What is 1926(b) and Attorneys’ Advice

November 2006, Community in Oklahoma Sues USDA to stop loan from being made to rural water supply – citing harm because loan would provide their neighbor with 1926(b) protection. Case currently before judge.

This article on Oklahoma Municipal’ League’s homepage is being called “distorted and untruthful” by expert attorney Steve Harris. Harris says that, for example, the City of Holdenville sells the water to Hughes-5 that Hughes-5 in turn sells to the prison (referenced in the article) and Holdenville receives the same revenue it would have received if it was selling the water directly to the prison. In the case of Pitt-7 and McAlester - McAlester has always provided fire protection water for the Pittsburg County Exposition Center - and the water district never objected to this nor could it. Pitt-7 only sought exclusivity for domestic water service not fire protection service. Also important to the understanding of the issue, according to Harris, is that Holdenville sued the City of Wewoka recently in federal court to block Wewoka from closing on its USDA loan. Holdenville expressly alleges that it does not want Wewoka to achieve exclusive rights status as it may interfere with Holdenville's arrangement to sell water to Hughes-5 which Hughes-5 in turn sells to the prison. In fact, Holdenville wants (as stated in its federal suit) to enforce an Oklahoma state statute which Holdenville claims grants Holdenville the exclusive right to sell water to Hughes-5.

2 big cases have been raging in MS and SC (Windsor Plantation, LLC vs. USDA, Hinds Water Assn and others - Marlboro County Vs. Marlboro Water Company) – the cases will be post soon on the 1926b page. Also, in Oklahoma, cities have been on the cutting edge of a new trend - trying new and innovative legal strategies for overturning or circumventing 1926(b) precedents - including arguing that every USDA loan in that state is unconstitutional and must be cancelled – and challenging the USDA loan contracts. However, recent rulings have gone in favor of the USDA borrowers in these OK cases. See Elk City v. Beckham-3, where the city was attempting to keep that case in states court, but a federal court claimed the case. The rural water DC legal staff has been in discussions with attorneys and interested parties over the question of - the need and desire to have USDA brought in on specific 1926(b) cases with district’s lawyers - and the question of strategies to have all 1926(b) cases heard in federal court, even when one party is suing in state court. We should have some assistance on this effort in the coming weeks. Also, Steve Harris who is representing 6 of the most controversial cases in Oklahoma has drafted a report on these cases for your review.

Courts rules in favor of rural water supply in the case calling all USDA loans in Oklahoma Unconstitutional.

Cities have been suing in Oklahoma to have the USDA grant & loan program ruled unconstitutional in the state – negating all loans and future loans. HOWEVER, today the first rural water district to be sued in this strategy (rural water Beckham-3) has won round one in the litigation – and these rulings tend to suggest where the Court is going…. unlikely that the District Court would overturn the Owasso and Glenpool decisions.

OK threatens to make all USDA loans "void." Elk City v. Beckham-3 challenges the legal right of Oklahoma Water Districts to borrow money from the federal government. Elk City seeks to "void" all federal loans obtained by Beckham-3 which in turn would defeat Beckham-3's 1926(b) protection. If Elk City's constitutional challenge to the borrowing authority of an Oklahoma Water District were successful, this would impact every federal loan and pending federal loan application as to every Oklahoma Water District. See rural water 1926(b) homepage for details

A new suit was filed in OK by Elk City against Beckham County Rural Water District #3. After Elk City's encroachment into the district's service area - Elk City filed this "strike suit", which represents a continuing trend by municipalities to go on the offensive by suing a water district (or encouraging land owners/developers to bring suits of their own) before the water district brings suit in federal court to enforce its 1926(b) rights. This happened in the recent Missouri cases where the cities encouraged landowners to file state actions in an attempt to disrupt a water district's 1926(b) protection. Although this suit addresses issues that have been resolved before by the 10th Circuit, it is a new attempt to declare the borrowing authority for every water district in Oklahoma unconstitutional for loans, which would invoke 1926(b) protection. The suit asks the Oklahoma State Court to resolve indirectly what is essentially a federal question. If the suit remains in state court, an "England Reservation" may be filed to preserve an opportunity to revisit the issues in federal court. All water districts in Oklahoma are invited to intervene in the action since the case impacts the present and future borrowing authority of all Oklahoma water districts.

Massive Reversal favoring little rural water district in Missouri. This district had lost all the way up to the state courts. Developers were having individual homeowners detach from the district to allow neighboring systems to capture new coveted developments. Big law firm soaked the district for hundreds of thousands in legal fees to loose all the initial cases. A year ago, as the district was teetering on bankruptcy, the district found Steve Harris who represented the system with very limited fees and, over the course of months, won an appeal, which resulted in a reversal. On remand, the circuit ruled in favor of the water district. The Circuit Court ruled that 1926(b) protection precludes detachment (see ruling). Also, settlement of the case included payment of money over time for each residential lot in the development as taps are added. The ruling will likely domino the other cases in Missouri - enabling the district to make some very good settlements to get their legal expenses back. (Google search on issue).

Recent 6^th Circuit Ruling provides 1926(b) protection to district that only had guaranteed loan. Dennis O’Toole says the court did not distinguish between guaranteed loan and direct loan in determining the application of 1926(b) protection. Elizabeth Dietzmann offers some caution on the ruling.

PPT presentations at in-service and Biloxi conference

4^th Circuit Relies on Le-Ax to rule against USDA indebted system in Maryland

New Steve Harris article details the malfeasance of some cities and developers discovered by a Appeals Court Judge in Missouri

Steve Harris announces settlement of landmark case (Pitt#7 in Oklahoma and City of McAlester). City agrees no further expansion of service, will pay $175,000, will deliver 355,000,000 gallons of water at "no charge", some customers transitioned back in 60 days, and 20 year contract for supply.

Louis Rosenberg announced the 2nd Bell Arthur case settled 12-3-05 with Bell Arthur receiving monetary settlement, defined boundary, and protection through a U.S. District Court Consent Decree

Jeremiah Finnegan explains that two decisions of the Missouri Court of Appeals (Horn and Robertson) on 1/21/05 reversing two decisions of the Circuit Court issued a mandate on 2/14/05 directing the lower court that if 1926(b) is raised as a defense to a detachment, it is necessary for the trial court to first determine if the District has 1926(b) protection and, if so, then the trial court must enter judgment in favor of the District.

Northern Rural Water district looses in District Court (Jan 2005)

Clay County Missouri situation (2004)

Articles in OK NLC newsletters and papers over state controversy over 1926(b)

Recent Case in Iowa recovering legal fees, Nov. 2000

Recent USDA correspondence clarifying system coverage

Recent Wall Street Journal Article

Newspaper article in KS about various 1926(b) conflicts

Bell Arthur, NC recent unfavorable court case

August 97, National League of Cities Survey on 1926(b)

1996, Fact Sheet by National League of Cities

USDA’s policy on the sell of systems to private companies and calculating repayment to USDA

Memo from USDA explaining policy in an actual system.