7USC '1926(b) Legal Materials and Analysis

Materials prepared by: Steve M. Harris -- Doyle & Harris
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Copr. 8 West 1998 No Claim to Orig. U.S. Govt. Works

To secure protections of federal statute protecting federally-indebted water associations from municipal expansion, rural water supply company had to establish that it had continuing indebtedness to Farmer's Home Association (FmHA) and that city had encroached on area to which company made service available, in company's action against city, alleging that company had exclusive right to provide water service to certain residential subdivisions in and near city to which city was providing water service. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b).

Rural water supply company, which was indebted to Farmer's Home Association (FmHA), had "made service available" to disputed residential subdivisions in company's certificated area and, thus, city violated statute protecting federally-indebted water associations from municipal expansion by providing water service to subdivisions; company's state law duty to provide service was legal equivalent to company's making service available under statute, and company had factually made service available to disputed areas, as it had provided water service to adjacent subdivisions, had lines and adequate facilities to provide service to disputed areas, and had not refused service to anyone requesting it within certificated area. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a).

Rural water supply company, which was indebted to Farmer's Home Association (FmHA), had "made service available" to disputed residential subdivisions in company's certificated area and, thus, city violated statute protecting federally-indebted water associations from municipal expansion by providing water service to subdivisions; company's state law duty to provide service was legal equivalent to company's making service available under statute, and company had factually made service available to disputed areas, as it had provided water service to adjacent subdivisions, had lines and adequate facilities to provide service to disputed areas, and had not refused service to anyone requesting it within certificated area. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a).

Extraordinary circumstances did not exist and, thus, Court of Appeals would decline to consider issue, raised by city for first time on appeal, as to whether statute protecting federally-indebted water associations from municipal expansion violated Tenth Amendment and constitutional spending clause, in rural water supply company's action against city, alleging that company had exclusive right to provide water service to certain residential subdivisions in and near city to which city was providing water service. U.S.C.A. Const. Art. 1, ' 8, cl. 1; Amend. 10; Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b).

Permanent injunction was appropriate relief for city's violation of statute, protecting federally-indebted water associations from municipal expansion, by providing water service to residential subdivisions located in rural water supply company's certificated area, where, unless city was prevented from violating statute, company would lose $365,000 in annual revenue. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a).

Permanent injunction forbidding city to provide or offer to provide water service within rural water supply company's entire certificated area, albeit broad, was not abuse of district court's discretion in action in which court found that city violated statute protecting federally-indebted water associations from municipal expansion by providing water service to residential subdivisions in company's certificated area, although it would have been more prudent to limit injunction to disputed areas, where company had satisfied requirements of statute with respect to entire certificated area. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a).

Permanent injunction forbidding city to provide water service within rural water supply company's certificated area was sufficiently specific in company's action against city, alleging that company had exclusive right to provide water service to certain residential subdivisions in and near city to which city was providing water service; injunction was sufficiently and reasonably detailed and specific to permit transfer of water service from city to company, and specified end results expected and allowed parties flexibility to accomplish those results. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a); Fed.Rules Civ.Proc.Rule 65(d), 28 U.S.C.A.

District court did not abuse its discretion when it ordered city to relinquish subject water service distribution infrastructures to rural water supply company, despite contention that relief was unrequested and if granted would prejudice city, in company's action against city, alleging that company had exclusive right to provide water service to certain residential subdivisions in and near city to which city was providing water service; unless infrastructures were transferred, company would not be able to provide efficient and economical water service, and rights of company that were validated in action would be useless. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a); Fed.Rules Civ.Proc.Rule 54(c), 28 U.S.C.A.

Issues raised on appeal, as to whether district court's permanent injunction, enjoining city from pursuing its applications with Public Utility Commission (PUC) to decertify portions of rural water supply company's certificated area and to recertify them in city's name, impermissibly interfered with State's exercise of regulatory powers, were rendered moot by subsequent Commission order ruling, congruently with district court, that company had exclusive right to provide water service to disputed areas. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); V.T.C.A., Water Code '' 13.001(b)(1, 2), 13.250(a).

In December 1993, the Utility brought this action under 7 U.S.C. ' 1926(b) to enjoin the City from providing water service within the Certificated Area. In July 1994, the City filed applications (Applications) under '' 13.254 [FN4] and 13.255, [FN5] seeking to decertify portions of the Certificated Area and to recertify them in the City's name. On August *914 18, 1994, before the Commission reached a decision on the Applications, the district court entered an Agreed Preliminary Injunction, enjoining the City from servicing any additional customers within the Certificated Area and ordering the City to contact the Commission and request that it take no further action on the Applications until the expiration of the Agreed Preliminary Injunction. [FN6]

FN4. Tex.Water Code Ann. ' 13.254 ("The commissioner at any time after notice and hearing may revoke or amend any certification of public convenience and necessity ... if it finds that the certificate holder has never provided, is no longer providing, or has failed to provide continuous and adequate service in the area, or part of the area, covered by the certificate.").

