IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ...rwd4.com/wordpress/Territorial Issues/September Website Updates/… · in the united states district court for the district

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

RURAL WATER DISTRICT NO. 4 ) DOUGLAS COUNTY, KANSAS ) ) Plaintiff, ) ) vs. ) Case No. 07-CV-2463-JAR-DJW ) CITY OF EUDORA, KANSAS, ) JURY TRIAL DEMANDED ) Defendant. )

PLAINTIFF DOUGLAS COUNTY RURAL WATER DISTRICT NO. 4’S (DOUGLAS-4)

RESPONSE TO DEFENDANT CITY OF EUDORA’S (EUDORA) CONSOLIDATED MOTION FOR SUMMARY JUDGMENT (DOCUMENT 150)

John W. Nitcher, Bar No. 09749 RILING, BURKHEAD & NITCHER

808 Massachusetts Street P.O. Box B

Lawrence, Kansas 66044 Telephone: (785) 841-4700

Fax: (785) 843-0161 [email protected]

Steven M. Harris, OBA #3913

Michael D. Davis, OBA #11282 1350 South Boulder, Suite 700

Tulsa, OK 74119 (918) 592-1276

(918) 592-4389 (fax) [email protected] [email protected]

Michael C. Kirkham, KS Bar #20284

SANDERS CONKRIGHT & WARREN LLP 9401 NDIAN Creek Parkway, Suite 1250

Overland Park, KS 66210 Telephone: (913) 234-6100

Fax: (913) 234-6199

Attorneys for the Plaintiff, Douglas County Rural Water District No. 4

Case 2:07-cv-02463-JAR-DJW Document 175 Filed 09/02/2008 Page 1 of 73

i

TABLE OF CONTENTS INTRODUCTION………………………………………………………………………………...1

I. RESPONSE TO EUDORA’S STATEMENT OF THE CASE………………………………………………………………………..1 I(A) DOUGLAS-4 QUALIFIES FOR 7 U.S.C. § 1926(B) PROTECITON (DOUGLAS-4 HAS A STATUTORY RIGHT TO BORROW MONEY AND RECEIVE THE BENEFIT OF A FEDERALLY GUARANTEED LOAN (RESPONSE TO EUDORA’S ARGUMENT I(A)- EUDORA BRIEF AT 1))…………………………………………………1

(i) EUDORA IS BARRED FROM CHALLENGING THE VALIDITY OF THE GUARANTY………………………...2 (ii) THE FEDERALLY GUARANTEED LOAN WAS “NECESSARY TO CARRY OUT THE PURPOSES OF ITS ORGANIZATION”…………………………3 (iii) ACCEPTING FINANCIAL AID HAS NO “NECESSARY” COMPONENT……………………………..5

I(B) EUDORA’S ARGUMENT THAT DOUGLAS-4’S FEES/CHARGES/ASSESSMENTS ARE UN- REASONABLE/EXCESSIVE/CONFISCATORY IS WITHOUT MERIT. EUDORA’S ARGUMENT THAT THE DOUGLAS COUNTY COMMISSIONERS IMPOSED CONDITIONS FOR LANDS INVOLVED IN THIS CASE IS FALSE (RESPONSE TO EUDORA’S ARGUMENT I(B)-EUDORA BRIEF AT 2-3)…………………………..6 (i) EUDORA HAS WAIVED THE UNREASONABLE/ EXCESSIVE/CONFISCATORY AFFIRMATIVE DEFENSE…...................................................................................6 (a) EUDORA’S BURDEN OF PROOF TO CHALLENGE DOUGLAS-4’S RATES IS A “BEYOND ALL DOUBT” STANDARD…………..7

(ii) THE COUNTY COMMISSIONERS OF DOUGLAS COUNTY IMPOSED NO CONDITIONS RELATIVE TO LAND INVOLVED IN THIS CASE…………………………9


ii

I(C) EUDORA VIOLATED § 1926(b) AND THEREFORE HAS VIOLATED 42 U.S.C. § 1983 RESPONSE TO EUDORA’S ARGUMENT I(C)-EUDORA BRIEF AT 3)………………9

(i) EUDORA HAS VIOLATED § 1926(b) AND THUS IS LIABLE UNDER § 1983……………………………...10 (ii) EUDORA VIOLATED § 1926(b) BY (a) TAKING TERRITORY THROUGH ANNEXATION, (b) LIMITING THE LEGAL RIGHT OF DOUGLAS-4 TO SELL WATER WITHIN THE ANNEXED LAND, (c) SOLICITING/THREATENING A POTENTIAL WATER CUSTOMER AND (d) MAKING THREATS TO TAKE (ACQUIRE) DOUGLAS-4’S ASSETS……………..10

I(D) EUDORA’S REPETITION OF ARGUMENTS 1 (A-C) (RESPONSE TO EUDORA’S ARGUMENT I(D)- EUDORA BRIEF AT 2)………………………………………………...13

RESPONSE TO EUDORA’S STATEMENTS OF UNCONTROVERTED FACTS SERIATIM………………………………………………………………………………13 STATEMENT OF ADDITIONAL FACTS FOR WHICH THERE IS NO GENUINE DISPUTE……………………………………………………………………….27 III. STANDARDS FOR SUMMARY JUDGMENT………………………………..31 IV. RESPONSE TO EUDORA’S ARGUMENT IV(A)…………………………….31

(A) RESPONSE TO EUDORA’S ARGUMENT IV(A)…………………….31 (B) RESPONSE TO EUDORA’S ARGUMENT IV(B)…………………….31

(i) EUDORA IS BARRED FROM CHALLENGING THE STATUTORY POWER OF DOUGLAS-4 TO CONTRACT, RECEIVE AID FROM THE USDA, AND BORROW MONEY BECAUSE IT HAS FAILED TO JOIN NECESSARY AND IN- DISPENSABLE PARTIES (LENDER AND USDA)………….31 (ii) A FEDERALLY GUARANTEED LOAN WAS NECESSARY FOR DOUGLAS-4 TO OBTAIN § 1926(b) TERRITORIAL PROTECTION FROM COMPETITION-WHICH DIRECTLY BENEFITS THE DISTRICT BY MAKING IT MORE FINANCIALLY VIABLE TO MAINTAIN ITS


iii

SYSTEM-AND LOWER THE PER-USER COST OF WATER…………………………………………………….33 (iii) THE BENEFITS DERIVED FROM THE USDA GUARANTY ACCEPTED BY DOUGLAS-4 SERVE THE PURPOSE FOR WHICH DOUGLAS-4 WAS FORMED………………………………..35 (iv) THERE IS NO “NECESSARY” LANGUAGE RELATIVE TO ACCEPTING FINANCIAL AID FROM USDA…………………………………………….36 (v) THE FEDERAL GUARANTY WAS MORE BENEFICIAL THAN COSTLY (RESPONSE TO EUDORA ARGUMENT II(B)(3)…………………………36 (vi) DOUGLAS-4 IS INDEBTED ON A LOAN THAT QUALIFIES FOR § 1926(b) PRO- TECTION (RESPONSE TO EUDORA’S ARGUMENT II(C)-[AGES 26-27 OF ITS BRIEF)…………………………………………………………38

V. DOUGLAS-4 HAS MADE SERVICE AVAILABLE (RESPONSE TO EUDORA ARGUMENT V AT \ PAGE 27 OF ITS BRIEF)……………………………………………………..39

(A) EUDORA PRESENTS NO EVIDENCE AS TO THE MADE SERVICE AVAILABLE TEST………………………...39 (B) EUDORA HAS THE BURDEN TO SUPPORT THE UNREASONABLE/EXCESSIVE/CON- FISCATORY AFFIRMATIVE DEFENSE…………………………..39 (C) EUDORA SEEKS TO APPLY OLD HISTORICAL RATES NO LONGER APPLICABLE……………………………….40 (D) EUDORA HAS NO EVIDENCE TO SHOW PRE- ANNEXATION RATES WERE EXCESSIVE (RESPONSE TO EUDORA’S ARGUMENT V(A)(2)(b)- PAGES 32-35)………………………………………………………..42

V(B) THE DOUGLAS COUNTY COMMISSIONERS IMPOSED NO CONDITIONS ON THE ANNEXED LAND INVOLVED IN THIS CASE. (RESPONSE TO EUDORA’S ARGUMENT V(B) (1-3)-PAGES 36-44)………………….43


iv

(i) EUDORA’S COLLATERAL ATTACK ON THE FINAL ORDER IS UNSUPPORTABLE……………………...44 (ii) COUNTY COMMISSIONERS HAVE NO STATUTORY POWER TO COMPEL WAIVER OF DOUGLAS-4’S RIGHTS UNDER K.S.A. §12-527 RIGHTS TO COMPENSATION………………………….46

V(C) DOUGLAS-4 CLAIMS NO § 1926(b) PROTECTION FOR LAND ANNEXED BY EUDORA PRIOR TO THE DATE OF ITS FEDERALLY GUARANTEED LOAN. (RESPONSE TO ARGUMENT V(C)-AT PAGE 44 OF EUDORA’S BRIEF)…………………………………………47 VI. RESPONSE TO EUDORA ARGUMENT VI (42 U.S.C. § 1983 CLAIMS)………………………………………………..47

(A) DOUGLAS-4 IS ENTITLED TO SUMMARY JUDGMENT ON ITS § 1983 CLAIM BECAUSE EUDORA HAS VIOLATED § 1926(b)…………………………....47 (B) EUDORA VIOLATED DOUGLAS-4’S FEDERAL RIGHT UNDER § 1926(b) BY ANNEXING TERRITORY FROM DOUGLAS-4 (TAKING TERRITORY AND THE LEGAL RIGHT TO SERVE), THREATENING TO TAKE ASSETS (ENFORCING K.S.A. § 12-527) AND SOLICITING DOUGLAS-4’S POTENTIAL CUSTOMER (MR. GARBER)……………………...48

(1) EUDORA HAS VIOLATED § 1926(b) IN WAYS OTHER THAN THROUGH THE SALE OF WATER (RESPONSE TO EUDORA ARGUMENTS VI(B)(1)………………………..48 (2) EUDORA’S THREATS TO ENFORCE K.S.A. § 12-527 CONSTITUTE A VIOLATION OF § 1926(b) (RESPONSE TO EUDORA ARGUMENTS VI(B)(2))…………………………………..49

(C) RESPONSE TO EUDORA ARGUMENTS VI(B)(4)……………..52

(i) EUDORA HAS ACTED THROUGH ITS MAYOR AND CITY COUNCIL COMMIT VIOLATIONS OF § 1926(b). (MR. WATERS AND MR. TIDEMAN HAVE ALSO ACTED IN THEIR


v

OFFICIAL CAPACITY AS CITY ATTORNEY-EMPOWERED BY CITY ORDINANCE TO HANDLE LEGAL AFFAIRS WHICH HAVE AIDED EUDORA IN COMMITTING VIO- LATIONS OF § 1926(b)………………………………53

(D) RESPONSE TO EUDORA ARGUMENTS VI(B)(5)(a)…………………………………………………………….56 (i) ANNEXATION ALONE IN KANSAS- CONSTITUTES A § 1926(b) VIOLATION………………….56

(E) EUDORA’S ARGUMENT THAT K.S.A. § 12-527 IS DIRECTORY AND NOT MANDATORY UNDER THE FACTS OF THIS CASE IS FRIVILOUS. (RESPONSE TO EUDORA ARGUMENTS VI(B)(5)(b), EUDORA BRIEF AT PAGES 53-58)………………………………..58

VII. EUDORA’S MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO ITS COUNTERCLAIMS MUST BE DENIED (RESPONSE TO EUDORA’S ARGUMENT VII (A-B) AT PAGES 58-61 OF ITS BRIEF)……………………………………………………………….61 CONCLUSION……………………………………………………………………………….62


vi

TABLE OF AUTHORITIES

CASES Bell Arthur Water Corp. v. Greenville Utils. Comm'n, 173 F.3d 517, 523 (4th Cir.1999) …………………………………...……………………10,22,41 Bentley v. Cleveland County Bd. of County Comm'rs, 41 F.3d 600, 604 (10th Cir.1994)…………………………………………………………………6 Bucher & Willis Consulting Engineers, Planners and Architects v. Smith 7 Kan.App.2d 467, 470, 643 P.2d 1156, 1159 (Kan.App., 1982)…………………………….55,56 Chesapeake Ranch Water Company v. Board of Com'rs of Calvert County 401 F.3d 274, 279 (C.A.4 (Md.),2005)……………………………………………………22,41,42 City of Madison, Miss. v. Bear Creek Water Ass'n, Inc. 816 F.2d 1057, (5th Cir. 1987)…………………………………………………………………...50 Glenpool Util. Serv. Auth. V. Creek County Rural Water Dist. No. 2, 861 F.2d 1211(10th Cir. 1988)…………………………………………………………………...11 Haley v. Pataki, 106 F.3d 478, 481 (2d Cir.1997)……………………………………………….10 Haney v. Castle Meadows, Inc. 868 F.Supp. 1233(D.Colo.,1994)………………………………………………………………...56 Le-Ax Water Dist. v. City of Athens, Ohio 346 F.3d 701, 705 (C.A.6 (Ohio),2003)………………………………………………...….5,23,42 Lexington-S. Elkhorn, 93 F.3d at 235)……………………………………………………………5 Moongate Water Co., Inc. v. Dona Ana Mutual Domestic Water Consumers Ass'n 420 F.3d 1082, 1086 (10th Cir. 2005)………………………………………………….22,41,42,43 Murphy v. Curtis, 184 Kan. 291…………………………………………………………………12 Okmulgee County Rural Water Dist. No. 2 v. City of Okmulgee 2006 WL 2251811, 2 (E.D.Okla.) (E.D.Okla.,2006)………………………………………..2,3,32 Pittsburg County Rural Water Dist. No. 7 v. City of McAlester 358 F.3d 694, 715 (10th Cir. 2004)…………………………………………..1,4,9,12,13,28,47,57 Rural Water System No. 1 v. City of Sioux Center 202 F.3d 1035, 1038 (8th Cir. 2000)……………………………………………………………1,9


vii

Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of Wilson, Kansas 243 F.3d 1263, 1276 (10th Cir. 2001)…………………………………….1,7,8,10,21,39,40,42,43 Rural Water District #2 Miami County, Kansas v. The City of Louisburg, Case No. 07 CV 83 – Dist. Ct. Miami County, Kansas………………………………………12,34 Rural Water Dist. No. 4, Douglas County, Kan. v. City of Eudora, Kan. 2008 WL 695856, 1 (D.Kan.,2008)…………………………………………………....10,11,52,60 Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow 191 F.3d 1192, 1197 (10th Cir. 1999)……………………………………………..1,9,10,23,41,42 Shawnee Hills Mobile Homes, Inc. v. Rural Water Dist. No. 6 217 Kan. 421, 537 P.2d 210 (Kan. 1975)………………………………………………...7,8,21,40 State, ex rel. Foster v. Kansas City, 187 Kan. 286, 289-90 (1960)…………………………..12,57 Thorstenn v. Barnard, 883 F.2d 217, 218 (3d Cir.1989)………………………………………...10 Transamerica Leasing, Inc. v. Institute of London Underwriters 430 F.3d 1326, 1332 (C.A.11 (Fla.),2005)………………………………………………………52 U.S. v. Mitchell 518 F.3d 740, 745 (10th Cir. 2008)……………………………………………...6 Water District No. 1 of Johnson County v. Mission Hills Country Club, 265 Kan. 355 (1998)………………………………………………………………………….12,57 STATUTES 5 FED. PRAC. & PROC. CIV3d § 1271………………………………………………………….7 7 U.S.C. § 1921………………………………………………………………………………..5,36 7 U.S.C. § 1926(a)……………………………………………………………………………….38 7 U.S.C. § 1926(b)……………………..1-4,6-15,22,27,30,31-34,37,38,41,46-52,55,57,58,61,62 16 U.S.C.A. 590r,590s,590x-1,590x-a,590x-3………………………………………………...5,36 42 U.S.C. § 1983………………………………………………………………….....11,13,14,48 K.S.A. § 12-105…………………………………………………………………………………31 K.S.A. § 12-527…………………………………………12,13,27,33,34,46,50,51,52,54,55,57-62 K.S.A. § 82a-616………………………………………………………………….3,4,14,27,28,34


viii

K.S.A. § 82a-619………………………………………………………………3,5,14,28,31,35,36


1

COMES NOW the Plaintiff Rural Water District No. 1, Douglas County, Kansas

(Douglas-4), and hereby submits its Response to Defendant’s (Eudora) Consolidated Motion for

Summary Judgment as follows:

INTRODUCTION

The 10th Circuit has held: “Doubts about whether a water association is entitled to

protection from competition under § 1926(b)1 should be resolved in favor of the FmHA-indebted

party seeking protection for its territory.” Sequoyah County Rural Water Dist. No. 7 v. Town of

Muldrow 191 F.3d 1192, 1197 (10th Cir. 1999) To emphasize this standard, the 10th Circuit also

stated in the same opinion: “As noted above, evidentiary uncertainties should be resolved in

favor of Plaintiff, the party seeking to protect its territory, on remand.” Sequoyah at 1206

(emphasis added) See also Pittsburg County Rural Water Dist. No. 7 v. City of McAlester 358

F.3d 694, 715 (10th Cir. 2004); Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of

Wilson, Kansas 243 F.3d 1263, 1276 (10th Cir. 2001); Rural Water System No. 1 v. City of

Sioux Center 202 F.3d 1035, 1038 (8th Cir. 2000)

It is with these standards in mind that the parties’ respective motions for summary

judgment should be viewed.

I. Response To Eudora’s Statement Of The Case________________________________

I(A). Douglas-4 Qualifies For 7 U.S.C. §1926(b)2 Protection. (Douglas-4 Has A Statutory Right To Borrow Money And Receive The Benefit Of A Federally Guaranteed Loan (Response To Eudora’s Argument I(A) – Eudora Brief At 1))_______________________________________________________________

Eudora argues that Douglas-4 lacks state power to borrow money and receive the benefits

of a federally guaranteed loan. Absent a federally guaranteed loan, no § 1926(b) protection 1 7 U.S.C. § 1926(b) 2 Hereafter § 1926(b)


2

exists. Eudora’s contention is premised on the erroneous and unsupported claim that the guaranty

made by the United States Department of Agriculture (USDA) to Douglas-4’s lender (First State

Bank) was not “necessary to carry out the purposes of its3 organization”. (Eudora does not

challenge the necessity of the loan itself which was used to construct infrastructure for the

delivery of water, but only claims the federal guaranty was unnecessary.) Eudora is wrong for

several reasons.

(i) Eudora Is Barred From Challenging The Validity Of The Guaranty________

The USDA guaranteed the loan made by First State Bank to Douglas-4. (Document 153-5)

Eudora contends Douglas-4 had no state law power to contract for the “guaranteed” loan.

Without this power or authority, Eudora contends the guaranteed loan would be void. Eudora

has, however failed to join necessary and indispensable parties to adjudicate this issue. Any

declaration of the validity of the guaranteed loan would affect the other contracting parties,

namely USDA and First State Bank.

“Clearly, a party to a contract is a necessary party to any action which challenges the validity of the contract or seeks to alter its terms. Jicarilla Apache Tribe v. Hodel, 821 F.2d 537, 540 (10th Cir.1987) citing Lomayaktewa v. Hathaway, 520 F.2d 1324, 1325 (9th Cir.1975), cert. denied, 425 U.S. 903, 96 S.Ct. 1492, 47 L.Ed.2d 752 (1976) (“No procedural principle is more deeply imbedded in the common law than that, in an action to set aside a lease or a contract, all parties who may be affected by the determination of the action are indispensable.”)” Okmulgee County Rural Water Dist. No. 2 v. City of Okmulgee 2006 WL 2251811, 2 (E.D.Okla.) (E.D.Okla.,2006) (emphasis added) In Okmulgee the city challenged the water district’s § 1926(b) protection by claiming that

the district lacked the state law power/authority to enter into the loan contract and sought to

declare the loan contract void. (Eudora makes the same claim in its Answer (Document 105,

page 4, ¶ 5). Under nearly identical facts, the Okmulgee court concluded: “Consequently, this

3 Referring to Douglas-4


3

Court must conclude that the USDA is a necessary party to this action. Okmulgee at 2 Absent

joinder of both the bank and the USDA, Eudora is precluded from adjudicating the validity of

Douglas-4’s federally guaranteed loan. Rule 19, F.R.Civ.P.

(ii) The Federally Guaranteed Loan Was “Necessary To Carry Out The Purposes Of Its Organization”________________________________________

Kansas rural water districts are formed for the purpose of satisfying a need for an

adequate water supply and through the construction and maintenance of public works, rural

water districts promote the public health, convenience and welfare of rural residents4. In

furtherance of these purposes, Kansas rural water districts are granted the statutory power

(K.S.A. § 82a-619) to contract, borrow money and accept assistance/financial aid and other aid

from the United States Department of Agriculture (USDA)5. The United States Congress

recognized that to improve the quality of life in rural America, a safe, reliable and economic

source of water was essential. In furtherance of this objective Congress passed into law, inter

alia, 7 U.S.C. §1926(b). One of the purposes of this statute was the promotion of rural water

development “by expanding the number of potential users of such systems, thereby decreasing

4 “(2) whether lands within the area defined in the petition are without an adequate water supply; (3) whether the construction and maintenance of ponds, or reservoirs, pipelines or wells or check dams or pumping installation or any other facility for the storage, transportation or utilization of water, of the construction and maintenance of any combination of said proposed projects are necessary for the improvement of the community….. (4) whether such improvements or works will be conducive to and will tend to promote the public health, convenience and welfare.” K.S.A. § 82a-616 (emphasis added) 5 “Every district incorporated under this act shall have perpetual succession, subject to dissolution or consolidation pursuant to law and shall have the power to: (c) contract, (g) cooperate with and enter into agreements with the secretary of the United States department of agriculture or the secretary's duly authorized representative necessary to carry out the purposes of its organization; and to accept financial or other aid which the secretary of the United States department of agriculture is empowered to give pursuant to 16 U.S.C.A., secs. 590r, 590s, 590x-1, 590x-a and 590x-3, and amendments thereto; (h) acquire loans for the financing of up to 95% of the cost of the construction or purchase of any project or projects necessary to carry out the purposes for which such district was organized and to execute notes and mortgages in evidence thereof with interest, or combined interest and mortgage insurance charges,” K.S.A. § 82a-619 (emphasis added)


4

the per-user cost.” Pittsburg County Rural Water Dist. No. 7 v. City of McAlester 358 F.3d 694,

715 (10th Cir. 2004)

Municipal annexation of rural water district territory (without 7 U.S.C. § 1926(b)

protection (hereafter § 1926(b)) serves to reduce the size of a rural water district’s territory and

reduce the number of potential users for the system – thus increasing the per-user cost.

Municipal annexation of water district territory works against and is contrary to the U.S.

Congressional purpose of § 1926(b) and against the purpose of Kansas state law (K.S.A. § 82a-

616) intended to similarly promote “public convenience and welfare” (by inter alia decreasing

the per-user cost of water to rural residents).

Before Eudora’s annexations which are the subject of this action (see Statement of

Additional Facts (below) (SOAF) ¶ 4) and in order to promote and insure the “welfare” of its

rural residents, Douglas-4 determined that it was necessary (as well as beneficial) for the

purposes of Douglas-4 to seek from the federal government, a loan guarantee. The federal

guaranty was sought in order to protect the financial integrity and viability of Douglas-4. This

was certainly the recommendation of the Douglas-4 Administrator (Scott Schultz) in his

memorandum to the Douglas-4 board. (Document 152-14).

Mr. Schultz pointed out that “This loan is another tool that allows us6 to defend our

financial integrity against encroaching cities – cities that will take advantage of us to serve their

own interests…”. (Document 152-14 at page 3, ¶ 3). Financial integrity is essential and

necessary for Douglas-4 to maintain its water delivery system used to promote the public

welfare, and consistent with the § 1926(b) congressional purpose of achieving “economy of

6 Douglas-4


5

scale” and “financial viability” 7. Eudora cannot genuinely or legitimately argue that the

financial integrity/viability of a Kansas rural water district and the welfare of its rural residents,

is beyond the scope of the statutory purposes for which such rural associations/districts are

formed and function.

(iii) Accepting Financial Aid Has No “Necessary” Component________________

K.S.A. § 82a-619(g) expressly permits Douglas-4 to accept “financial aid or other aid”

from the USDA8. Acceptance of financial aid or other aid has no pre-condition or “being

necessary” element in the Kansas statutory language. However if one is to be read into the

statute, acceptance of the aid here, in the form of a federally guaranteed loan, was necessary to

preserve and protect the financial viability of Douglas-4 and promote the welfare of rural

residents. This is accomplished by Douglas-4 obtaining a federally guaranteed loan which carries

7 “The concept of economies of scale is an integral part of § 306(b)'s rationale; by protecting a rural water

association's customer base, the provision allows such associations to spread their fixed costs over a large group of users. In so doing, the statute aims to prevent rural water costs from becoming prohibitively expensive to any particular user, to develop a system providing fresh and clean water to rural households, and to protect the federal government as insurer of the loan. Id. (“By including service to other rural residents, the cost per user is reduced and the loans are more secure in addition to the community benefits of a safe and adequate supply of running household water.”); see also Lexington-S. Elkhorn Water Dist. v. City of Wilmore, 93 F.3d 230, 233 (6th Cir.1996) (stating that the Act “safeguard[s] the financial viability of rural associations and Farmers Home Administration loans” and “encourage[s] rural water development by expanding the number of potential users”). We have stated that this “provision ‘should be given a liberal interpretation that protects rural water associations indebted to the FmHA from municipal encroachment.’ ” Lexington-S. Elkhorn, 93 F.3d at 235 (citation omitted).” Le-Ax Water Dist. v. City of Athens, Ohio 346 F.3d 701, 705 (C.A.6 (Ohio),2003) (emphasis added) 8 “(g) cooperate with and enter into agreements with the secretary of the United States department of agriculture or the secretary's duly authorized representative necessary to carry out the purposes of its organization; and to accept financial or other aid which the secretary of the United States department of agriculture is empowered to give pursuant to 16 U.S.C.A., secs. 590r, 590s, 590x-1, 590x-a and 590x-3, and amendments thereto;” K.S.A. § 82a-619 (emphasis added) The federal statutory sections referenced in this Kansas statute were later repealed and replaced by 7 U.S.C. § 1921 et seq. “Repeal of sections effective one hundred and twenty days after Aug. 8, 1961, or such earlier date as the provisions of section 1921 et seq. of Title 7, Agriculture, are made effective by regulations of Secretary of Agriculture, see section 341(a) of Pub.L. 87-128, set out as a note under section 1921 of Title 7.” 16 U.S.C.A. § 590r


6

with it § 1926(b) territorial protection. This protection allows Douglas-4 to expand its customer

base without fear of encroachment or annexation from neighboring municipalities. Expansion of

the customer base will reduce the per-user cost of water.

Eudora presents no evidence to counter the opinions/statements expressed by Mr. Schultz

in his memorandum (Document 152-14) to the Douglas-4 board that the guaranteed loan and §

1926(b) protection which comes with it, is necessary for the financial integrity of Douglas-4 and

will save “the district hundreds of thousands of dollars down the road” (Document 152-14, page

4) Mr. Schultz makes clear that the increased cost in interest charges, is vastly outweighed by the

economic benefit derived from § 1926(b) protection (which can only be achieved by obtaining a

direct loan from the USDA or a loan guaranteed by the USDA). There is no evidence presented

by Eudora that § 1926(b) protection will not serve the purposes of Douglas-4 by protecting its

the financial interests and promote the public welfare by reducing the per-user cost of water to

rural residents.

I(B) Eudora’s Argument That Douglas-4’s Fees/Charges/Assessments Are Unreasonable/Excessive/Confiscatory Is Without Merit. Eudora’s Argument That The Douglas County Commissioners Imposed Conditions For Lands Involved In This Case Is False (Response To Eudora’s Argument I(B) – Eudora Brief At 2-3)__

(i) Eudora Has Waived the Unreasonable/Excessive/Confiscatory Affirmative Defense

Eudora contends that Douglas-4’s “pricing” is unreasonable and confiscatory, raising the

“unreasonable/excessive/confiscatory affirmative defense” for the first time in its brief and never

in its answer to the original complaint or amended complaint. Failure to plead an affirmative

defense results in a waiver of that defense. Bentley v. Cleveland County Bd. of County Comm'rs,

41 F.3d 600, 604 (10th Cir.1994), U.S. v. Mitchell 518 F.3d 740, 745 (10th Cir. 2008). Douglas-

4 moves the Court to strike all argument presented by Eudora in its summary judgment motion

and brief, in support of this affirmative defense, as the defense has been waived.


7

A challenge by an encroaching municipality, to the “rates” charged by a rural water

district in a § 1926(b) case is indeed an affirmative defense and not part of the elements of a §

1926(b) claim for which Douglas-4 carries the burden of proof9.

The Court in Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of Wilson,

Kansas 243 F.3d 1263 (10th Cir. 2001) (City of Wilson) cited to and relied on Shawnee Hills

Mobile Homes, Inc. v. Rural Water Dist. No. 6 217 Kan. 421, 537 P.2d 210 (Kan. 1975) in

rendering its opinion relative to the unreasonable/excessive/confiscatory affirmative defense

raised in that case, (that the water district’s rates were prohibitively high). Shawnee Hills is

instructive here regarding Eudora’s challenge to rates charged by Douglas-4 and Eudora’s

burden of proof.

Shawnee held that a water district’s rates are presumed valid and reasonable until the

contrary has been established. Moreover, the burden of overcoming this presumption rests upon

the challenging party (Eudora). Shawnee further held that the action of the authority in making

assessments is presumed to be legal, equitable and just, and the assessment is prima facie

evidence of the regularity and correctness of all prior proceedings. Shawnee Hills at 217. Rate-

making is a legislative or administrative, not a judicial, function. Shawnee Hills at 217.

Because it did not raise this affirmative defense of “unreasonable, excessive and confiscatory” in

its Answers to the Complaint and Amended Complaint, Eudora cannot raise that defense in its

Motion for Summary Judgment.

(a) Eudora’s Burden of Proof To Challenge Douglas-4’s Rates Is A “Beyond All Doubt” Standard____________________________________________

9 “Generally speaking, the rule's reference to “an avoidance or affirmative defense” encompasses two types of defensive allegations: those that admit the allegations of the complaint but suggest some other reason why there is no right of recovery, and those that concern allegations outside of the plaintiff's prima facie case that the defendant therefore cannot raise by a simple denial in the answer.” 5 Fed. Prac. & Proc. Civ.3d § 1271


8

The Kansas Supreme Court in Shawnee Hills placed a heavy burden of proof on anyone

challenging the presumptive fairness of rates set by entities such as Douglas-4.

“Judicial interference should never occur unless the case presents, clearly and

beyond all doubt, such a flagrant attack upon the rights of property under the guise of regulations as to compel the court to say that the rates prescribed will necessarily have the effect to deny just compensation for private property taken for the public use.' San Diego Land & Town Co. v. National City, 174 U.S. 739, 19 S.Ct. 804, 43 L.Ed. 1154 . . .' (pp. 262, 263, 218 N.W. p. 564.)

Shawnee Hills at 217 - 218 (Kan. 1975) (emphasis added) No principle is more firmly embedded in the law than the presumption of validity accorded a legislative enactment10. The published reports of this court are well studded with cases supporting the position that the constitutionality of a statute is presumed, that all doubts must be resolved in favor of its legality and before it may be stricken down it must clearly appear to violate constitutional requirements. (See State, ex rel. Anderson v. Fadely, 180 Kan. 652, 659, 308 P.2d 537; 1 Hatcher's Digest (Rev.Ed.) Constitutional Law, s 16; 3A West's Kansas Digest, Constitutional Law, s 48.)

Shawnee Hills at 221 (Kan. 1975) (emphasis added) These excerpts make clear what the 10th Circuit meant by its phrase “… if the city can show

that Post Rock's rates or assessments were unreasonable, excessive, and confiscatory, then the

water district has not made services available under § 1926(b)”

(City of Wilson at 1271) (emphasis added), namely that this is an affirmative defense because the

person/entity challenging the rates (Eudora) carries the burden to overcome the presumption of

validity with all doubts as to the legality of the rate being resolved in favor of the Douglas-4.

This “all doubts” standard (relative to challenging rates) is identical to the standard adopted

by the 10th Circuit for § 1926(b) cases. “We have noted that “[d]oubts about whether a water

association is entitled to protection from competition under § 1926(b) should be resolved in favor

10 “Rate-making is a legislative or administrative, not a judicial, function.” Shawnee Hills at 217 (Kan. 1975)


9

of the F[M]HA-indebted party seeking protection for its territory.” Sequoyah, 191 F.3d at 1197.”

Pittsburg County Rural Water Dist. No. 7 v. City of McAlester 358 F.3d 694, 715 (10th Cir.

2004). See also Rural Water System No. 1 v. City of Sioux Center 202 F.3d 1035, 1038 (8th Cir.

2000) adopting the 10th Circuit standard for § 1926(b) cases.

Eudora presents no evidence to support its claim that Douglas-4’s rates are unreasonable,

excessive and confiscatory.

(ii) The County Commissioners Of Douglas County Imposed No Conditions Relative To Land Involved In This Case_______________________________

The land involved in this case (referred to as “Annexed Land” – See SOAF ¶ 4 (below))

was part of the original territory of Douglas-4, since 1973. (See SOAF, ¶ 6). In 2003 Douglas-4

sought to annex additional land into the district’s territory. The county commissioners in

approving the annexations (attachments of additional land sought by Douglas-4), expressly stated

that the conditions imposed as to the newly annexed land (sometimes called “island

annexations”), were not being imposed on land that was part of district territory prior to the date

of the Commissioner’s 2003 approval order. See Document 152-25, page 4, next to last sentence

(“The foregoing conditions shall apply to the tracts contained in the said Exhibit A, and shall not

apply to any land presently in Rural Water District No. 4”) (emphasis added).

Eudora attempts to mislead the Court by arguing that the County Commissioner’s Order

approving the “island annexations”11 in 2003 applies to land which was already part of the

Douglas-4 territory. Eudora’s argument here is false and frivolous.

I(C). Eudora Violated § 1926(b) And Therefore Has Violated 42 U.S.C. § 1983 (Response To Eudora’s Argument I(C) – Eudora Brief At 3)____________________

11 This term “island annexations” was used by the County Commissioners in their minutes taken of a meeting on November 24, 2003. See Document 152-23, page 5.


10

Eudora argues here, that (1) since it did not violate § 1926(b) it could not have violated §

1983 (2) that its “threats” to enforce a Kansas state statute to forcibly acquire Douglas-4 assets

does not violate § 1926(b) and (3) its annexation of Douglas-4 territory has no legal significance

under § 1926(b). Eudora is wrong on all three points.

(i) Eudora Has Violated § 1926(b) And Thus Is Liable Under § 1983___

Douglas-4’s SOAF (see below) shows that Eudora has violated § 1926(b) (a federal

right12), by (1) taking territory which severs the legal right of Douglas-4 to provide water service

within the annexed land, (2) seeking to enforce a Kansas state statute to force the acquisition of

Douglas-4 assets and preclude it from selling water within the annexed land, and (3) soliciting

potential customers of Douglas-4 to buy water from Eudora rather than Douglas-4. Eudora is

forbidden from competing with a rural water district which in indebted on a federally guaranteed

loan13. Because Eudora has violated § 1926(b) it is liable under § 1983.14

(ii) Eudora Violated § 1926(b) By (a) Taking Territory Through Annexation, (b) Limiting The Legal Right Of Douglas-4 To Sell Water Within The Annexed Land (c) Soliciting/Threatening A Potential Water Customer and (d) Making Threats To Take (Acquire) Douglas-4’s Assets______________

Eudora references the Court’s prior Memorandum and Order15 dismissing Count 1 only,

of the original complaint (claim for damages for violation of § 1926(b) and § 1983). The

12 “…§ 1926(b) gives rise to a federal right.” City of Wilson at 1275. 13 “Congress intended to protect rural water districts from competition to encourage rural water development and to provide greater security for and thereby increase the likelihood of repayment of FmHA loans. See Sequoyah County, 191 F.3d at 1196; Bell Arthur Water Corp. v. Greenville Utils. Comm'n, 173 F.3d 517, 523 (4th Cir.1999).” Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of Wilson, Kansas 243 F.3d 1263, 1269 (10th Cir. 2001) 14 The district court concluded that actions for violations of § 1926(b) are properly brought under § 1983. Although Post Rock's complaint did not mention § 1983, Post Rock may recover attorney fees under § 1988 if its complaint contained allegations sufficient to support a § 1983 action. See Haley v. Pataki, 106 F.3d 478, 481 (2d Cir.1997); Thorstenn v. Barnard, 883 F.2d 217, 218 (3d Cir.1989). Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of Wilson, Kansas 243 F.3d 1263, 1273 (10th Cir. 2001) 15 Rural Water Dist. No. 4, Douglas County, Kan. v. City of Eudora, Kan. 2008 WL 695856, 1 (D.Kan.,2008)


11

original complaint was amended which cured all deficiencies16. At the time of the filing of the

original complaint, Douglas-4 had not yet discovered Eudora’s “secret” letters sent by Eudora’s

legal counsel to Mr. Garber’s lawyer Catherine Theisen17. The letters constitute a direct

solicitation of a potential water customer. Mr. Garber was also threatened with deannexation if

he chose Douglas-4 as his water provider (SOAF ¶ 9). The evidence of annexation and

solicitation18 (see SOAF ¶¶ 4 and 7) standing alone, constitute a violation of § 1926(b).

Although Eudora argues that annexation alone is not a violation of § 1926(b), this

argument is without support. Glenpool Util. Serv. Auth. V. Creek County Rural Water Dist. No.

2, 861 F.2d 1211(10th Cir. 1988) (cited by Eudora) dealt with Oklahoma state law annexation. In

Kansas, annexation of rural water district territory results in a taking of territory and termination

of the water district’s legal right to sell water. A state law annexation in Oklahoma is quite

different.

As early as 1960 the Supreme Court of Kansas recognized that once a territory was

annexed by a city a water district no longer had any right to provide waters to users, absent

specific legislative decree19. See State, ex rel. Foster v. Kansas City, 187 Kan. 286, 289-90

(1960) citing Murphy v. Curtis, 184 Kan. 291. The Court in Water District No. 1 of Johnson

County v. Mission Hills Country Club, 265 Kan. 355 (1998) observed: “it is firmly established

that there cannot be, at the same time, within the same territory, two distinct municipal

16 “… the First Amended Complaint now “resolves all the deficiencies the Court found in granting the Motion to Dismiss.” Rural Water Dist. No. 4, Douglas County, Kan. v. City of Eudora, Kan. 2008 WL 2783541, 2 (D.Kan.,2008) 17 These letters sent by the attorney for Eudora to the Ms. Theisen, attorney for Mr. Garber (a land developer who had expressed an interest in obtaining water service from Douglas-4) were never produced by Eudora in its Rule 26 disclosures and were only obtained by subpoena served on Mr. Garber. 18 Annexation and solicitation were not alleged in the original complaint but alleged in the amended complaint. 19 K.S.A. § 12-527 permits a water district to serve its existing customers within the area annexed by the city, until the acquisition process outlined in § 12-527 is completed. The statute grants no authority for the water district to serve new customers within the annexed areas.


12

corporations exercising the same powers, jurisdictions and privileges”. See also, Rural Water

District #2 Miami County, Kansas v. The City of Louisburg, Case No. 07 CV 83 – Dist. Ct.

Miami County, Kansas – March 6, 2008 – see page 25 of opinion. Under Kansas law, the event

of annexation, will limit/curtail (absent § 1926(b) protection and federal preemption) a rural

water district’s right to sell water within the annexed area.

The Code of the City of Eudora acknowledges its state-granted exclusive right to provide

water within its city limits, as it declares that it will not only provide water as part of a

“Combined Water and Sewage System” (Code § 15-101); it will take ownership of all water

meters and service connections (Code § 15-118(a)). Only city employees shall have access to

any part of the waterworks system, including service connections and meters (Code § 15-

118(b)), and all water mains shall be constructed in accordance with the designs, plans and

specifications of the City and all such facilities shall remain the property of the City (Code § 15-

609)

The 10th Circuit held in Pittsburg County No. 720 that “[T]o the extent that a local or state

action encroaches upon the services provided by a protected water association, the local or state

act is invalid. Pittsburg County No. 7 at 715. The Pittsburg County No. 7 Court further stated:

“There is thus preemption of any local or state law that purports to take away from the indebted

rural water association any territory for which the association is entitled to invoke the protection

of § 1926(b).” Pittsburg County No. 7 at 716. (emphasis added) Footnote 6 of the Pittsburg

County No. 7 Opinion, states: “Federal law, not state law controls the geographic scope of the §

1926(b) protections, which attach as of the entry into the loan agreement, and remains as long as

the conditions for § 1926(b) protection discussed above-FMHA indebtedness and service ‘made

available’ are met.” As illustrated below in the SOAF, Douglas-4 is entitled to § 1926(b) 20 Pittsburg County Rural Water District No. 7 v. City of McAlester, 358 F.3d 694 (10th Cir. 2004)


13

protection for the Annexed Land beginning no later than July 19, 2004 (date of the federal

guaranty – see Document 153-5). The Annexed Land was annexed by Eudora, after July 19,

2004. SOAF ¶4, see also Documents 153-7, 153-8 153-9, 153-10 (Ordinances passed by the

Eudora to annex the “annexed land”.)

Eudora’s actual taking of territory coupled with terminating Douglas-4’s legal right to

sell water within the annexed land, plus its threats to take district assets pursuant to K.S.A. § 12-

527 and preclude Douglas-4 from selling water within the annexed land (SOAF ¶ 4) – are all in

violation § 1926(b), and therefore in violation of § 1983.

I(D). Eudora’s Repetition Of Arguments I (A-C) (Response To Eudora’s Argument I(D) – Eudora Brief At 2)_________________________________________________ Eudora does nothing more here, than summarize it arguments I (A-C). For the reasons

stated above, the arguments here must also be rejected by the Court.

RESPONSE TO EUDORA’S STATEMENTS OF UNCONTROVERTED FACTS

SERIATIM

1. Denied. Eudora purports to restate all of the claims of the amended complaint in a single

sentence. The brief summarization is incomplete and confusing. Document 95 (amended

complaint) is the cited source for this summarization. The entirety of Document 95 should

be considered by the Court.

2. Admitted in part, Denied in part. Eudora presents an argument here, not a statement of

fact. Document 95 (amended complaint) is the cited source and must be considered in its

entirety. It is true that paragraph 16 of the amended complaint supports the § 1983 claim,

however the balance of the amended complaint allegations also support the § 1983 claim

(i.e. allegations of a violation of § 1926(b) supports the claim for a violation of § 1983).


14

3. Admitted. The sole source of the “federal right” upon which the § 1983 claim is premised,

is Eudora’s violation of Douglas-4’s federal right derived from it entitlement to § 1926(b)

protection.

4. Admitted.

5. Admitted in part and denied in part. Eudora accurately quotes from the by-laws of

Douglas-4, however to the extent that Eudora implies or contends in its statement

(“Plaintiff’s purpose”) that this is the sole and only “purpose” of the water district, the

statement is denied. The purposes of a Kansas rural water district include (but is not

limited by) its statutory purpose for being formed, namely to satisfy a need for adequate

water service, maintain its system, and promote the public health, convenience and

welfare. K.S.A. § 82a-616.

6. Admitted in part and denied in part. To the extent that some of the purposes in the by-laws

mirror the statutory purposes of a Kansas rural water district this statement is admitted.

However the by-laws also expand upon the statutory purposes. Eudora invites the Court to

compare By-Laws at Article 3, with K.S.A. § 82a-616 and K.S.A. § 82a-619. K.S.A. §

82a-619 enumerates the “powers” of a Kansas rural water district. The comparison must

include K.S.A. § 82a-616, which describes the “purposes” for forming a rural water

district.

7. Admitted to the extent this statement accurately quotes from Douglas-4’s by-laws.

8. Admitted. Denied to the extent that this was the only purpose of the loan (“i.e. construct

infrastructure to purchase water”). Loan proceeds were used to construct infrastructure to

deliver the water purchased to rural residents. The guaranteed portion of loan proceeds


15

was used to construct a pump station. Document 152-14, page 2, last paragraph on the

page.

9. Denied. The memo (Document 152-14, page one, paragraph one) makes clear that the

Board approved a project to be financed by a loan from KDHE. The memorandum is a

recommendation by Mr. Schultz to restructure the proposed financing to include a

federally guaranteed loan. Douglas-4 later entered into a federally guaranteed loan. See

SOAF, ¶ 3.

10. Denied. Use of the word “dismay” is not in the memorandum. Mr. Schultz prefaced this

incomplete quotation presented by Eudora with the word “Unfortunately”. (Document

152-14)

11. Admitted to the extend that Eudora has correctly a quoted a phrase from the exhibit

(Document 152-14)

12. Denied. Mr. Schultz states in his memorandum to the board of directors of Douglas-4, that

the purpose of obtaining a federally guaranteed loan, is to protect the boundaries of the

water district and it financial viability. Mr. Schultz wrote: “This loan is another tool that

allows us to defend our financial integrity against encroaching cities – cities that will take

advantage of us to serve their own interests…”. (Document 152-14 at page 3, ¶ 3). Mr.

Schultz further wrote that the guaranty and its consequent § 1926(b) protection “…saves

(Douglas-4) hundreds of thousands of dollars down the road…”. (Document 152-14 at

page 4, last paragraph.) One of the purposes of the federally guaranteed loan (that a non-

federally guaranteed loan could not provide) is protection of the financial viability and

territory of the water district (“public welfare” of rural residents)


16

13. Admitted to the extent that Eudora has correctly a quoted a phrase from the Document

152-14.

14. Admitted to the extent that Eudora has correctly a quoted a phrase from Document 152-

14.

15. Denied. Although Eudora has correctly quoted from Mr. Schultz’s memorandum the

quotation standing alone would mislead the reader without taking the entire memorandum

into consideration. Mr. Schultz stated immediately following the quoted sentence: “If we

choose to do this, it will be because we are visionary and can understand how it can help

us defend our financial integrity in the future.” (emphasis added) Mr. Schultz also wrote:

“This loan is another tool that allows us to defend our financial integrity against

encroaching cities – cities that will take advantage of us to serve their own interests…”.

(Document 152-14 at page 3, ¶ 3). Mr. Schultz further wrote that the guaranty and its

consequent § 1926(b) protection “…saves (Douglas-4) hundreds of thousands of dollars

down the road…”. (Document 152-14 at page 4, last paragraph.)

16. Denied. Mr. Schultz states in his memorandum that although the federally guaranteed loan

will be more expensive (higher interest rate) than the KDHE loan, the long term benefits

to the water district of a federally guaranteed loan will significantly outweigh this increase

in cost. (“This process has a potentially substantial benefit for the District, and I think you

ought to look at it.”) See Document 152-14, page 4, last paragraph. See also the excerpted

portions quoted by Eudora at paragraph 20 of its statement of facts.

17. Admitted to the extent that Eudora has correctly a quoted a phrase from Document 152-

14.

18. Admitted to the extent that Eudora has correctly quoted a phrase from Document 152-14.


17

19. Denied as to the characterization or “spin” that Eudora has added to the quotation from the

memorandum which is argument not a statement of fact. It is admitted that the part in

quotations has been accurately quoted.

20. Admitted to the extent that Eudora has correctly quoted a phrase from the exhibit

(Document 152-14)

21. Admitted to the extent that Eudora has correctly quoted a phrase from the exhibit

(Document 152-14)

22. Denied. Douglas-4 is contingently indebted to the federal government by virtue of the law

of guaranty. The specific reference cited by Eudora to the Schultz transcript (65:4-9)

states:

4 Q. Okay. Now, for the purposes of 5 your 1926 protection, you obtained the 6 loans -- the federally guaranteed loans 7 when?

8 A. In 2004 I believe they were 9 closed.

23. Denied. The cited document does not support the statement. Douglas-4 was incorporated

in 1977. Benefit unit fees have varied from inception, ranging from $300 to $7,700 during

this period of time.

24. Denied. For a certain period of time prior to September 11, 2007 Douglas-4 adopted a

“reimbursement policy” which gave the property owner an opportunity to be re-paid part

of the cost for line extensions. Subsequently (but before 9/11/2007) Douglas-4 adopted a

policy change, in which the district did not reimburse property owners for the costs. After

September 11, 2007, Douglas-4 changed the policy back to what it had been historically

i.e. resumed its earlier reimbursement policy.21

21 Deposition of Kent Miller, chairman of Douglas-4 Board of Directors, June 23, 2008 (pages 132-133)


18

25. Denied. See Paragraph 24 above and referenced testimony of Kent Miller (Board

Chairman of Douglas-4).

26. Denied. Mr. Morantz, a member of the Douglas-4 board of directors, testified that the

rates charged by Douglas-4 were reduced to “ensure that we were being non confiscatory

in our pricing”. Morantz deposition (Document 152-19), Page 50, Lines 20-21. Mr.

Morantz expressed no opinion on the pages cited by Eudora (pages 50-52) that he (Mr.

Morantz) considered the pricing of Douglas-4 to be unreasonable, excessive or

confiscatory “before” the rate reduction was implemented. Eudora presents no evidence

to support is “unasserted” affirmative defense, that any charges/rates of Douglas-4 at any

time were unreasonable, excessive and confiscatory. Douglas-4’s charges are reasonable

and proper and within the bounds of pricing and policies adopted by other area water

districts. Document 153-22 (Challis Expert Report and Declaration) and Document 153-

26, pages 13-16, paragraphs 16-22 (Schultz Declaration)

10 Q. Okay. Explain to me then in your 11 own words what changed in September of 12 2007? 13 A. The decision was made -- 14 originally in the life of the district 15 there was a policy that required a 16 sharing of the costs when somebody new 17 connected to that line, and -- and they 18 reimbursed through the district the -- 19 the original property owner who paid for 20 the whole line. 21 We went back to that sort of approach 22 in this change to this so-called Policy 23 21 except that developers were excluded 24 from that -- 25 Q. Okay. Page 133 1 A. -- so this was -- this was 2 limited to individuals. And there's a 3 thin line there sometimes.


19

27. Admitted to the extent that Eudora has correctly quoted phrases from Mr. Morantz’s

deposition testimony.

28. Denied. The document cited in support of the statement of fact, does not state that any

pre-existing pricing in effect prior to September 12, 2007 was confiscatory. Page 11 of

Document 152-39 (Eudora exhibit U) simply has a phrase on the page that states

“Confiscatory Pricing Concern” with no further explanation. Eudora’s statement of fact is

unsupported by this evidence. Douglas-4’s pricing and policies are not unreasonable,

excessive and confiscatory. Document 153-22, pages 6-7 (Challis Declaration) and

Document 153-26, pages 13-16, paragraphs 16-22 (Schultz Declaration)

29. Admitted

30. Denied. For a certain period of time prior to September 11, 2007 Douglas-4 adopted a

“reimbursement policy” which gave the property owner an opportunity to be re-paid part

of the cost for line extensions. Subsequently (but before 9/11/2007) Douglas-4 adopted a

policy change, in which Douglas-4 did not reimburse property owners for such costs.

After September 11, 2007, Douglas-4 changed the policy back to what it had been

historically i.e. resumed its earlier reimbursement policy. (See paragraph 24 above and

support.)

31. Denied. There is nothing in the September 14, 2007 letter (Document 152-20) to support

Eudora’s statement that “For the first time starting September 12, 2007, Plaintiff also

offered to pay the majority of up front costs for extending water lines to new customers.”

See also paragraph 24 above and support.

32. Denied. Douglas-4 objects to and moves to strike the speculation about what might have

happened if Mr. Garber had applied for service earlier in time. Regardless of the pricing


20

in effect prior to or subsequent to September 11, 2007, the cost to construct a line to serve

Mr. Garber’s property would have been the same (because no line extension was required

to serve the Garber/Fairfield property with domestic potable water. (Document 153-22,

page 3, paragraph 13(d)) Mr. Schultz states in his letter to Mr. Garber, that the line

extension cost for Mr. Garber for domestic potable water, will be “zero” because Douglas-

4 has an existing water service main on the property. See Document 152-20, page 1,

paragraph 4 (“The District has an existing 3-inch line…”) See Document 152-20, page 1,

paragraph 5 (“An analysis of the computer model of the District’s water system indicates

that the proposed subdivision can be served without any external improvements.”)

(emphasis added) Eudora presents no evidence that this circumstance has not occurred

before (i.e. a land owner seeks water service from a water district where the water line

needed to serve the property, is already on the property).

33. Denied. There is a statement in the newsletter referenced as follows: “The Board of

Directors determined that there were a number of reasons indicating a need to reduce the

benefit unit price, including the fact that neighboring rural water districts do not charge as

high a price as RWD4 does for meters.” There is nothing in the newsletter that indicates

this statement was made by Steve Harris.

34. Admitted to the extent that Eudora has correctly quoted phrases from page 4 of Exhibit H

(Document 152-21) but denied to the extent the phrases are a complete statement.

Douglas-4 objects and moves to strike the limited phrases, as being incomplete and

misleading unless the balance of the text on page 4 is considered.

35. Denied. There is nothing in the May 6, 2003 memo (Document 152-14) that supports the

statement made by Eudora, nor does the 2003 memo relate to the Fall 2007 newsletter


21

(published over 4 years later) referenced in Eudora’s statement of fact 34 (Document 152-

21)

36. Admitted

37. Denied. The citations to the documents specified by Eudora do not support the statement.

There is nothing at page 7 of the August water study (Document 152-15) and nothing at

page 2 of the Board Meeting minutes (Document 152-18) that supports the statement.

38. Denied. There is nothing at page 7 of the August water study (Document 152-15) that

supports the statement.

39. Denied. Eudora’s approximations of relative charges are not supported by the references

to the record. There is no evidence in the record that Eudora sells benefit units. Douglas-4

moves to strike the evidence here and moves that the statement not be considered for the

reason that it is irrelevant as to what the city may charge at any point in time for benefit

units or water. “…the costs of services need not be competitive with the costs of services

provided by other entities…”. City of Wilson at 1271. What the city charges for a

“benefit unit” or its price per thousand gallons does not relate to any of the four (4) factors

referenced in City of Wilson22. Factor No. 3 in City of Wilson shows that if other entities

are to be considered, it is a comparison with other “districts” – not with other

municipalities.

40. Denied. Eudora claims that it would cost $125,000 to bring a water line to the Garber

subdivision. The referenced water line is not for domestic potable water but rather for fire

22 “(1) whether the challenged practice allows the district to yield more than a fair profit; (2) whether the practice establishes a rate that is disproportionate to the services rendered; (3) whether other, similarly situated districts do not follow the practice; (4) whether the practice establishes an arbitrary classification between various users. See Shawnee Hills, 537 P.2d at 218-21. No one factor is dispositive, and the determination of whether the practice is excessive, unreasonable, and confiscatory depends on an assessment of the totality of the circumstances. See id.” Rural Water Dist. No. 1, Ellsworth County, Kansas v. City of Wilson, Kansas 243 F.3d 1263, 1271 (10th Cir. 2001)


22

protection requested by Mr. Garber. The cost to Mr. Garber for supplemental fire

protection water would have been approximately $10,000. See Document 158-2, page 5, ¶

(d). As shown at paragraph No. 32 above (and support), there was a “zero” cost to Mr.

Garber for Douglas-4 to provide domestic potable water service to the Garber subdivision

(all 22 houses if built) because an adequate service line was already on his property.

There is no evidence that Mr. Garber has or would have purchased any benefit units.

Douglas-4 objects to and moves to strike statement No. 40 for the reason that the

statement is unsupported, is contrary to the record, and is pure speculation of what might

happen, but which has not.

41. Denied. The statement is unsupported by any evidence. Eudora references “subsequent

customers” that were denied re-imbursement, but fails to identify any such customers

(because there aren’t any). The cited documents do not identify any such customers that

applied for service and were denied reimbursement. Douglas-4 objects and moves to strike

the statement on the grounds that it is irrelevant to a § 1926(b) case as to what charges

might have been in the past relative to a theoretical customer that could have requested

service but did not. The “made service available” test is founded on circumstances related

to an actual customer “after” he has actually made a request for service.23

23 “The question of whether Doña Ana is entitled to § 1926(b) protection for a given customer is determined on a customer by customer basis and is determined based upon the pipes in the ground test, i.e., at the time the specific customer requested water service, did Doña Ana have facilities within sufficient proximity from which water service could have been provided within a reasonable time. Moongate Water Co., Inc. v. Dona Ana Mutual Domestic Water Consumers Ass'n 420 F.3d 1082, 1086 (10th Cir. 2005) See also “Bell Arthur makes clear that this circuit already requires at least a showing of physical capability to provide service within a reasonable time of request. See Bell Arthur, 173 F.3d at 526.” Chesapeake Ranch Water Company v. Board of Com'rs of Calvert County 401 F.3d 274, 279 (C.A.4 (Md.),2005) ; “This inquiry asks whether the association can demonstrate “ ‘that it has adequate facilities within or adjacent to the area to provide service to the area within a reasonable time after a request for service is made.’ ” Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow, 191 F.3d 1192, 1203 (10th Cir.1999) Le-Ax Water Dist. v. City of Athens, Ohio 346 F.3d 701, 706 (6th Cir. 2003) (emphasis added)


23

42. Admitted

43. Admitted

44. Denied. Document 152-14 does not support the statement. Mr. Schultz states that “some

of the demands made by the Cities are not favorable to the District”. He continues: “…we

likely must deal with the Cities if the Commission forces us to do so.” Douglas-4 moves to

strike and the Court not consider statement no. 44 as it is irrelevant to any issue in the

case. (The land under consideration by the County Commissioners was land to be newly

annexed/attached to Douglas-4. As shown above, the County Commissioners expressly

stated that their consideration of the “island annexations” (land Douglas-4 had petitioned

to annex/attach) did not impact land already within Douglas-4’s boundaries. Document

152-25, page 4, next to last sentence.

45. Admitted to the extent that Eudora has accurately quoted phrases from Document 152-22.

46. Admitted. Douglas-4 moves to strike and the Court not consider statement no. 46 as it is

irrelevant to any issue in the case. The properties mentioned in the planning commission

report are unrelated to properties in controversy here. The planning commission was

considering the issue of Douglas-4 attaching additional properties to the district. The

“annexed land” in this suit has been part of the district since its original formation (see

below, SOAF No. 6).

47. Denied. Eudora’s exhibit K (Document 152-24) shows that the planning commission was

making a “recommendation”, not a “finding”.

48. Denied. The Minutes (Document 152-23) are unsigned and thus not a true and correct

copy of the original. Douglas-4 moves to strike and the Court not consider statement no.

48 as it is irrelevant to any issue in the case. The properties mentioned in the unsigned


24

minutes are unrelated to properties in controversy here. (See page 5 of Document 152-23,

that the land under consideration and for which conditions were being discussed, was the

“island annexations” – i.e. land sought to be annexed and not yet part of the district.) The

commissioners were considering the issue of Douglas-4 attaching additional properties to

the district and imposing conditions relative to this “newly annexed land” (not existing

territory). The “annexed land” in this suit has been part of the district since its original

formation in 1973 (see below, SOAF No. 6).

49. Denied. The conditions were not established in “unsigned minutes” of the commission but

rather in a final order issued and signed by the Commissioners. The “final order” of the

commissioners is Document 152-25. This document (Order) states: “The foregoing

conditions shall apply to the tracts contained in the said Exhibit A and shall not apply to

any land presently in Rural Water District No. 4.” (emphasis added) (Document 152-25,

page 4, next to last sentence.) Douglas-4 moves to strike and the Court not consider

statement no. 49 as it is irrelevant to any issue in the case. The Order makes clear that

properties subject to the conditions are only newly annexed property, and shall not apply

to “any land presently in Rural Water District No. 4”. At the time of the Order, the

“annexed land” at issue in this case had been in the District since 1973. (see below, SOAF

No. 6). Thus, the Order and conditions are irrelevant to any issue in this case.

50. Denied. The support documents cited do not create or establish anything. They do not

constitute the final order of the County Commissioners (just as a Court minute entry

cannot override the final written opinion and judgment entered by this Court). The only

operative document approving the attachments to the district in 2003 and imposing

conditions, is the Order of the Commissioners (Document 152-25). Douglas-4 moves to


25

strike this statement and moves the Court to not consider statement no. 50 as it is

irrelevant to any issue in the case. See response to statement no. 49 above.


constitute the final order of the County Commissioners (just as a Court minute entry

cannot override the final written opinion and judgment entered by this Court). The only

operative document approving the attachments to the district in 2003 and imposing

conditions, is the Order of the Commissioners (Document 152-25). Douglas-4 moves to

strike and the Court not consider statement no. 51 as it is irrelevant to any issue in the

case. See argument stated in no. 49 above.


constitute the final order of the County Commission (just as a Court minute entry cannot

override the final written opinion and judgment entered by this Court). The only operative

document approving the attachments to the district in 2003 and imposing conditions, is the

Order of the Commissioners (Document 152-25). Douglas-4 moves to strike the statement

and moves the Court to not consider statement no. 52 as it is irrelevant to any issue in the

case. See response to statement no. 49 above.

53. Denied. Eudora attempts to mislead the Court into believing that there are “two” orders. In

prior statements of fact, Eudora refers to the unsigned county commissioners meeting

minutes on November 24, 2003, as a “meeting” (SOF 48), as an “action” (SOF 50) and

now it is called an “order” (SOF 53). There was only one Order (Document 152-25). The

“minutes” (Document 152-23) are unsigned and do not constitute a final Order of the

Commissioners. (Neither party disputes that Document 152-25 is a true and correct copy

of an Order signed and entered by the County Commissioners.) There is nothing in the


26

Order itself that supports Eudora statement of fact. Douglas-4 moves the Court to strike

Statement of Fact 53, as unsupported by the evidence cited by Eudora.

54. Denied. Eudora attempts to mislead the Court into believing that there are “two” orders. In

prior statements of fact, Eudora refers to the unsigned county commissioners meeting

minutes on November 24, 2003, as a “meeting” (Statement of Fact 48), as an “action”

(Statement of Fact 50) and then calls it an “order” (Statement of Fact 53). In this

Statement of Fact, the Order has been transformed and re-labeled as “Plaintiff’s Alleged

Order”. There was only one Order (Document 152-25). The “minutes” (Document 152-

23) do not constitute a final Order of the Commissioners. (Neither party disputes that

Document 152-25 is a true and correct copy of an Order signed and entered by the County

Commissioners.) There is nothing in the Order itself that supports Eudora statement of

fact. Douglas-4 moves the Court to strike Statement of Fact 53, as unsupported by the

evidence cited by Eudora.

55. Admitted

56. Admitted.

57. Admitted.

58. Admitted. Douglas-4 moves to strike statement no. 58 and moves the Court not to

consider this statement as it is irrelevant to any issue in the case.

59. Denied. Eudora was actively soliciting and encouraging Mr. Garber to obtain water

service from Eudora after being warned that if Eudora proceeded to provide water service

to Mr. Garber (Fairfield subdivision) that Douglas-4 would file suit under § 1926(b).

(Document 153-17) Eudora only ceased soliciting Mr. Garber and ordered construction of


27

the water connection stopped after suit was filed against Eudora. See below, SOAF Nos. 6

and 7.

60. Admitted to the extent Eudora accurately quotes from the Garber transcript.

61. Admitted.

62. Admitted. Exhibit P (Document 152-34) also states at page 1, 2nd paragraph: “If the

District intends to comply with K.S.A. 12-527, I would ask that you name your appraiser

on or before October 1, 2007. If the District has not done so by that time, I will assume the

District does not intend to comply with K.S.A. 12-527 and proceed to file the appropriate

pleadings to compel the District’s compliance”.

63. Admitted to the extent that Mr. Garber testified as quoted, and page references are indeed

to his transcript. Douglas-4 objects to the cited references as they are incomplete. Mr.

Garber testified that he had been threatened with deannexation if he proceeded to obtain

water from Douglas-4 after he had previously told Eudora that he was going to obtain

water from Douglas-4. See below, SOAF Nos. 6 and 7.

64. Denied. See below, SOAF Nos. 6 and 7.

65. Admitted

66. Admitted

67. Admitted

STATEMENT OF ADDITIONAL FACTS FOR WHICH THERE IS NO GENUINE DISPUTE

1. Rural Water District No. 4, Douglas County, Kansas (“Douglas-4”) is a quasi-

municipal corporation organized pursuant to K.S.A. § 82a – 616(a), for the purpose of providing

water service. Document 153-2, Declaration of Scott Schultz, St. No. 1; Document 153-3 (July 16,


28

1973) Order Incorporating And Organizing Rural Water District No. 4, Douglas County, Kansas,

and K.S.A. §§ 82(a) – 614, 616, 619.

2. The Defendant City of Eudora (“Eudora”) owns and operates water treatment and

distribution facilities located in Douglas County, Kansas which competes with Douglas-4 for the

provision of domestic potable water service. Document 153-2, Declaration of Scott Schultz, St. No.

3.

3. Douglas-4 has obtained a loan guaranteed by the Federal Government (“FmHA”)

for the purpose of constructing water facilities to meet the needs of residents within its service area,

including but not limited to the Annexed Land. Douglas-4 remains indebted on that Federally

Guaranteed loan today:

a. June 15, 2004 $250,000 Loan – Document 153-4

b. July 19, 2004 (Federal Guaranty) – Document 153-5

4. Eudora has annexed pursuant to Kansas law, four areas or tracts of land described

in the following four exhibits: Document 153-7, Document 153-8, Document 153-9, Document 153-

10. These areas are further illustrated on Document 153-6. (See also footnote no. 1 herein.)

(“Annexed Land”24) Following annexation, Eudora threatened to file suit to force Douglas-4 to

comply with Kansas statute K.S.A. § 12-527, which compels Douglas-4 to sell its assets to Eudora

(annexing municipality) once an annexation has occurred25. Document 153-11. Eudora also

threatened to file suit to preclude Douglas-4 from selling water within the Annexed Land.

Document 153-12. At the time, Douglas-4 was originally created in 1973, the Annexed Land was

24 “Annexed Land” constitutes and is defined herein as four discrete areas identified on Ex. 5 (PX 108) as “Lawrence Memorial Hospital – Ordinance 865”, “JRB/New Stream/ Clear Streams/Clear Water – Ordinance 861”, “Doug Garber Construction, Inc. – Ordinance 857”, “Donald R. Grinwell – Ordinance 863”. See also Ex. 6 (PX 117A-Ord. 865), Ex. 7 (PX 119A-Ord. 861), Ex. 8 (PX 110A-Ord 857), Ex. 9 (PX 115A-Ord. 863). 25 Pittsburg County Rural Water District No. 7 v. City of McAlester, 358 F.3d 694 (10th Cir. 2004)


29

included within Douglas-4’s geographical boundaries as established by Kansas state law. Document

153-2, Declaration of Scott Schultz, St. No. 5 and Document 153-3 the Order Incorporating and

Organizing Rural Water District No. 4, Douglas County, Kansas.

5. At the time Douglas-4 obtained its federally guaranteed loan from the federal

government, Douglas-4 pledged as collateral for said loan various assets, including, but not limited

to, all its general intangibles and net revenues. Document 153-2, Declaration of Scott Schultz, St.

No. 6, and Document 153-13 (PX 106, pp. 10-12).

6. The Annexed Land has never been removed/de-annexed from the geographical

boundaries of Douglas-4, and thus has remained within Douglas-4’s geographical boundaries since

1973. Document 153-2, page 2, paragraph 5. The Fairfield subdivision26 (see Document 153-6 (PX

108) and Document 153-9 (PX 110A) – area described as “Doug Garber Construction – Ord. 857”

on Document 153-6) is and was within the Annexed Land (within the geographical boundaries of

Douglas-4) at the time the developer (Garber Construction Co./Doug Garber) requested and received

an engineering study performed in furtherance of obtaining water service from Douglas-4.

Document 153-15 (PX 193, p. 11-13). At the same time Douglas-4 was responding to the Garber

request, Eudora was offering to provide water service to the same Fairfield subdivision in

competition with Douglas-4. Documents 153-16 and 153-19, (PX 193, pp. 7-9, 21).

7. The developer (Garber Construction Co./Doug Garber) of the Fairfield

subdivision first began to consider water service for the proposed Fairfield development from

Douglas-4 in approximately August 21, 2006. Document 153-15. Despite Mr. Garber’s inquiry of

the district and Douglas-4’s response (Document 153-15), a connection for water service had been in

the process of being constructed to connect the Fairfield subdivision to Eudora’s water system.

Eudora was warned in writing that any such water connection between Eudora and the Fairfield 26 Sometimes referred to as the “Garber” subdivision.


30

subdivision would violate Douglas-4’s 7 U.S.C. § 1926(b) rights. Document 153-17. This warning

was sent to Mr. Waters (legal counsel for Eudora) on August 3, 2007. Mr. Waters in turn forwarded

this warning letter to Ms. Theisen (legal counsel for Garber Construction) on August 15, 2007.

Document 153-16 (PX 193, pp. 7-9) (See in particular the first page of this letter, second paragraph).

The construction process for this connection was not halted/suspended after Eudora received the

warning letter. Construction was only suspended after Douglas-4 filed suit against Eudora.

Document 153-20 (Deposition of Cheryl Beatty, p. 28 l. 15 to p. 31 l. 22.) (Suit was filed September

27, 2007 – See Doc. 1).

8. At the time water service for the Fairfield subdivision was first inquired about by

Mr. Garber, Douglas-4 was immediately capable of providing domestic potable water service for the

anticipated needs of the entire development. Document 153-2, Declaration of Scott Schultz, St. No.

8 – see also Document 153-22, paragraphs 8-14.

(a) At the time water service was first inquired of Douglas-4, for the Fairfield

subdivision by Mr. Garber, Douglas-4 could have provided sufficient potable

water to the Fairfield subdivision by having the developer make a physical

connection to Douglas-4’s existing water main situated inside of the boundaries of

the Fairfield development. Document 153-22, Expert Report of James Challis, St.

No. 13(a).

(b) The time needed to obtain all necessary approvals for water service for Fairfield

subdivision was within 30 to 45 days. Document 153-22 (PX 19), Declaration of

James Challis, St. No. 13(b)

(c) The normal and customary lead time between a request for water service and the

actual need for a connection is approximately 4-6 months for a development of


31

the nature of the Fairfield subdivision. Document 153-22 (PX 19), Declaration of

James Challis, St. No. 13(c)

9. Eudora has threatened Mr. Garber to deannex his Fairfield subdivision if he

obtained water service from Douglas-4. Document 153-30, Garber Transcript, p. 80 l. 25 to p. 84 l.

10; p. 85 l. 3-8; p. 86 l. 8-21.

10. Douglas-4 has made domestic potable water service available to all areas of the

Annexed Land. Document 153-22 (PX 19), Declaration of James Challis, St. No. 24.

11. Eudora has never presented any claim or notice of claim to Douglas-4 in

accordance with the procedures mandated by K.S.A. § 12-105b. Eudora has not alleged in its

counterclaim that it has substantially complied with K.S.A. § 12-105. Document 153-2, Declaration

of Scott Schultz, St. No. 13. See also Defendant’s Counterclaim Doc. 105, pp. 5-11.

III. Standards For Summary Judgment_________________________________________

Eudora has cited the applicable authorities regarding a motion for summary judgment.

IV. Response To Eudora’s Argument IV________________________________________

(A) Response To Eudora’s Argument IV (A)_______________________________

Eudora is correct that all of Douglas-4’s claims are based on a violation of § 1926(b).

(The § 1983 claim and Declaratory Judgment claim are both based on a § 1926(b) violation.)

(B) Response To Eudora’s Argument IV (B)_______________________________

(i) Eudora Is Barred From Challenging The Statutory Power Of Douglas-4 To Contract, Receive Aid From The USDA, And Borrow Money Because It Has Failed To Join Necessary And Indispensable Parties (Lender and USDA)____________________________________________

Douglas-4 enjoys the “power” granted it under K.S.A. § 82a-619 to contract, receive aid

from USDA and borrow money. In addition, Douglas has the power, pursuant to § 82a-619(e) to

construct, install, maintain and operate reservoirs, pipelines, wells, pumping installations or other


32

facilities for the storage, transportation or utilization of water and such appurtenant structures

and equipment necessary to carry out the purposes of its organization. Douglas-4 cannot

maintain its infrastructure without also being financially viable. Moreover, Douglas-4 cannot

maintain its facilities – if they are being taken by a neighboring municipality. Here, the power,

equates to a purpose, namely to do those things necessary to accomplish the purpose of

maintaining its facilities to promote the public welfare. Obtaining a federally guaranteed loan

and its consequent § 1926(b) protection has a direct relationship with furthering the ability of

Douglas-4 to maintain its facilities in the most cost effective way possible, including reducing

the cost per-user for rural residents.

Eudora claims Douglas-4 lacked the statutory authority to enter into any agreement with

USDA (premised on the claim that the guaranty was not necessary to any purpose for which

Douglas-4 was formed or empowered to accomplish). Eudora is barred from raising this issue,

as it involves the rights of third parties, namely the lender (First Bank and Trust) who relied on

the guaranty in making the loan, and USDA that furnished the guaranty. Contesting the validity

of the loan contract necessarily involves the rights of the lender and the U.S. Department of

Agriculture (guarantor), both of which are non-parties.

“Clearly, a party to a contract is a necessary party to any action which challenges the validity of the contract or seeks to alter its terms. Jicarilla Apache Tribe v. Hodel, 821 F.2d 537, 540 (10th Cir.1987) citing Lomayaktewa v. Hathaway, 520 F.2d 1324, 1325 (9th Cir.1975), cert. denied, 425 U.S. 903, 96 S.Ct. 1492, 47 L.Ed.2d 752 (1976) (“No procedural principle is more deeply imbedded in the common law than that, in an action to set aside a lease or a contract, all parties who may be affected by the determination of the action are indispensable.”)

Okmulgee County Rural Water Dist. No. 2 v. City of Okmulgee 2006 WL 2251811, 2 (E.D.Okla.) (E.D.Okla.,2006) Having failed to join USDA and the lender, Eudora is barred from presenting this issue.


33

(ii) A Federally Guaranteed Loan Was Necessary For Douglas-4 To Obtain § 1926(b) Territorial Protection From Competition – Which Directly Benefits The District By Making It More Financially Viable to Maintain Its System – And Lower The Per-User Cost Of Water____

Eudora’s argument is premised on the idea that obtaining a federally guaranteed loan was

completely unnecessary, served no useful benefit to Douglas-4 and therefore not for any purpose

of Douglas-4. Douglas-4 feared that its territory and investment in infrastructure could be taken

away at the whim of an annexing municipality (thus depriving it of the economy of scale).

(Document 152-14). Mr. Schultz points out in his memo that “annexation protection” is the

primary purpose of obtaining a federally guaranteed loan. If Douglas-4’s territory is annexed and

its assets taken through K.S.A. §12-527, it cannot serve its primary purpose of maintaining

facilities used for the public welfare. Eudora does not contend in its statement of facts that the

projects constructed by Douglas-4 were or are unnecessary, nor that the territory of Douglas-4 is

not valuable. The evidence shows Douglas-4 considered annexation by a municipality to

threaten the financial integrity of the District, and disrupt its ability to maintain the remainder of

the system not annexed and taken. See Document 152-14 (Schultz’s Memo of May 6, 2003).

Schultz writes (at page 3), “This loan is another tool that allows us to defend our financial

integrity against encroaching cities – cities that will take advantage of us to serve their own

interests in a self-aggrandizing way if we allow it.” Schultz further writes at page 3, “If we

choose to do this,27 it will be because we are visionary and can understand how it can help us

defend our financial integrity in the future.”

Absent federal protection under § 1926(b) water districts run the risk of having territory

and assets taken and the value of territory and assets determined in a manner that works to the

disadvantage of the district. Rural Water District #2 Miami County, Kansas v. The City of

27 Obtain a federally guaranteed loan.


34

Louisburg, Kansas – District Court of Miami County, Kansas, Case No. 07 CV 83, March 6,

2008, is illustrative. In the Miami case, the water district perceived the value of its territory and

assets sought to be taken pursuant to K.S.A. § 12-527 by an annexing municipality to be valued

at 8-12 millions dollars. A substantial portion of the value was assigned to the value of potential

future revenue that would be derived from future customers. Without the territory, there would

be no new customers, and thus no revenue. With fewer customers with which to divide the fixed

costs associated with the delivery of water – the per-user cost would inevitably rise more quickly

than if there were more customers to share in the cost. In Miami the “appraisers” awarded the

water district only $133,000. Regardless of whether this was fair value or not, Douglas-4 wanted

to be in a position where it (1) did not incur the expense of such protracted proceedings, and (2)

did not suffer the risk of having its water delivery system, valves, meters etc. taken, with the

value cast into the uncertainty of three (3) appraisers.

In the judgment of the Douglas-4 board of directors, receiving § 1926(b) protection

associated with a federally guaranteed loan would protect its ability to maintain projects

constructed to serve the needs of rural residents, and allow the district to achieve “economy of

scale” and “financial viability” – fundamental objectives of both K.S.A. § 82a-616 and 1926(b).

Eudora must concede that there is a benefit derived from protection against competition

that a water district derives from a federally guaranteed loan. Eudora does not challenge the

benefits of “economy of scale”. Nor can Eudora argue with the benefit of precluding the taking

of territory or assets, particularly when there is substantial risk associated with what

compensation the district will receive, and disruption the district’s system (outside the scope of

the taking) will suffer as a result of the taking.


35

The fact that Douglas-4 could have borrowed money without a federal guaranty, is of no

importance here. The issue is whether obtaining a guaranty furthered the objectives and purposes

of the district. It was of course, absolutely necessary for Douglas-4 to obtain a federal guaranty,

in order to receive the benefits of § 1926(b) territorial protection and the financial benefits that

flow from that protection.

(iii) The Benefits Derived From the USDA Guaranty Accepted By Douglas-4 Serve The Purpose For Which Douglas-4 Was Formed____

Eudora claims that before Eudora may accept financial or other aid from the USDA, that

such aid must be “necessary to carry out the purposes of its (Douglas-4) organization”.

Although accepting such aid carries no pre-condition of necessity, by virtue of its own argument,

Eudora concedes that if the guaranty agreement issued by the USDA was necessary to carry out

any purpose of its (Douglas-4’s) organization”, then Douglas-4 had and has the power by law, to

receive/accept the benefits of the federal guaranty. The source for this argument is derived from

the following language found in a Kansas statute:

(g) cooperate with and enter into agreements with the secretary of the United States department of agriculture or the secretary's duly authorized representative necessary to carry out the purposes of its organization; and to accept financial or other aid which the secretary of the United States department of agriculture is empowered to give pursuant to 16 U.S.C.A., secs. 590r, 590s, 590x-1, 590x-a and 590x-3, and amendments thereto; K.S.A. § 82a-619(g)

Eudora may be relying on similar language found elsewhere in the statute:

(h) acquire loans for the financing of up to 95% of the cost of the construction or purchase of any project or projects necessary to carry out the purposes for which such district was organized and to execute notes and mortgages in evidence thereof with interest, or combined interest and mortgage insurance charges, which shall not exceed 13%, except that for purposes of interim financing, interest or combined interest and mortgage insurance charges shall not exceed 14%. Any district shall have the same power to acquire loans for the refinancing of up to 95% of the original cost of any such project or projects. The


36

balance of the cost of construction shall be acquired by subscription, donation, gift or otherwise than through the medium of loans, except that in the case of cooperative corporations and corporations not for profit being converted to water districts as provided for in K.S.A. 82a-631 to 82a-635, inclusive, and amendments thereto, the district may assume 100% of the indebtedness of the corporation, providing the corporation originally raised at least 10% of the construction cost by means otherwise than through the medium of loans. Any such loan may be secured by any or all of the physical assets owned by the district, including easements and rights-of-way, except that no district organized under this act shall have any power or authority to levy any taxes. K.S.A. § 82a-619(h)

The purposes (as opposed to the powers) to be accomplished by a rural water district are

not expressly defined by statute. At least one purpose is apparent from a reading of K.S.A. 82a-

616, namely that the construction and maintenance of public works constructed by Douglas-4

will function to improve the public welfare. In order to maintain public works, Douglas-4 must

be financially viable. The federal guaranteed loan was sought for the specific purpose of

enhancing the financial viability of Douglas-4. Eudora fails to present any evidence that this is

not a proper purpose nor outside the scope of K.S.A. §§ 82a-616 and 82a-619.

(iv) There Is No “Necessary” Language Relative To Accepting Financial Aid From USDA_____________________________________________

As shown above, “acceptance” of financial aid, has no “strings attached”. The applicable

language of the statute states: “to accept financial or other aid which the secretary of the United

States department of agriculture is empowered to give pursuant to 16 U.S.C.A., secs. 590r, 590s,

590x-1, 590x-a and 590x-3, and amendments thereto”. The word “necessary” does not appear in

this part of the statute. Moreover, the federal statute referenced in the state statute, is the

predecessor of 7 U.S.C. § 1921 et seq. for which § 1926(b) is a part.

(v) The Federal Guaranty Was More Beneficial Than Costly (Response to Eudora Argument II (B) (3)_________________________________


37

Eudora argues at page 20 and again at 22-23 of its brief that the federal guaranty was

“more costly”. The only evidence before the Court is the opinion of Scott Schultz as stated in his

May 6, 2003 memo (Document 152-14). Mr. Schultz’s writes at page 4 of his memo: “If it costs

you a little more in fees and interest rates, but saves hundreds of thousands of dollars down the

road by allowing us to negotiate on an even par with the cities, it will pay off handsomely.”

Eudora presents no evidence to counter this analysis by Mr. Schultz. Eudora presents nothing to

support its argument that the cost of the increase in fees and interest is greater than the benefit

derived from § 1926(b) protection. Certainly in order to gain the benefits of § 1926(b), it was

necessary to obtain a federally guaranteed loan. Correspondingly, if the protection furthers the

financial viability of Douglas-4, it directly serves the purpose of maintaining the public works

constructed by Douglas-4 as well as driving down the per-user cost of water (public welfare).

Eudora concedes at page 23 of its brief that another purpose of a Kansas rural water

district is to “acquire water and water rights…” Douglas-4 cannot achieve the purpose of such

acquisitions if its territory is being taken away through annexation.

Eudora’s repeated reference to the Schultz memo (Document 152-14) in its argument

that the federal guaranty was costly, unnecessary and counter-productive, simply ignores the

words of that document. Mr. Schultz is extolling the virtues of the federal guaranty and how it

will save the district “hundreds of thousands of dollars down the road”. (Document 152-14, page

4, last paragraph.)

When Mr. Schultz states that the only motivation for obtaining the federal guarantee is

annexation protection (Document 152-14, page 2, second full paragraph), he proceeds in his

memo to explain the enormous economic benefits of “annexation protection” which will result in

saving Douglas-4 hundreds of thousands of dollars. Mr. Schultz was advising the Douglas-4


38

board what was in the best financial interests of Douglas-4 (quasi-municipal organization

governed by its membership). Eudora presents no evidence, and no opinion testimony to counter

the Schultz memo that “annexation protection” was far more beneficial and valuable to Douglas-

4, than the increase in costs associated with the federal guaranty.

(vi) Douglas-4 Is Indebted On A Loan That Qualifies For § 1926(b) Protection (Response to Eudora’s Argument II (C) – pages 26-27 Of Its Brief)____________________________________________________

Eudora spends a scant half page in support of its argument that Douglas-4 is not indebted

on a loan which qualifies for § 1926(b) protection. Eudora ignores the words of § 1926(b) which

resolves this issue:

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.A. § 1926(b)

To find what subsection “b” is referring to in the words “such loan”, an examination of

subsection “a” is required (7 U.S.C. § 1926(a)). 7 U.S.C. § 1926(a) provides in pertinent part:

The Secretary is also authorized to make or insure loans to associations, including corporations not operated for profit 7 U.S.C.A. § 1926(a)(1)

The Secretary may guarantee a loan made to finance a community facility or water or waste facility project in a rural area, including a loan financed by the net proceeds of a bond described in section 142(a) of Title 26. 7 U.S.C.A. § 1926(a)(24) (emphasis added)

The phrase “such loan” in subsection “b” is referring to the loans described in subsection

“a” which describes loans (1) made by the secretary, (2) insured by the secretary and (3)


39

guaranteed by the secretary. Eudora’s argument that a guaranteed loan does not fall within these

categories is frivolous. Eudora’s citation to case authority that did not involve a guaranteed loan,

is of no consequence here.

V. Douglas-4 Has Made Service Available (Response To Eudora Argument V At Page 27 of Its Brief)___________________________________________________________

(A) Eudora Presents No Evidence As To The Made Service Available Test_____

Eudora’s sole evidence relative to the “made service available test” (which defines the

federally recognized service area under § 1926(b)), is the opinion of its expert witness Brian

Kingsley. However Mr. Kingsley’s opinions are inadmissible. See Document 154. (Eudora

understandably does not reference Mr. Kingsley’s opinion in its statement of facts.) This leaves

uncontroverted, the evidence presented by Douglas-4 relative to Douglas-4 having satisfied this

test. See SOAF Nos. 8 and 10 and support. The reports of Mr. Challis and Mr. Schultz stand as

uncontroverted evidence that Douglas-4 has made service available to the “annexed lands”.

Eudora concedes that Douglas-4 is satisfying 100% of the water needs for the annexed lands. See

Eudora SOF No. 61.

Although Eudora repeatedly attempts to include within the “made service available” test,

issues related to rates charged by Douglas-4, as referenced above, the City of Wilson Court made

clear that any challenge to the rates charged by Douglas-4 is an affirmative defense, not part of

Douglas-4’s burden to show that it has made service available.

(B) Eudora Has The Burden To Support The Unreasonable /Excessive /Confiscatory Affirmative Defense28___________________________________

Eudora’s discussion here, ends with the contention that the four-part test described in City

of Wilson, is somehow part of Douglas-4’s burden of proof to establish having “made service

28 Eudora has waived this defense because of its failure to plead it in its answer to the complaint and first amended complaint.


40

available”. Having failed to plead the unreasonable/excessive/confiscatory affirmative defense, it

is no surprise that Eudora now wishes to transform this affirmative defense into an element of

Douglas-4’s burden of proof. City of Wilson, and Shawnee Hills (Kansas case on which the 10th

Circuit premised its unreasonable/excessive/confiscatory analysis) makes clear that this is

exclusively Eudora’s (the challenger) burden. The City of Wilson Court made clear in its

statement “…if the city can show…” City of Wilson at 1271, that this is an affirmative defense

and the person/entity challenging the rates (Eudora here) carries the burden to overcome the

presumption of validity with all doubts as to the legality of the rate being resolved in favor of the

water district. Eudora has presented no evidence as to this issue. Eudora’s expert (Mr. Kingsley)

expressed no opinion regarding infrastructure costs.

(C) Eudora Seeks To Apply Old Historical Rates No Longer Applicable_______

Eudora premises its entire argument here on the contention that the

excessive/confiscatory defense must be based on Dougls-4’s fees as they existed at the time

property was annexed by Eudora and not how they may have been adjusted later. In other words,

if Douglas-4’s fees were very low at the time of annexation, but became astronomically

(unreasonably) high after the annexation, the subsequent high fees must not be considered in the

excessive/confiscatory defense analysis. This of course makes no sense.

Predictably Eudora wishes to “turn back the clock” because here Douglas-4 “lowered” its

fees after the annexations occurred. Naturally Eudora does not want to deal with lower fees and

would rather challenge older historical fees no longer in effect. Would Eudora make the same

argument to this Court, if the Douglas-4 fees were lower before annexation and higher after?

Eudora claims that charges to connect Mr. Garber would be $340,000 however its

reference to its SOF does not support this claim. The only evidence regarding infrastructure costs


41

for Mr. Garber is that he would pay “nothing” for off-site improvements (because there is

already a line on the property) and only $10,000 if Mr. Garber wanted supplemental water

service for fire protection. (Fire protection is irrelevant to the “having made service available”

test29.)

The only customer expressing a specific intent to obtain water service in the “annexed

land” as of the date of suit was Mr. Garber. Document 153-19. This notice to Eudora that Mr.

Garber intended to obtain water service from Douglas-4 occurred after September 12, 2007, date

of the rate change. As shown above, regardless of which rates are applied (pre-annexation rates

or post-annexation rates) the charge to Mr. Garber by Douglas-4 was the same for domestic

potable water – namely “zero”. Document 153-22 (Challis expert report) Eudora presents no

evidence regarding infrastructure costs in opposition to this evidence.

The “made service available” test is a customer by customer analysis, performed “after a

customer” has requested service, not at some earlier date when the city performed an annexation,

as illustrated by the following: “The question of whether Doña Ana is entitled to § 1926(b)

protection for a given customer is determined on a customer by customer basis and is determined

based upon the pipes in the ground test, i.e., at the time the specific customer requested water

service, did Doña Ana have facilities within sufficient proximity from which water service could

have been provided within a reasonable time.” Moongate Water Co., Inc. v. Dona Ana Mutual

Domestic Water Consumers Ass'n 420 F.3d 1082, 1086 (10th Cir. 2005) See also “Bell Arthur

makes clear that this circuit already requires at least a showing of physical capability to provide

service within a reasonable time of request. See Bell Arthur, 173 F.3d at 526.” Chesapeake

29 “… a water association's capacity to provide fire protection is irrelevant to its entitlement to protection from competition under § 1926(b). Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow 191 F.3d 1192, 1204 fn 10 (10th Cir. 1999)


42

Ranch Water Company v. Board of Com'rs of Calvert County 401 F.3d 274, 279 (C.A.4

(Md.),2005) ; “This inquiry asks whether the association can demonstrate “ ‘that it has adequate

facilities within or adjacent to the area to provide service to the area within a reasonable time

after a request for service is made.’ ” Sequoyah County Rural Water Dist. No. 7 v. Town of

Muldrow, 191 F.3d 1192, 1203 (10th Cir.1999) Le-Ax Water Dist. v. City of Athens, Ohio 346

F.3d 701, 706 (6th Cir. 2003)

The Court should reject Eudora’s argument entirely, as the made service available

analysis is not, as Eudora claims, rates in effect in the past and rates not applicable to any

customer, but rather the rates in effect at the time of the request. (Although Mr. Garber expressed

an intent to obtain water from Douglas-4, he never applied for or contracted for water services.

His failure to apply for service may be explained from the fact that he was threatened with

deannexation if he were to do so. SOAF ¶ 9.

In City of Wilson the rates used were those that were in effect at the time of the first trial

(not theoretical rates in existence prior to any request for water service). The district court

pointed out in the second trial (Eudora refers to this as Post Rock II), that to use different rates

than the evidence showed at the first trial would be beyond the scope of the mandate issued by

the 10th Circuit in City of Wilson.

Because the analysis for both Douglas-4’s burden (to show that it has the capacity to

serve) and Eudora’s burden (to show that rates are excessive/confiscatory) is on a customer by

customer basis, at the time a request for service has been made, using any other method or time

frame would be contrary to 10th Circuit precedent. See Moongate at 1086.

(D) Eudora Has No Evidence To Show Pre-Annexation Rates Were Excessive (Response To Eudora’s Argument V (A)(2)(b) – pages 32-35)_________________


43

To support its argument that the inapplicable pre-annexation rates are excessive, Eudora

refers the Court to its SOF Nos. 33 – 40. As shown above in Douglas-4’s response to these

SOF’s, the claimed statements are either wrong, incomplete or inadmissible. Eudora has no

factual foundation on which to make its argument.

The 10th Circuit has clearly stated that the time period for the § 1926(b) analysis (for both

parties, relative to their respective burden of proof) is “after” the customer has requested service.

Moongate Water Co., Inc. v. Dona Ana Mutual Domestic Water Consumers Ass'n 420 F.3d

1082, 1086 (10th Cir. 2005). Here, Eudora argues that rates in effect prior to any request for

water service must be considered to the exclusion of actual and applicable rates. Eudora cites no

authority to support it argument. Its reference to “Post Rock II” does not support its argument.

Eudora argues that older historical rates allowed the district to earn substantial profits.

City of Wilson did not use the term “substantial” profits, but rather it used the term “unfair”.

Moreover, Eudora fails to identify a single customer within the “annexed land” that paid the rate

it now claims is excessive. Eudora’s statement that Douglas-4 earned more than the average

profit is unsupported and irrelevant. City of Wilson did not hold that above average profits equal

excessive and confiscatory rates.

Despite its very lengthy argument, spanning pages 32-35 of its brief, Eudora presents no

evidence to challenge Douglas-4’s evidence that its rates satisfy all four (4) elements of the City

of Wilson “unreasonable, excessive and confiscatory test”. See Document 153-22, paragraphs17-

23. Eudora has failed to present any evidence challenging Challis’ expert report on these

specific issues.

V(B) The Douglas County Commissioners Imposed No Conditions On The Annexed Land Involved In This Case. (Response To Eudora’s Argument V (B) (1-3) – page 36-44)______________________________________________


44

Once again, Eudora makes an argument without evidence. Eudora claims that the

Douglas County Commissioners imposed conditions on land involved in this suit. The “annexed

land” here, consists of four tracts which have been within the boundaries of Douglas-4 since

1973. See SOAF No. 6. The Order entered by the County Commissioners (Document 152-25,–

next to last sentence) stated: “The foregoing conditions shall apply to the tracts contained in the

said Exhibit A, and shall not apply to any land presently in Rural Water District No. 4.”

(emphasis added)

There are no other “Orders” that apply conditions imposed by the County

Commissioners. Only one order was ever entered and it was entered “effective November 24,

2003”. As noted above, the “annexed land” was already within Douglas-4’s territory on that

date, and had been since 1973.

Douglas-4, as mentioned at page 37 of Eudora’s brief, did indeed suggest conditions be

imposed, but only as to the land proposed to be annexed (i.e. “island annexations”) – not

existing territory. In the unsigned Minutes of the County Commissioners meeting (see Document

152-23 at page 5), the conditions discussed by the Commissioners were only applicable to the

new “island annexations30” (property being annexed/attached to Douglas-4 at the time, in 2003).

Eudora’s argument that Douglas-4 suggested and the County Commissioners imposed

conditions on territory that had been originally part of the district since 1973 – is frivolous, and

false.

(i) Eudora’s Collateral Attack On The Final Order Is Unsupportable___

Eudora argues that the unsigned minutes (Document 152-23) it has submitted to this

Court, must control over the signed Order of the County Commissioners (Document 152-25).

First there is no conflict between the minutes and the final order. They are consistent with one 30 Land outside the existing boundaries of Douglas‐4, sought to be brought inside of the boundaries of the district.


45

another. The Minutes make clear that the conditions are only applicable to “island annexations”

(property then under consideration to be annexed). The Final Order makes clear again, that the

newly annexed land (identified in the exhibit attached to the Order) is the only land on which the

conditions apply, and the conditions do not apply to land already in the territory of Douglas-4.

Eudora attempts to mislead the Court by confusing the record and suggesting that there

were “two” orders by the County Commissioners. In Eudora SOF 48 Eudora refers to the county

commissioners meeting on November 24, 2003, as a “meeting”, then later as an “action”

(Statement of Fact 50) and then it is called an “order” (Statement of Fact 53). There was only

one order (Document 152-25). The unsigned “minutes” (Document 152-23) do not constitute a

final Order of the Commissioners (nor would “signed” minutes constitute an order). (Neither

party disputes that Document 152-25 is a true and correct copy of an Order signed and entered

by the County Commissioners.)

Eudora mounts a collateral attack on the final order of the County Commissioners by

labeling it an “alleged order”. See Eudora SOF 54. See also Eudora brief at 40. To support its

false argument, Eudora now refers to the County Commissioner unsigned minutes (Document

152-23) as the Order, and the final Order signed by the Commissioners (Document 152-25) as

the “Alleged Order”. (Compare Eudora SOF 53 and 54. See also above, Douglas-4’s response to

SOF 53 and 54, above.)

Though Eudora spends 7 pages of its brief on this argument, it cannot escape or conceal

the simple fact that there was only one final order (Document 152-25) and that the unsigned

minutes (Document 152-23) are not a final order. Eudora refers to the final order as “a

subsequent document drafted solely by its counsel”. See Eudora brief at 39. There is no evidence

to support the argument that the document was drafted “solely” by counsel for Douglas-4, nor


46

that the Order is not a true and correct copy of the final order entered by the County

Commissioners. Although counsel for Douglas-4 was working cooperatively with the

Commissioners to draft an order (no different than when legal counsel submit proposed orders to

the Court) the Order is, regardless of the drafter(s), the approved, signed and final Order of the

Commissioners. Eudora does not present any evidence concerning the communications between

counsel and the commissioners, to support its argument and collateral attack on the order – thus

Eudora’s arguments (allegations) must be disregarded by the Court as unsupported by any

evidence.

There is no evidence (1) that Eudora (or anyone else) has sought to vacate the Order

(Document 152-25), or (2) that the Order has been modified or vacated or (3) that any affected

party appealed the order. It is impossible to reconcile Eudora’s contentions and arguments with

the statement in the Order at page 5 “The foregoing conditions shall apply to the tracts contained

in the said Exhibit A and shall not apply to any land presently in Rural Water District No. 4”.

Therefore, Eudora’s arguments and contentions must be rejected by the Court.

(ii) County Commissioners Have No Statutory Power To Compel Waiver Of Douglas-4’s Rights Under K.S.A. § 12-527 Rights To Compensation_______________________________________________

Eudora argues at page 42 of its brief, that Kansas law strips Douglas-4 of any protectable

interest in providing water to the “annexed land”. Aside from making the statement, Eudora cites

no Kansas law to support this statement. Absent §1926(b) protection and federal preemption,

Douglas-4 enjoys the rights of K.S.A. §12-527. Eudora cites no authority to support the

contention that county commissioners have statutory authority to alter those statutory rights.

Moreover, because Douglas-4 has the legal right to sell water within the annexed land, federal


47

preemption nullifies any state law or action which would serve to violate Douglas-4’s rights

under §1926(b).

The 10th Circuit stated in Pittsburg County No. 7: “There is thus preemption of any local

or state law that purports to take away from the indebted rural water association any territory for

which the association is entitled to invoke the protection of § 1926(b).” Pittsburg County No. 7

at 716. (emphasis added) Footnote 6 of the Pittsburg County No. 7 Opinion, states: “Federal

law, not state law controls the geographic scope of the § 1926(b) protections, which attach as of

the entry into the loan agreement, and remains as long as the conditions for § 1926(b) protection

discussed above-FMHA indebtedness and service “made available “are met.” As illustrated in

the SOAF, Douglas-4 is entitled to § 1926(b) protection for the Annexed Land beginning no later

than July 19, 2004 (date of the federal guaranty – see Document 153-5). The annexed land was

annexed by Eudora, after July 19, 2004. SOAF ¶4, see also Documents 153-7, 153-8 153-9, 153-

10 (Ordinances passed by the Eudora to annex the “annexed land”.)

V(C) Douglas-4 Claims No 1926(b) Protection For Land Annexed By Eudora Prior To The Date Of Its Federally Guaranteed Loan. (Response To Argument V(C) – At Page 44 Of Eudora’s Brief)_________________________________

Douglas-4 premises its § 1926(b) violation related to the “annexed land” (See SOAF, No.

4 and support) which includes only land annexed by Eudora after Douglas-4 became indebted.

Here Eudora speaks only of land annexed by Eudora prior to Douglas-4 becoming indebted on a

federally guaranteed loan. Eudora has not plead any determination be made relative to “Shadow

Ridge” (or any other pre-indebtedness annexation) and is not entitled to summary judgment on

claims not raised.

VI. Response To Eudora Argument VI (42 U.S.C.§ 1983 Claims)____________________

(A) Douglas-4 Is Entitled To Summary Judgment On Its § 1983 Claim Because Eudora Has Violated § 1926(b)_______________________________________


48

Eudora concedes by the force of its own argument that Douglas-4’s § 1983 claim is valid

if Eudora has violated § 1926(b). Douglas-4 is entitled to summary judgment that Eudora has

violated § 1926(b). See Documents 151, 153 (Douglas-4’s Motion for Partial Summary

Judgment). § 1983 is properly used to enforce a § 1926(b) claim (federal right)31.

(B) Eudora Violated Douglas-4’s Federal Right Under § 1926(b) By Annexing Territory From Douglas-4 (Taking Territory And The Legal Right To Serve), Threatening To Take Assets (Enforcing K.S.A. § 12-527) And Soliciting Douglas-4’s Potential Customer (Mr. Garber)__________________

Douglas-4 has set forth evidence sufficient for the Court to enter judgment in Douglas-

4’s favor, both in Douglas-4’s Motion and Brief for Summary Judgment (Documents 151 and

153, and it the “Additional Statement of Facts” herein.

(1) Eudora Has Violated § 1926(b) In Ways Other Than Through The Sale Of Water (Response to Eudora Arguments VI(B)(1)___________

Eudora can take no comfort from the absence of water sales by Eudora inside Douglas-

4’s territory32. § 1926(b) forbids any act by Eudora that would serve to limit or curtail Douglas-

4’s ability to sell water within the “annexed land”. Eudora’s acts of annexation, limiting the

legal right of Douglas-4 to serve water in the annexed land, threats of suit to force Douglas-4 to

sell its assets to Eudora and preclude it from water sales inside Douglas-4’s territory, as well as

direct efforts to persuade Mr. Garber to buy water from Eudora for his Fairfield subdivision (and

threats to deannex his property if he connects to Douglas-4’s system), each independently and

together, violate § 1926(b) because such acts function to limit and curtail the service made 31 “As a result, the district court did not err in concluding that Post Rock properly brought its action for violation of § 1926(b) under § 1983 . In the event that Post Rock prevails on remand on its claim for injunctive relief as to the Purma Addition, it will be entitled to an award of a reasonable amount attorneys fees under 42 U.S.C. § 1988.” City of Wilson at 1275 (emphasis added) 32 It should be noted that Eudora concedes here that Douglas-4 has been providing 100% of the requested water service to the affected area (i.e. “annexed land”). However, independent of this contention, Eudora elsewhere argues that Douglas-4 has not made service available to the annexed land. These arguments cannot be reconciled, and stretch the concept of pleading/arguing in the alternative.


49

available by Douglas-4. They are impermissible acts of competition with a water district

indebted on a federally guaranteed loan. Douglas-4 incorporates by reference Document 153,

pages 15-21 and support therein, in response to Eudora’s argument VI(B)(1). This part of

Document 153, sets forth Douglas-4’s facts and authorities, which show that the acts (for which

there is no material dispute) violate § 1926(b).

Eudora’s argument that it has refused and cannot provide water service within the

annexed land, is “false”. Eudora had been warned on August 3, 2007 (over a month prior to suit

being filed) of Douglas-4’s federal rights. Document 153-17. On August 15, 2007 and again on

September 20, 2007, Eudora urged Mr. Garber to purchase water from Douglas-4. Documents

153-16 and 153-19 (Document 153-19 is City Attorney Waters’ Letter dated September 20,

2007 to Ms. Theisen, Mr. Garber’s Attorney.) Mr. Waters received a telephone message (as

stated in his September 20, 2007 letter) from Mr. Garber’s attorney (Ms. Theisen), that “Doug

Garber intends to obtain water service from the RWD”. Mr. Waters wrote in response to this

telephone message: “…City of Eudora would still like to work with your client to provide this

service33.”) Suit was filed by Douglas-4 on September 27, 2007. Prior to filing of suit, (and

despite the warning issued on August 3, 2007 – Document 153-17) construction to connect Mr.

Garber’s property (Fairfield subdivision) to Eudora’s water system had proceeded and was only

terminated after notice of the suit. SOAF No. 7.

(2) Eudora’s Threats To Enforce K.S.A. §12-527 Constitute A Violation Of § 1926(b). (Response to Eudora Arguments VI(B)(2))___________

Eudora commenced the “taking” of territory and taking Douglas-4’s legal right to sell

water from Douglas-4 by annexing the “annexed land”. SOAF No. 4. Annexation triggers

K.S.A. §12-527 which (1) dictates a process for Eudora to follow to acquire assets and (2) grants

33 Water service


50

Douglas-4 “limited” authority to provide water service only to existing customers until the §12-

527 process is completed. Mr. Tideman’s two letters (referenced in SOAF No. 4) (1) threatened

suit if Douglas-4 did not proceed to participate in the acquisition procedure outlined in K.S.A. §

12-527 (Document 153-11) and (2) threatened suit if Douglas-4 proceeded to sell water inside

the “annexed land” to a new customer (Document 153-12). These actions by Eudora served to

limit and curtail water service.

“Seeking to compel” Douglas-4 to participate in the “taking” of assets is virtually

identical to the circumstances in City of Madison, Miss. v. Bear Creek Water Ass'n, Inc. 816

F.2d 1057, (5th Cir. 1987)34 (“The statute unambiguously prohibits any curtailment or limitation

of an FmHA-indebted water association's services resulting from municipal annexation or

inclusion. Bear Creek at 1059. The words of K.S.A. § 12-527 begin with the phrase: “Whenever

a city annexes land located within a rural water district…” This Kansas statute dictates

procedures which the annexing municipality must follow relative to purchasing assets and taking

over service to customers in the annexed area. There is no factual dispute about the annexation

territory, nor Eudora’s demand that Douglas-4 appoint an appraiser so that Eudora could acquire

the assets situated within the annexed land.

Contrary to Eudora’s argument, the threat was not a threat of annexation or “possible

taking” (both had already occurred when Mr. Tideman, counsel for Eudora, sent the letters

reference in SOAF No. 4), but rather a threat to file suit to force Douglas-4 to comply with § 12-

527 and cease any efforts to sell water within the “annexed land”.

Eudora’s statement that Eudora put all considerations of providing water service to the

affected area “on hold” once it had been warned of Douglas-4’s § 1926(b) rights, is “patently

34 Bear Creek involved an eminent domain action where the municipality was seeking to acquire the assets of a federally indebted rural water district.


51

false”. Mr. Waters’ letters (See SOAF No. 4 – Document 153-16 and 153-19) show the exact

opposite. In Mr. Waters’ August 15, 2007 letter Document 153-16 he writes to Ms. Theisen

(attorney for Mr. Garber): “Please find attached…correspondence we received August 3, 2007

from the Rural Water District’s special counsel in Tulsa, Oklahoma, which letter specifically

references the Fairfield project.” “In making its threats35 the RWD relies on 7 U.S.C. § 1926(b).”

(The letter Mr. Waters refers to is Document 153-17 – threatening suit under § 1926(b) if Eudora

proceeds to provide water service to Mr. Garber.) Mr. Waters further writes in his August 15,

2007 letter: “Unless the RWD, drops its threat of litigation, it appears that Section 1926 (b) will

prevent the City from providing water service to the Fairfield development…”.

This acknowledgement of the correctness of Douglas-4’s legal position is then promptly

ignored by Mr. Waters (City attorney for Eudora) as he writes again to Ms. Theisen (counsel for

Garber) on September 20, 2007 (Document 153-19) “I received your voice message indicating

that your client Doug Garber intends to obtain water service from the RWD. Please know that

the City of Eudora would still like to work with your client to provide this service, and the City

Council has scheduled an executive session for Monday, September 24, to discuss this matter.”

In keeping with its desire to provide water service to Garber/Fairfield, Eudora did not

stop the construction process of connecting Fairfield to Eudora’s water system until after suit had

been filed. SOAF No. 7.

Eudora’s statement at page 47 of its brief (“important difference between actual and

contemplated curtailment of service”) simply ignores the law of Kansas, that an annexation

(which triggers the commencement of the K.S.A. 12-527 acquisition process) immediately

terminates the legal right of the water district to provide water service to the annexed area, to

new customers (i.e. Garber). This is, of course, the reason for Mr. Tideman’s September 21, 35 Threats to file suit for a 1926(b) violation.


52

2007 letter (Document 153-12), namely to threaten suit if Douglas-4 proceeds to provide water

service to Mr. Garber. Mr. Tideman’s letter (Document 153-12) was the obvious reaction to Mr.

Garber’s expressed intent to obtain water from Douglas-4, as noted by Mr. Waters’ in his

September 20, 2007 (Document 153-19) letter written the day before Mr. Tideman’s letter was

sent. This shows that actual curtailment had commenced and efforts to further curtail service

made available by Doulgas-4 was underway.

Eudora repeatedly uses the phrase “law of the case”. This is a misuse of that term. “Law

of the case” means, the law as finally determined which controls a subsequent proceeding.

Transamerica Leasing, Inc. v. Institute of London Underwriters 430 F.3d 1326, 1332 (C.A.11

(Fla.),2005). The Court’s prior ruling relative to the motion to dismiss Douglas-4’s original

Count I held that “…simply alleging that the City has annexed certain territory of District 4 is

enough to state a claim under § 1926(b).” Rural Water Dist. No. 4, Douglas County, Kan. v.

City of Eudora, Kan. 2008 WL 695856, 2 (D.Kan.,2008) Here, annexation (an undisputed fact)

cannot be separated from K.S.A. 12-527 for the reason that this statute states that upon

annexation, its provisions control. Thus threats to enforce K.S.A. 12-527 is merely a continuation

of a “taking” process that had resulted in a taking, and was Eudora was proceeding to “take

more”. This Court previously held: “Furthermore, threatened harm is not enough for a claim for

damages as asserted by District 4, even though it is enough for declaratory relief. Rural Water

Dist. No. 4 at 3 However, the amended complaint demonstrates that actual damages have been

suffered as a result of the threat, and the evidence is (uncontroverted by Eudora) that a “taking”

has actually occurred and Douglas-4 has suffered not less than $65,538.81 in actual damages as

a result of Eudora’s violation. Document 153-26, ¶ 24.

(C) Response to Eudora Arguments VI(B)(4)_______________________________


53

(i) Eudora Has Acted Through Its Mayor and City Council To Commit

Violations Of § 1926(b). (Mr. Waters and Mr. Tideman have Also Acted In Their Official Capacity As City Attorney – Empowered By City Ordinance To Handle Legal Affairs Which Have Aided Eudora In Committing Violations Of § 1926(b)___________________

The “act” of annexation here was by ordinance passed by the City itself. See SOAF No. 4

(See Documents 153-7,8,9,10 - Eudora ordinances of annexation – annexing land defined herein

as “annexed land”). The Office of City Attorney is an official position with Eudora. Eudora

Ordinance 1-305 provides in pertinent part: “City Attorney; office; Duties; Removal. The city

attorney shall be charged with the general direction and supervision of the legal affairs of the

city.”

Mr. Waters’ letters (Documents 153-16 and 153-19) involve the legal affairs of Eudora.

Mr. Waters is the “City Attorney” for Eudora. Mr. Waters identifies himself as the attorney for

Eudora in his letters. The Rule 30(b)(6) representative for Eudora (Ms. Beatty) has also

identified Mr. Waters as the “City Attorney”, as shown further below) Mr. Waters’ August 15,

2007 letter includes a lengthy discussion and analysis of § 1926(b) . (Document 153-16) Mr.

Waters was developing a legal strategy for Eudora, to enable Eudora to provide water service to

Mr. Garber/Fairfield and circumvent § 1926(b).36 37

36 See Cheryl Beatty Deposition (Ms. Beatty was the Rule 30(b)(6) representative for Eudora in this deposition) April 25, 2008, pages 127 – 133. (The Court will note that it took 7 pages of transcript and multiple questions to finally get Ms. Beatty (Eudora for purposes of this deposition) to concede (1) that the letters were sent, (2) they were sent by Mr. Waters, (3) that Mr. Waters was the City Attorney and (4) that the City has never asked that the letters be retracted.). Mr. Waters is appointed by the Mayor (as was the Lathrop and Gage firm) and approved by the City Council to serve as City Attorney. Deposition of Cheryl Beatty, Eudora Administrator (Rule 30(b)(6) representative of Eudora) April 25, 2007 Page 179 9 Q. Who makes the appointment? 10 A. The Mayor. 11 Q. Only the Mayor, and not the City 12 Commission?


54

Mr. Tideman is also the City Attorney and has written letters on behalf of the city (See

Documents 153-11 and 153-12 – letters threatening Douglas-4 with suit – to enforce K.S.A. §

12-527 and stop Douglas-4 from proceeding to sell water within the “annexed land”).38 Mr.

Tideman, like Mr. Waters, is an attorney with Lathrop and Gage which serves as “City

Attorney”39.

13 A. The Mayor, and "approved" is the wrong 14 word; confirmed by the Council. See Also, Deposition of Cheryl Betty – Eudora City Administrator – March 3, 2008 Page 12 . 3 Q. Mr. Waters, the signatory on the letter, 4 did he occupy some official capacity with the City 5 of Eudora? 6 A. He is the general city counsel 7 representative for general city business. 37Deposition of Cheryl Betty – Eudora City Administrator – March 3, 2008 Page 12 21 A. Yeah, well, Mr. Waters, at the time this 22 letter was written, was the city attorney doing 23 general city business. 38 Deposition of Cheryl Betty – Eudora City Administrator – March 3, 2008 Page 35 7 Q. In the first sentence of the letter, it 8 says, "This letter is sent on behalf of the City of 9 Eudora, Kansas," city in quotation marks. To your 10 knowledge, did Mr. Tideman have authority to send 11 this letter? 12 A. Yes. 13 MR. TIDEMAN: Object to the legal 14 conclusion, but go ahead. 15 A. To my knowledge, yes. 16 Q. (By Mr. Harris) At the time the letter 17 was sent, the Lathrop & Gage firm was the appointed 18 city attorneys for the City of Eudora? 19 A. Yes. 39Deposition of Cheryl Betty – