 less if it cannot serve Fox Run directly but is required to provide water through the Village.
The district court determined that “the curtailment of service provided or made available to
Fox Run by the RLCWA occurred at the time that Grafton began to provide water service to the
development. Because the RLCWA was the recipient of federally insured funds at that time, . . .
§ 1926(b) prohibits Grafton from serving Fox Run.” As a result, the court granted summary
judgment to RLCWA.
ANALYSIS
This court reviews a district court’s grant of summary judgment de novo. Le-Ax Water Dist.
v. City of Athens, 346 F.3d 701, 704 (6th Cir. 2003). “[W]hen an appeal from a denial of summary
judgment is presented in tandem with a grant of summary judgment, this court has jurisdiction to
review the propriety of the district court’s denial of summary judgment.” Id. (quotation omitted).
When based on purely legal grounds, the denial of summary judgment is also reviewed de novo. Id.
“In order to encourage rural water development by expanding the number of potential users
and to safeguard the financial viability of rural associations and [RECDS] loans, 7 U.S.C. § 1926(b)
was enacted.” Lexington-South Elkhorn Water Dist. v. City of Wilmore, 93 F.3d 230, 233 (6th Cir.
1996) [hereinafter, “Lexington-S. Elkhorn”]. RLCWA contends that Grafton’s provision of water
service to Fox Run violates the anti-curtailment provision in § 1926(b), which states:
The service provided or made available through any such 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.
7 U.S.C. § 1926(b). This provision “should be given a liberal interpretation that protects rural water
associations indebted to the [RECDS] from municipal encroachment.” Lexington-S. Elkhorn, 93
F.3d at 235 (quoting Wayne v. Village of Sebring, 36 F.3d 517, 527 (6th Cir. 1994)).
To establish that it is entitled to protection under § 1926(b), RLCWA must show that: “(1) it
is an ‘association’ within the meaning of the Act; (2) it has a qualifying outstanding [RECDS] loan
obligation; and (3) it has provided or made service available in the disputed area.” Id. at 234. In
this case, the parties do not dispute that RLCWA is a qualified “association” that has been indebted
to RECDS since January 2002. The parties’ arguments in this appeal focus upon the impact of the
timing of events, i.e., the fact that RLCWA obtained the RECDS loan approximately twelve years
after Fox Run was annexed by Grafton, and whether RLCWA had a legal right to make service
available to Fox Run.
This court determines whether an association has made water service available through a
two-part test. First, the court considers the “pipes in the ground” requirement. See Le-Ax Water
Dist., 346 F.3d at 706 (citing Lexington-S. Elkhorn, 93 F.3d at 237). Second, the court considers
No. 04-3643 Village of Grafton, et al. v. Rural Page 4
Lorain County Water Auth., et al.
whether the association has “the legal right under state law to serve the area in question.” Id. (citing
Lexington-S. Elkhorn, 93 F.3d at 235-36).
The parties agree that RLCWA has a transmission line that runs to Fox Run and that service
could be provided “overnight.” Therefore, RLCWA has met the “pipes in the ground” requirement.
See Lexington-S. Elkhorn, 93 F.3d at 237 (“If an association does not already have service in
existence, water lines must either be within or adjacent to the property claimed to be protected by
Section 1926(b) prior to the time an allegedly encroaching association begins providing service in
order to be eligible for Section 1926(b) protection.”).
This court must also determine whether RLCWA has a legal right to provide service to Fox
Run. As noted by this court in Le-Ax Water District, Ohio law permits RLCWA “[t]o supply water
to users within and without the district.” Le-Ax Water Dist., 346 F.3d at 707 (quoting O.R.C.
§ 6119.01(A)). The Le-Ax Water District court held, however, that “when a rural water district’s
boundaries are geographically determined by the state, a rural water district cannot use § 1926(b)
to obtain new customers outside the geographic area.” Id. at 709. As a result, resolution of this case
requires consideration of whether Fox Run continues to fall within RLCWA’s state-determined
boundaries.
The Village asserts that RLCWA lost the right to service Fox Run in 1990, when that area
was annexed by the Village. The Village’s argument fails, however, if RLCWA’s original service
area included the Village. Although the parties do not clearly articulate the Village’s relationships
with Eaton and Grafton Townships, they do not dispute the assertion that RLCWA’s original water
service area included the Village.
Both Grafton and Eaton Townships passed resolutions providing that their entire territories,
excluding then existing water lines, were to be included within the RLCWA service area. Although
the Village was not explicitly named in the petition for RLCWA’s formation, there is no indication
that it objected to its inclusion within the RLCWA’s service area. In this case, the Village does not
contend that it was not part of RLCWA’s original service area or that the Townships’ attempts to
include it in the service area were somehow ineffective; its arguments instead focus upon its
allegedly “exclusive right” to provide utility service within its boundaries. If the Village was a part
of RLCWA’s approved district, however, the effect of annexing Fox Run was merely to transfer it
from Eaton Township, one part of RLCWA’s service area, to the Village, another part of RLCWA’s
service area. Consequently, Fox Run was never removed from RLCWA’s district.
Prior to the Village’s expansion of its water distribution system to include Fox Run, its
actions generally appear to have been consistent with the Townships’ resolutions and its inclusion
in RLCWA’s service area. One exception has been identified, however – in April 1990, the Village
passed a resolution that expressed an intent to provide water and sewage service to Fox Run. No
steps were taken to implement this plan until August 2002, which was after RLCWA became
indebted to RECDS. As a result, this 1990 resolution was insufficient to remove Fox Run from the
RLCWA service area.
If § 1926(b) were not implicated in this situation, the Village would have an “exclusive
right” to provide utility services. See, e.g., Village of Grafton v. Ohio Edison Co., 671 N.E.2d 241,
245 (Ohio 1996). This “exclusive right” is subject to certain limitations, however. The Supreme
Court of Ohio has recognized that “a statute enacted to promote the health, safety, and welfare of
the public can override the municipality’s authority if the statute does not substantially interfere with
the municipality’s constitutionally granted power.” Bd. of County Comm’rs of Ottawa Cty. v.
Village of Marblehead, 711 N.E.2d 663, 665 (Ohio 1999). As the district court noted, “all parties
involved in the creation of the RLCWA district . . . considered that act to be an appropriate use of
the State’s police power.” Grafton and Eaton Townships declared that the inclusion of their
No. 04-3643 Village of Grafton, et al. v. Rural Page 5
Lorain County Water Auth., et al.
territories in RLCWA’s service district was an “emergency measure necessary for the immediate
preservation of the health, safety and welfare of the Township[s].” The Lorain County Common
Pleas Court determined that RLCWA was “necessary, that it and the plan for [its] operation. . .
[were] conducive to the public health, safety, convenience, and welfare.”
The Village did not make any effort to provide water service to Fox Run until 2002, after
RLCWA had obtained a RECDS loan. Prior to RLCWA’s indebtedness, the Village’s “exclusive
right” to provide utility service would have allowed it to deny RLCWA the right to provide service
to this area. The Village’s “exclusive right,” however, is limited by § 1926(b). This provision
“should be given a liberal interpretation that protects rural water associations indebted to the
[RECDS] from municipal encroachment,” Lexington-S. Elkhorn, 93 F.3d at 235 (quoting Wayne,
36 F.3d at 527). “Construing § 1926 liberally, as this Court is required to do, it is not necessary that
[the Village] actually annex or attempt to physically include [Fox Run] in its municipality in order
for curtailment to be found.” Adams Cty. Regional Water Dist. v. Village of Manchester, 226 F.3d
513, 518 (6th Cir. 2000) (internal citation omitted).
Because the Village started to provide water service to Fox Run only after RLCWA became
indebted to RECDS, § 1926(b) prevents the Village from denying RLCWA the right to provide
service. Requiring the Village to remain within RLCWA’s service area while the RECDS loan is
outstanding does not “substantially interfere with the municipality’s constitutionally granted power.”
Marblehead, 711 N.E.2d at 665.
AFFIRMED.