FN5. Id. ' 13.255 (addressing single certification in an annexed or incorporated area).

FN6. This preliminary injunction has not been challenged in this appeal.

On December 15, 1994, the district court entered final judgment (Original Judgment) in favor of the Utility and against the City. After noting that under Texas law the Utility had a legal duty to provide continuous and adequate service to residents in the Certificated Area, the district court held that the Utility had, as a matter of law, "made service available" as required by ' 1926(b). In the alternative, the district court held that because the Utility had water service lines adjacent to the disputed areas, it had, as a factual matter, "made service available" as required by ' 1926(b). The district court concluded that the City had encroached on the service area of a federally indebted water association and thus violated ' 1926(b).

2. The Statute: 7 U.S.C. ' 1926(b)

FN10. 7 U.S.C. ' 1926(b).

The service provided or made available through any such [indebted water] association shall not be curtailed or limited by the inclusion of the area 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 said loan.... [FN11]

FN11. Id. (emphasis added).

The service area of a federally indebted water association is sacrosanct. Every federal court to have interpreted ' 1926(b) has concluded that the statute should be liberally interpreted to protect FmHA-indebted rural water associations from municipal encroachment. [FN12]

In City of Madison, Miss. v. Bear Creek Water Ass'n Inc., [FN13] we held that ' 1926(b) "indicates a congressional mandate that local governments not encroach upon the services provided by such [water] associations, be that encroachment in the form of competing franchises, new or additional permit requirements, or similar means." We explained that the history behind this section indicates two congressional purposes: (1) to encourage rural water development by expanding the number of potential users of such systems, thereby decreasing the per-user cost, and (2) to safeguard the viability and financial security of such associations (and FmHA's loans) by protecting them from the expansion of nearby cities and towns. With this background, we turn to the violation issue. [FN14]

3. Did the City Violate ' 1926(b)?

[4][5] To secure the protections of ' 1926(b) the Utility must establish that (1) it has a continuing indebtedness to the FmHA, and (2) the City has encroached on an area to which the Utility "made service available." [FN15] As of the end of 1993, the Utility owed the FmHA approximately $12,000,000. The City does not contest that the first, "indebtedness" element is satisfied. Instead, it contends that the Utility failed to establish the second, "made service available" element. We disagree.

FN15. See 7 U.S.C. ' 1926(b); see also City of Madison 816 F.2d at 1059; Glenpool, 861 F.2d at 1214.

Under Texas law, the Certificate gives the Utility the exclusive right to serve the area within its CCN and obligates it "to serve every consumer within its certified area and *916 ... render continuous and adequate service within the area or areas." [FN16] We hold that the Utility's state law duty to provide service is the legal equivalent to the Utility's "making service available" under ' 1926(b). [FN17] When confronted with a similar issue, other courts have reached the same result, holding that when state law obligates a utility to provide water service, that utility has, for the purposes of ' 1926(b), "made service available." [FN18]

FN16. See Tex.Water Code Ann. ' 13.001(b)(1), (2) & ' 13.250(a) (West 1988 & Supp.1995); see also Commission's Order ("[The Utility] holds the CCN for the five [disputed] subdivisions ... and has the legal right to solely serve those subdivisions.").

FN17. See Tex.Water Code Ann. 13.250(a) (Vernon 1988 & Supp.1995) ( "[A]ny retail public utility that possesses a ... certificate of public convenience and necessity shall serve every consumer within its certificated area and shall render continuous and adequate service within the area or areas.") (emphasis added).

FN18. Glenpool, 861 F.2d at 1214 ("made service available" requirement satisfied if state law requires utility to provide service within a certified area).

In the alternative, the district court found as a factual matter that the Utility had "made service available." [FN19] Specifically, the district court made three findings of fact relevant to this conclusion: (1) The Utility currently provides water service to subdivisions adjacent to the disputed areas; (2) the Utility has lines and adequate facilities to provide service to the disputed areas; (3) the Utility has not refused service to anyone who has requested service within the Certificated Area. These findings of fact are not clearly erroneous. Accordingly, on the strength of these alternative legal and factual determinations, we affirm the district court's conclusion that the Utility had "made services available" to the disputed areas. As a result, we also agree with the holding of the district court that the City violated ' 1926(b).

4. Does ' 1926(b) Violate the Tenth Amendment?

[6][7] Before turning to the issues of remedy, we pause to address the City's constitutional challenge to ' 1926(b). For the first time on appeal, the City insists that ' 1926(b) represents an illegitimate exercise of the Congress' power under the Spending Clause. [FN20] We will not consider an issue that a party fails to raise in the district court, absent extraordinary circumstances. [FN21] Extraordinary circumstances exist when the issue involved is a pure question of law and a miscarriage of justice would result from our failure to consider it. [FN22] Such extraordinary circumstances do not exist here. As this court has previously addressed a similar constitutional challenge (and resolved it contrary to the City's position), [FN23] we follow our general forfeiture rule and decline to consider the issue.

[10] The City urges that the district court's conclusions that the Utility would have suffered irreparable harm and had no adequate legal remedy were "clearly erroneous." The City asserts that the record contains no factual basis for such a conclusions. We disagree. The record reflects the following facts: (1) the Utility is indebted to the FmHA; (2) in the disputed areas the City has encroached on the Utility's service area; and, (3) as a result, the Utility would lose revenue exceeding $365,000 a year if the City's encroachment went unabated. The district court held (and we have now affirmed) that, as a legal and factual matter, the Utility had "made service available" to the disputed areas. In other words, unless the City is prevented from violating ' 1926(b), the Utility will lose $365,000 in annual revenue.

FN26. See, e.g., City of Madison, 816 F.2d at 1059 (enjoining a city from annexing subdivisions within a utility's certificated area after finding violation of ' 1926(b)); see also Jennings Water, 895 F.2d at 315 (a violation of ' 1926(b) provided sufficient basis for the issuance of an injunction).

FN27. The district court's injunction has forbidden the City to provide or offer to provide water service within the entire Certificated Area. This injunction, albeit broad, does not constitute an abuse of discretion. The Utility, by virtue of its indebtedness to the FmHA and state law duty to provide "continuous and adequate" service to the Certificated Area, Tex.Water Code Ann. 13.250(a), has satisfied the requirements of ' 1926(b) with respect to the entire Certificated Area. Thus, ' 1926(b) protects the entire Certificated Area from encroachment by the City.

Nevertheless, it would have been more prudent to limit the injunction to the disputed areas, the particular portion of the Utility's service area at the heart of this litigation. As the Commission was not a party to this litigation, we assume the district court intended this injunction to apply only to these parties and not to limit the Commissions' power to regulate or redraw the Certificated Area. Such an injunction, purporting to control the actions of the Commission, a state regulatory body, would create a considerably more difficult federalism question: Namely, does ' 1926(b) also preclude a state regulatory agency from modifying the service area of a federally indebted utility. But, we leave that issue for another day.

6. Are The Applications Preempted by ' 1926(b)?

As discussed above, ' 1926(b) grants broad protection to federally indebted utilities. In this case, we need not probe the outer limits of that grant. Instead, we decide only the issues presented in this appeal: (1) whether the City, by providing water service to the disputed areas, has violated ' 1926(b); and (2) if so, what is the appropriate remedy in response to that particular violation. The district court held, as both a factual and legal matter, that the Utility has the exclusive right to provide water service to the disputed areas. The Commission, in a ruling congruent with that of the district court, declared that the Utility had the exclusive right to provide water service to the disputed areas. With that order, the Applications--which sought a ruling from the *920 Commission that the Utility did not have the exclusive right to provide water service to the disputed areas--became moot. Accordingly, we need not address that issue here.

We affirm the district court's judgment that the City violated ' 1926(b). We also affirm that court's injunction except as to that part which omits a determination of possible repayment of costs and expenses, if any, incurred by the City in acquiring or improving the infrastructures. In that limited respect only, we remand for the district court to consider and, if necessary, to modify its injunction consistent with this opinion. AFFIRMED, in part, and REMANDED, in part.

Copr. 8 West 1998 No Claim to Orig. U.S. Govt. Works

City was precluded from condemning water association's facilities located within city limits and association's certificate of public convenience and necessity during term of association's indebtedness to Farmers Home Administration. Consolidated Farm and Rural Development Act, ' 306(b), 7 U.S.C.A. ' 1926(b).

Under Consolidated Farm and Rural Development Act, local government may not encroach upon services provided by water association indebted to Farmers Home Administration, be that encroachment in form of competing franchises, new or additional permit requirements, or similar means, such as condemnation of association's facilities or certificate of public convenience and necessity. Consolidated Farm and Rural Development Act, ' 306(b), 7 U.S.C.A. ' 1926(b).

Section of Consolidated Farm and Rural Development Act, prohibiting cities from curtailing services of water associations indebted to Farmers Home Administration by granting competing franchises or annexing areas served by association, serves two congressional purposes: to encourage rural water development by expanding number of potential users of such systems, thereby decreasing per-user cost, and to safeguard viability and financial security of such associations and loans by Farmers Home Administration to such associations by protecting those associations from expansion of nearby cities and towns. Consolidated Farm and Rural Development Act, ' 306(b), 7 U.S.C.A. ' 1926(b).

Section of Consolidated Farm and Rural Development Act, proscribing cities from curtailing or limiting services provided by water association indebted to Farmers Home Administration by granting competing franchises or by annexing areas served by association, did not violate Tenth Amendment; statute curtailed city's authority in regard to provision of water service only while association was indebted to Administration and was enacted to protect Administration's subsidy of rural water authorities. Consolidated Farm and Rural Development Act, ' 306(b), 7 U.S.C.A. ' 1926(b); U.S.C.A. Const.Amend. 10.

The City of Madison, Mississippi ("Madison"), appeals from the district court's grant of summary judgment in favor of Bear Creek Water Association, Inc. ("Bear Creek"), and the Farmers Home Administration ("FmHA"). Because we agree with the district court that 7 U.S.C. ' 1926(b) precludes municipal condemnation of a water association's facilities during the term of its indebtedness to the FmHA, we affirm.

However, during this time the City of Madison has grown substantially, and its boundaries now include a part of the area served by Bear Creek. In 1985, the city instituted eminent domain proceedings to condemn Bear Creek's facilities located within city limits as well as Bear Creek's certificate to operate in that area. This area includes approximately 40% of Bear Creek's customers, and 60% of Bear Creek's water supply facilities, including its water plant, wells, and feeder mains. FmHA subsequently intervened and the case was removed to federal court pursuant to 28 U.S.C. '' 1444 and 2410.

In July 1986, the district court granted Bear Creek's motion for summary judgment on the ground that because Bear Creek was indebted to FmHA, 7 U.S.C. ' 1926(b) applied and precluded the city's condemnation action. The city now appeals.

A. 7 U.S.C. ' 1926(b)

Regarding water associations indebted to FmHA, 7 U.S.C. ' 1926(b) provides:

The district court held that this provision prohibits cities such as Madison from curtailing the services of funded water associations, be it through annexation, franchise, or condemnation. Madison argues that because the statute does not expressly prohibit condemnation, ' 1926(b) only protects such associations from competition from municipalities, and thus does not preclude such entities from exercising their right of eminent domain.

[2][3] We disagree. The statute unambiguously prohibits any curtailment or limitation of an FmHA-indebted water association's services resulting from municipal annexation or inclusion. This language indicates a congressional mandate that local governments not encroach upon the services provided by such associations, be that encroachment in the form of competing franchises, new or additional permit requirements, or similar means. To read a loophole into this absolute prohibition, as Madison would have us do, and allow a city to do via condemnation what it is forbidden by other means, would render nugatory the clear purpose of ' 1926(b). See Moore Bayou Water Association, Inc. v. Town of Jonestown, 628 F.Supp. 1367 (N.D.Miss.1986) (holding municipal condemnation of water association's facilities and certificate violative of ' 1926(b)).

Madison contends that this construction of the statute is untenable because it leads to the "plainly absurd" result that FmHA-financed water authority could avoid condemnation even if it owed only $1.00 on its government loan. However, it was Congress, and not this Court, that literally proscribed interference by competing facilities with the rural water authority "during the term of said loan." The city's logic also assumes ' 1926(b) must somehow be construed to effectuate the local condemnation power. Pursuing such logic, we might decide that so long as the condemnation does not "unduly interfere" with the water authority's payment obligations to FmHA, or with its ability to service rural water users, the condemnation may proceed. Such a result, however, would have a perverse impact upon both the rural water authority and the would-be condemnor. In each case, the contending parties could raise and seek adjudication of the fact issue concerning the extent of interference that would result from condemnation. A condemnation case impinging on a rural water authority could easily involve both state and federal court litigation, high legal fees and considerable delay, to the ultimate detriment of the municipality, the rural water authority, and the consumers of water service. A bright-line rule which prohibits condemnation throughout the FmHA loan term at least creates certainty for the municipal planner and the rural water authority, even if it limits the municipality's options.

[4][5] Madison, however, argues that our interpretation of ' 1926(b) is contrary to the legislative history of that provision. While we need not resort to legislative history where, as here, the statutory language is unambiguous and yields no absurd results, see Steere Tank Lines, Inc. v. I.C.C., 724 F.2d 472, 477 (5th Cir.1984), we note that our interpretation of ' 1926(b) *1060 comports with the purposes found in its legislative history:

S.Rep. No. 566, 87th Cong., 1st Sess., reprinted in 1961 U.S.Code Cong. & Admin.News 2243, 2309. This history indicates two congressional purposes behind ' 1926: 1) to encourage rural water development by expanding the number of potential users of such systems, thereby decreasing the per-user cost, and 2) to safeguard the viability and financial security of such associations (and FmHA's loans) by protecting them from the expansion of nearby cities and towns.

Our interpretation of ' 1926(b) is also inferentially supported by FmHA regulations regarding the transfer of water facilities subject to FmHA liens. These regulations require that any transfer must be approved by FmHA to insure that services will not be curtailed and that repayment of the FmHA loans is not jeopardized. 7 C.F.R. 1951.209, 1951.214 (1986). [FN2] The regulations also suggest an alternate means by which the city might acquire the facilities it desires, in the context of a consensual sale.

[6] The city urges that if ' 1926(b) limits the city's sovereign condemnation power, it violates the Tenth Amendment to the Constitution. We are not unsympathetic to enforcing the legitimate Tenth Amendment-based claims of state authorities against federal government infringement. Our natural ardor to preserve that critical division of power between the federal and state governments, a bulwark of protecting our individual liberties, is necessarily dampened, however, by the Supreme Court's decision in Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1985). Inasmuch *1061 as Garcia upheld the application of the Fair Labor Standards Act against a city entity as a valid execution of congressional power under the commerce clause, it may or may not be directly controlling in this case. The City of Madison would not prevail even under a broader vision of the Tenth Amendment than the Court propounded in Garcia, however, for we perceive no significant limitation on the city's powers by virtue of a statute enacted to protect FmHA's subsidy of rural water authorities. FmHA's characterization of ' 1926(b) as resting on Congress's undoubtedly broad powers under the spending clause seems more appropriate to this case than any commerce clause-based argument. Constitution Art. I, Section 8, clause 1. See Helvering v. Davis, 301 U.S. 619, 645, 57 S.Ct. 904, 910, 81 L.Ed. 1307 (1936) ("When money is spent to promote the general welfare, the concept of welfare or the opposite is shaped by Congress, not the states. So the concept be not arbitrary, the locality must yield.")

Because ' 1926(b) forbids, as a matter of law, municipal condemnation of an FmHA-indebted water association's assets, there was no genuine issue of material fact before the district court. Summary judgment was therefore correctly granted.

Copr. 8 West 1998 No Claim to Orig. U.S. Govt. Works

*2 Pitt-7 commenced this action on March 26, 1997 and amended its complaint on June 2, 1997, to allege violations of 7 U.S.C. ' 1926(b) as enforced through 42 U.S.C. ' 1983 and an impermissible invasion of its service area. Pitt-7 also alleged violations of various Oklahoma state laws for fixing high water rates, breach of contract, acting contrary to public policy, and breach of good faith. Pitt-7 alleges violations of federal anti-trust laws by the City. Pitt-7's claims against those designated as the Additional Defendants relate exclusively to the attempt to deannex the Park from Pitt-7's service territory. Pitt-7 seeks declaratory, injunctive and monetary relief.

Through its pending Motion, the City contends that Pitt-7's claims should be dismissed on the following bases: (1) as a political subdivision, Pitt-7 cannot challenge the actions of another political subdivision through the vehicle of ' 1983; (2) Pitt-7 did not file its ' 1983 claim until 16 years after development of the Park by the City and therefore its claims are barred by the applicable two year statute of limitations; (3) the Park has been removed by the Board from the Pitt-7 area and therefore the City's actions in providing service to the Park cannot be considered an encroachment upon Pitt-7's territory; (4) the City has surrendered all other customers it had previously served within Pitt-7's territory except for the Park; (5) Pitt-7's actions violate the Tenth Amendment to the United States Constitution [FN4]; (6) ' 1926(b) only protects Pitt-7's territory while it was indebted to the federal government and since that indebtedness was satisfied, the protections no longer exist; (7) Pitt-7 has failed to meet the requirements of ' 1926(b) because it cannot make sufficient water available to meet the needs of the Park's customers; and (8) Pitt-7's anti-trust claim fails because the City is protected by the doctrine of state-action immunity. By separate Motion, the City also requests dismissal of Pitt-7's state law claims since all federal claims should be dismissed and this Court should decline exercising supplemental jurisdiction.

*3 For its part, Pitt-7 disputes the City's legal conclusions on the issues raised in the Motion. Further, through its own request for summary judgment, Pitt-7 seeks a favorable judgment on its ' 1983/ ' 1926(b) claim.

The primary issue in this case surrounds whether Pitt-7 enjoys the statutory protections afforded under 7 U.S.C. ' 1926(b) which is part of the Consolidated Farm and Rural Development Act (the "Act"). Section 1926(b) provides in pertinent part:

Thus, the protections of the territories of rural water districts become effective when the district in question qualifies as an "association" as that term is intended in the legislation, that the district has a continuing indebtedness to the FmHA, and that the City has encroached upon or invaded an area to which Pitt-7 "made service available." Through ' 1926(b), the Act was enacted to "encourage rural water development by expanding the number of potential users and to safeguard the financial viability of rural associations and Farmers Home Administration loans." Lexington-South Elkhorn Water Dist. v. City of Wilmore, Kentucky, 93 F.3d 230, 233 (6th Cir.1996).

*4 As preliminary matters, the City challenges Pitt-7's use of ' 1983 on three fronts: (1) Pitt-7 as a political subdivision cannot sue the City, also a political subdivision under ' 1983; (2) ' 1983 is not intended to protect the rights conferred by ' 1926(b); and (3) Pitt-7's claim under ' 1983 is barred by the applicable statute of limitations. It is apparent from the terms of ' 1926(b) that it does not contain an enforcement provision should its protections be violated and certainly does not authorize a private right of action to insure compliance. As a result, the courts addressing the issue have found that enforcement of ' 1926(b)'s protections lies in ' 1983 since ' 1926(b) itself does not provide for an exclusive remedy for the violation of its terms. Rural Water System # 1 v. City of Sioux Center, 967 F.Supp. 1483, 1503-05 (N.D.Iowa 1997). As stated in the Sioux Center case, the claim remains one for a violation of the terms of ' 1926(b) and not a violation of ' 1983. Section 1983 is merely a vehicle through which ' 1926(b) is judicially enforced. Id . at 1504. Consequently, Pitt-7 has employed the correct statutory foundation for its claims under ' 1926(b). Similarly, the City's contention that Pitt-7's claim asserted through ' 1983 should be barred since it is brought between two political subdivisions is without merit. Again, the violation asserted is not of ' 1983 but rather of ' 1926(b) and therefore the case authority cited by the City on this issue is distinguishable and inapposite to the rather unique circumstance presented by this case.

Additionally, Pitt-7 has commenced this action in a timely fashion. Since ' 1983 itself contains no statute of limitations, it is borrowed from each state's personal injury statutes. In Oklahoma, the appropriate statute of limitations is two years. Okla. Stat. tit. 12 ' 95. The City argues that since the building of the original lines and the commencement of service to the Park occurred more than 16 years ago, Pitt-7 has not commenced its action within the applicable statute of limitations. In so arguing, the City ignores the recognized exception to the statute of limitations known as the "continuing violations" doctrine. Under this theory, if a continuing violation of a federal law actionable under ' 1983 is proven, the statute of limitations runs from the last occurrence of wrongful conduct. Sioux Center, 967 F.Supp. at 1508 citing Varner v. National Super Mis., Inc., 94 F.3d 1209, 1214 (8th Cir.1996). In this case, Pitt-7 has alleged that the violation of ' 1926(b) as enforced through ' 1983 occurs so long as the City continues to supply water service to the Park. If Pitt-7 is entitled to the protections of ' 1926(b), the City is indeed violating the territorial area established for Pitt-7 to serve. Since it is admitted in this case that the City continues to supply water to the Park, a "continuing violation" is occurring which would extend the statute of limitations and make this action timely, if Pitt-7 is entitled to and the City is violating ' 1926(b)'s protections.

*5 This Court next addresses whether Pitt-7 has established the elements necessary to confer ' 1926(b) protections to it. The City does not contend that Pitt-7 is not an "association" qualified for ' 1926(b) protections. Thus, this element is deemed satisfied. Next, Pitt-7 must prove that it has been continuously indebted to the FmHA during all times relevant to this action. In this regard, Pitt-7's arguments are flawed. As related in the facts set forth herein above, Pitt-7 took advantage of a buy out program sponsored by the FmHA in 1989 and was no longer indebted to the federal government. At that point in time, any protections enjoyed by Pitt-7 under ' 1926(b) ceased and no action taken by the City prior to that time is actionable in this case. Cases addressing this same issue have found similarly. See, Scioto County Regional Water Dist. No. 1 v. Sioto Water, Inc., 103 F.3d 38, 40-41 (6th Cir.1996); Bell Arthur Water Corp. v. Greenville Utilities Comm., 972 F.Supp. 951, 957-58 (E.D.N.C.1997); Sioux Center, 967 F.Supp. at 1523. However, this does not end the analysis because Pitt-7 became indebted to the FmHA once again in 1994. While the City attempts to maintain that only the events of establishing the lines and initial service to the Park are the only actionable events, its arguments in this regard are not persuasive. Continuing to provide service to a protected area may also form the basis for a violation of ' 1926(b) since it may represent an encroachment upon a protected territory. Consequently, while Pitt-7's claims prior to 1994 are no longer actionable, those arising after 1994 remain viable.

With some claims remaining in this action, this Court turns to the third required element under ' 1926(b) that Pitt-7 have made service available to the Park. Nothing in the Act defines the terms "service provided" or service "made available." As a result, this Court will look to the various case authorities which discuss these terms. In the case of North Alamo Water Supply Corp. v. City of San Juan, Texas, 90 F.3d 910 (5th Cir.1996), the court determined that a state law duty to provide service "is the legal equivalent to" making service available under ' 1926(b). In this case, Pitt-7 contends that it has a duty to provide service to its designated territory under Okla. Stat. tit. 82 ' 1324.12 which provides for the establishment and subscription of benefit units. The water district provides for a specified number of benefit units and each landowner in the territory subscribes to a number of units. The section outlines the logistics for this process and the benefits which flow therefrom. Conspicuously absent from this statute is any obligation or duty on the part of the district to provide service. Pitt-7 has failed to provide this Court with any compelling authority which establishes any such duty. Therefore, absent a state law duty, alternative tests for determining whether Pitt-7 made service available must be employed.

*6 An association covered by ' 1926(b) may also make service available by demonstrating that it has a legal right to serve a particular area coupled with a physical ability to do so, otherwise designated as the "pipes-in-the- ground" test. Sioux Center, 967 F.Supp. at 1525-26. This test turns on the proximity of existing facilities to the disputed territory. Lexington- South, 93 F.3d at 237. In this case, the City has not argued that Pitt-7 lacked the legal right to provide service to the Park. [FN5] Also, Pitt-7 had an existing six inch line running adjacent to the Park which is insufficient to service the water needs of the customers in the Park. However, simply possessing facilities near or within the proximity of the area in dispute cannot be sufficient to end the inquiry. If the quality of the lines and the ability of those existing lines to adequately service the disputed area are not also crucial to establishing whether an association makes service available, an absurd result can easily be contemplated. An association could merely demonstrate that it has in place a line of an obviously insufficient capacity and still be afforded the protection of ' 1926(b). In the meantime while the association may or may not build its lines to accomodate the demands of the disputed territory, the customers are left with inadequate water service to maintain their businesses with no assurance that adequate service will be restored. This Court must conclude that not only must a line be in place, but also that line must be capable of delivering water in sufficient quantities to service the disputed territory. This position is not without precedent. In the Bell Arthur case, the court found that the association in that case had a six inch line in place which was insufficient to meet the needs of the area to be serviced. The court concluded that the association could not provide an improved line within a reasonable time. The association was found to not have made service available. Id. at 962-63.

Also, in the Sioux Center case, the court found that a dispute existed in the facts surrounding the nature of the line in place. At issue was whether the association's line was a "transmission" line or a "service" line. Thus, the quality of the line became determinative as to whether the association in that case enjoyed the protections of ' 1926(b).

Given the fact that Pitt-7 does not have adequate lines in place to service the Park, this Court finds that it has not made service available as that term is intended under ' 1926(b). Pitt-7's argument that it should be permitted to take over the City's lines currently servicing the Park is specifically rejected. Pitt-7 relies upon the North Alamo case in support of its position. In North Alamo, the court found that the association should be permitted to take over the lines in place with compensation to the municipality for the cost of putting the lines in place. Quite simply, no legal foundation or authority exists for the position espoused in the North Alamo case in this regard. The Fifth Circuit in affirming the core holding in the district court's opinion found that the district court was empowered with broad discretion to fashion a remedy under Rule 54(c) of the Federal Rules of Civil Procedure. This Court declines to repeat such a drastic and draconian remedy in this case. To do so would endorse Pitt-7's inaction in enforcing its asserted rights to service the Park, which this Court is loathe to do. [FN6]

However, should a municipality engage in an activity deemed to be proprietary in nature rather than governmental, it cannot reap the benefits of Parker state-action immunity unless it can be shown that the municipality acted to further a state policy. City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 413, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978). This Court need not address whether the City acted as a sovereign or as an entity merely engaged in a business activity since by subsequent legislation, Congress excluded governmental entities, including cities, from civil liability under federal antitrust laws. Specifically, the Local Government Antitrust Act of 1984 provides at 15 U.S.C. ' 35, in pertinent part:

Consequently, Pitt-7 may not pursue any of the civil remedies under the federal antitrust laws since the City falls within the definition of a "local government." 15 U.S.C. ' 34(1)(A).

Pitt-7 also contends that the City cannot discriminate in providing service under Oklahoma law as a "public business", citing Okla. Stat. tit. 79 ' 4. However, Pitt-7 has only asserted a claim for violation of federal antitrust law in this action. Whether the City may or may not be in violation of Oklahoma law should it actually terminate the sale of water to Pitt-7 is left to another day and another lawsuit when and if it ripens into a justiciable claim.

The only remaining claim based in federal law is the request by Pitt-7 that the City and the Additional Defendants be enjoined from taking further action on the pending deannexation petitions, declaratory relief finding the orders already entered by the Board are null and void and/or damages resulting from the deannexation. [FN7] The City's Motion on this issue essentially raises the deannexation of the Park as a defense to Pitt-7's ' 1926(b) claim, asserting that since the Park was removed from Pitt-7's territory by application of state law, it cannot be considered an "encroachment" or "curtailment," prohibited by ' 1926(b). The City contends that in seeking deannexation, it was acting as a landowner in the Park and not as a competitor to Pitt-7.

*8 Pitt-7 responds that the deannexation from its territory violates public policy. Additionally, Pitt-7 contends that the state statute allowing landowners to deannex property from its territory is preempted by the federal protection afforded by ' 1926(b). Even if the City, Additional Defendants and the Board could pursue the procedure for deannexation under Okla. Stat. tit. 82 ' 1324.21, Pitt-7 asserts that the Board were improperly granted because the resultant deannexation was not in the best interest of Pitt-7 as required by the Oklahoma statute.

This Court is not willing to draw the fine distinction between the two roles the City urges. It would appear that deannexation represents precisely the type of curtailment of water service and reduction of income of Pitt-7 which 1926(b) was intended to prevent. Consequently, federal preemption may preclude the use of the state statute providing for deannexation so long as the association qualifies for the protections of ' 1926(b), which this Court has previously discussed in this Order. See, e.g., Sioux Center, 967 F.Supp. at 1528-29. However, before this issue can be addressed, this Court is concerned with a more fundamental problem. Since this Court has found that Pitt-7 is not entitled to the protections of ' 1926(b) in relation to the Park, it follows that it may not now challenge the deannexation of the Park from its territory. The parties have not addressed this issue in any of the pleadings coming before this Court and therefore a further Pretrial Conference shall be conducted to discuss whether the deannexation claim is now academic.

*9 The remaining claims in this action are the various state law claims. Should the final federal claim be dismissed as moot, this Court will decline to exercise supplemental jurisdiction as urged by the City in its Motion to Dismiss. 28 U.S.C. ' 1367(c)(3). However, should the deannexation claim remain, these state law claims will continue to be viable in this Court.

IT IS THEREFORE ORDERED that the Motion for Partial Summary Judgment filed by Defendants City of McAlester and the McAlester Public Works Authority filed June 27, 1997 (Docket Entry # 67) is hereby GRANTED, in that Pitt-7 is not entitled to the protections of 7 U.S.C. ' 1926(b) in relation to the Park. Accordingly, Pitt-7's ' 1926(b) claim as asserted through ' 1983 is hereby DISMISSED. Due to this ruling, Pitt-7's Motion for Partial Summary Judgment filed May 5, 1997 (Docket Entry # 15) is hereby DENIED, since it only relates to the ' 1983 claim.

Copr. 8 West 1998 No Claim to Orig. U.S. Govt. Works

Federally-indebted water association brought action against city utilities commission, city, and developer, alleging violation of Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment and ' 1983, seeking declaratory judgment, permanent injunction, and attorney fees, arising from, inter alia, city's extension of water service to newly-annexed development area. Association, city, and commission moved for summary judgment. The District Court, Malcolm J. Howard, J., held that: (1) association lost any protections of Consolidated Farm and Rural Development Act provision when it paid off its Farmers Home Administration (FmHA) loan pursuant to Agricultural Credit Act of 1987; (2) association's reborrowing of federal funds for construction of certain water system project did not render it protected by provision against city's extension of water service to development area located approximately one mile from project; (3) association had not "provided" or "made service available" to development area as required for protection under provision, despite association's existing water line running through or adjacent to development area; and (4) association's claim alleging violation of provision pertaining to separate area in which city provided only sewer service was premature and not ripe for adjudication.

Water association lost any protections of Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment when it paid off its Farmers Home Administration (FmHA) loan pursuant to Agricultural Credit Act of 1987, despite contention that it would have been irrational for association to pay off its loan and lose protections under provision, as association saved substantial sum of money when it paid off its loan. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); Omnibus Budget Reconciliation Act of 1986, ' 1001(f, g), as amended, 7 U.S.C.A. ' 1929a note.

Water association's reborrowing of federal funds after it had previously paid off its Farmers Home Administration (FmHA) loan pursuant to Agricultural Credit Act of 1987 did not result in retroactive protection of association relating back to period of its prior federal debt under Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment. Agricultural Act of 1961, '' 301(b) et seq., 306(b), 7 U.S.C.A. '' 1921 et seq., 1926(b); Omnibus Budget Reconciliation Act of 1986, ' 1001(f, g), as amended, 7 U.S.C.A. ' 1929a note.

Purpose of Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment is twofold: to encourage rural water development by increasing number of users, thereby decreasing per-user cost; and to safeguard financial viability of rural associations and Farmers Home Administration (FmHA) loans. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b).

There are three requisite elements to prove violation of Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment: plaintiff must be indebted association pursuant to Act, plaintiff must show that it has provided or made service available to contested area, and competing utility must curtail or limit service in area to which plaintiff is making service available. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b).

Service area of water association protected under Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment is sacrosanct. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b).

Water association which reborrowed federal funds after it had previously paid off its Farmers Home Administration (FmHA) loan pursuant to Agricultural Credit Act of 1987 would be entitled to protection in city's newly-annexed development area under Consolidated Farm and Rural Development Act provision protecting federally-indebted water associations against municipal encroachment only if association's entire water system was pledged as security for its reborrowing loan, which it obtained to construct separate project located approximately one mile from development area. Agricultural Act of 1961, ' 306(b), 7 U.S.C.A. ' 1926(b); Omnibus Budget Reconciliation Act of 1986, ' 1001(f, g), as amended, 7 U.S.C.A. ' 1929a note.