The Midwest Planning BLUZ • Iowa State University Extension and Outreach

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.

by Gary Taylor

ST. PAUL’S EVANGELICAL LUTHERAN CHURCH v. WEBSTER CITY (link to case here)

(Iowa Supreme Court, June 12, 2009)

Statute of repose did not bar church’s claim against city for negligent severing, then reconnection of sewer line during 1978 water main installation project.

The City’s liability turned on the interpretation of whether the water main installation project was an “improvement to real property” under Iowa Code 614.1(11). This provision is a statute of repose that bars a claimant from bringing “an action arising out of the unsafe or defective condition of an improvement to real property . . . more than fifteen years after the date on which occurred the act . . . [that] cause[d] . . . the injury. . . .” Thus, regardless of when an injury occurs, this statute of repose terminates any right of action fifteen years after the date of the improvement. If the statute applies, St. Paul’s claim would be barred since the reconnection of St. Paul’s sewer line occurred twenty-seven years before sewage backed up into the church and this action was commenced. The City argued that work on St. Paul’s sewer line should be considered part of the water main improvement project because cutting St. Paul’s sewer line would have not been done but for the water main installation project. St. Paul’s, on the other hand, argued that the reconnection of its sewer line was not an improvement, but rather a repair resulting from the water main project that improved neither the function nor the value of the sewer line.

The district court found in favor of the city, reasoning that the retrofit of the Church’s sewer line was a collateral step in and a consequence of the new water main’s installation. Further, and because of the faulty retrofit, the water main improvement project was defective at that time and at that location. It was because of that defect

that the Church eventually incurred its damages.

The Supreme Court reversed. Relying on the testimony of a building official and inspector employed by Webster City for over forty-one years who is also a licensed plumber, the Court determined that it would have been possible to complete the water main project without touching St. Paul’s sewer line and therefore the negligent reconnection of St. Paul’s sewer line was not part of the project to improve the City’s water main. It further found that the reconnection of the sewer line (and not the water main project) also was not an “improvement to real property” as set forth in case law. While it was “a permanent addition to or betterment of real property that involved the expenditure of labor or money,’ it did not “enhance the property’s capital value,” nor was it “designed to make the property more useful or valuable.” Rather than an improvement to real property, the reconnection of the sewer line was more appropriately characterized as an ordinary repair. Therefore, the statute of repose did not bar St. Paul’s claim.

In 1978, during Webster City’s water main installation project, a city contractor severed and then negligently reconnected St. Paul’s Evangelical Lutheran Church’s gravity flow sewer line. Twenty-seven years later, in 2005, sewage backed up into the church resulting in $30,000 in damages. St. Paul’s brought a suit against the City to recover damages.

Tag: infrastructure improvements

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

Claim allowed against city for negligent reconnection of severed sewer line in 1978.

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