Rural water district could not prove ability to provide or make available water service in disputed area

by Gary Taylor

Washington County Water Co., v. City of Sparta, Illinois

Federal 7th Circuit Court of Appeals, August 8, 2023

The Agriculture Act of 1961 authorized the United States Department of Agriculture (USDA) to provide loans to rural water associations to decrease the cost and ensure an adequate supply of safe water for farmers and other rural residents. To ensure that these associations could repay their loans, Congress enacted 7 U.S.C. § 1926(b), which prohibits municipalities and others from selling water in an area that a USDA-indebted rural water association has “provided or made available” its service. To be entitled to protection under § 1926(b), the rural water association must have the physical capability to provide service to the disputed area and a legal right to do so under state law.

Washington County Water Company (WCWC) is a rural water association that sells potable water to several counties in southern Illinois. The Village of Coulterville is adjacent to these counties. In 2019, due to the deteriorating state of its water treatment facility, Coulterville explored the possibility of buying water from either WCWC or the City of Sparta. Coulterville ultimately decided to buy water from Sparta because it was not convinced that WCWC could provide enough water to satisfy its residents’ demands. When WCWC learned of this decision, it filed a complaint in federal district court alleging that § 1926(b) prohibited Sparta from selling water to Coulterville because WCWC had “made its service available” to Coulterville. The district court granted summary judgment in favor of Sparta, holding that WCWC was not entitled to § 1926(b) protection because WCWC did not have a legal entitlement to provide water to Coulterville under Illinois state law. WCWC appealed to the Seventh Circuit.

Because the Seventh Circuit had not explicitly addressed the question of how to determine when an association has “provided or made available” service to a certain area, it looked to other federal circuits’ opinions. Every other circuit has adopted some variation of the “physical capability” test: a two-pronged test that asks (1) whether the association had “water pipes either within or adjacent to the disputed area before the allegedly encroaching association begins providing service to customers in the disputed area,” and (2) whether the association has the “legal right under state law to provide water to the disputed area. In this case the Seventh Circuit focused on the “legal right under state law” question. The Illinois Environmental Protection Agency (IEPA) – the state agency regulating water service – mandates that a water service provider’s system “must be designed to produce at least 20 percent greater than [its] maximum average daily demand ….” in order to establish a right to provide service to a given area. The district court calculated WCWC’s maximum average daily demand to be 1,608,297 gallons per day. After adding the required 20 percent reserve WCWC needed to be “designed to produce” at least 1,929,956 gallons per day, and the district court concluded WCWC could not meet this standard.

The case eventually turned on the meaning of “designed to produce” under Illinois administrative regulations. The Seventh Circuit concluded that “designed to produce” must refer to the water association’s ability to furnish sufficient water to residents, whether it treats its own water or purchases it from others. For WCWC, this meant that the Court looked at its pumping capacity as limited by its contractual capacity, “after all, WCWC cannot pump what it cannot buy.” To interpret “designed to produce” as referring only to pumping capacity, a water association would be entitled to § 1926(b) protection even if they cannot purchase sufficient water to pump through those systems to meet demand. After reviewing the parties’ disagreements about WCWC’s pumping and contractual capacities, the Court concluded that WCWC could not meet the “20 percent greater than [its] maximum average daily demand” requirement. In doing so the Court dismissed WCWC’s contention that it could buy more water from its contractual suppliers within a reasonable time because WCWC provided no tangible evidence of this during discovery.

City’s attempted extension of water service violated federal law protecting rural water districts

by Gary Taylor

Ross County Water Company, Inc., v. City of Chillicothe (OH)
(Federal 6th Circuit Court of Appeals, November 30, 2011)

Ross County Water Company (RCWC) is a non-profit, member-owned, water company incorporated in 1970 under Ohio law. Its members are limited to those who are the record owners of the property served by the water company and to whom the company’s board of trustees has issued a certificate of membership. RCWC serves nearly 13,000 residential and business customers through approximately one thousand miles of pipeline. To finance the construction, maintenance, and extension of its water works system, RCWC borrowed nearly $10.6 million from the United States Department of Agriculture.

The dispute centered around the extension of water service to several commercial and industrial properties approximately two miles north of the municipal boundary of the city of Chillicothe (City).  In 1974, RCWC installed a ten-inch waterline running east to west slightly north of Delano Road that bisects the disputed area which enabled RCWC to provide water service to to a mobile home park.  In 2000, the owner of the mobile home park granted RCWC easements to add additional waterlines to serve other properties owned by the same company.  A sixteen-inch water line was installed in 2003.  RCWC also installed other lines bordering Delano Road, State Route 23, and Hospital Road.

in 2008 the City council passed an ordinance approving plans to develop waterlines north of Delano Road, in the disputed area and cris-crossing RCWC lines.  The Ohio Environmental Protection Agency approved the plans, but RCWC obtained a preliminary junction in Federal District Court for Southern Ohio, claiming protection under 7 U.S.C. § 1926(b) – that portion of the Agricultural Act of 1961 that grants U.S.D.A. authority to extend loans for rural water service and protects loan recipients from competition under some circumstances.  The District Court held that RCWC is entitled to the protections afforded by 7 U.S.C. § 1926(b) and enjoined the City from taking any further action to supply water to the disputed area. The City appealed.

Congress enacted the Agricultural Act of 1961 to “preserve and protect rural farm life.” 7 U.S.C. § 1926(a), granted the Secretary of Agriculture authority to “‘extend loans to certain associations providing water service . . . to rural residents,’” while 7 U.S.C. § 1926(b), was enacted to to safeguard the financial viability of rural associations and these loans. Section 1926(b) provides: “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.”

The 6th Circuit Court of Appeals began by recognizing that the intent of this provision is to prevent “local governments from expanding into a rural water association’s area and stealing its customers.” Thus, the provision “should be given a liberal interpretation that protects rural water associations indebted to the U.S.D.A. from municipal encroachment.” To establish that it is entitled to protection, RCWC must show that (1) it is an ‘association’ within the meaning of the Act; (2) it has a qualifying outstanding loan obligation; and (3) it has provided or made service available in the disputed area.  The bulk of the litigation centered on the third prong.   To satisfy this, RCWC must demonstrate (1) it has “pipes in the ground” that provide service within or adjacent to the disputed area, and that (2) it has the legal right under state law to serve the disputed area.

Pipes in the ground.  The Court observed that “pipes in the ground” means that waterlines must either be within or adjacent to the property claimed to be protected, and that RCWC must also be capable of providing service to the disputed area within a reasonable time after a request for service occurs. The City argued that (1) RCWC did not have the physical ability to service the disputed area at the time the lawsuit was filed, and (2) did not have any customers in the disputed area. The Court determined that both arguments failed. As for (1) the Court found that the waterlines installed beginning in 1974 were both through and adjacent to the properties in question, and that they were sufficient to provide water to new customers because the pressure carried in the lines is approximately 150 psi.  The fact that the 1974 line was used to supply emergency water to the City for several weeks in 1998 supported this conclusion. As for (2), the Court stated that the lack of current customers in the area is irrelevant, and that in fact the language of the statute indicates that future customers are relevant and sufficient.

Legal right to serve area.  The Court recognized that the Ross County Board of Commissioners gave RCWC blanket permission to construct waterlines throughout the unincorporated areas of the county, and that the Ohio Environmental Protection Agency permitted the waterlines in question.  The claim by the City in this regard was without merit.

Finally, the City argued that prior caselaw has recognized that section 1926(b) cannot be used as a sword by rural water districts to “foist an incursion of its own on users outside of its boundary that it has never served or made agreements to serve.”  The Court distinguished the prior caselaw as being unique because it addressed a circumstance where a state has predetermined the boundaries of its rural water districts.  In the present case RCWC was established as a non-profit, and is without state-defined geographical boundaries.  Moreover, RCWC had its lines in place prior to the City’s attempt to server the disputed area.

The Court of Appeals affirmed the District Court’s ruling in favor of RCWC.





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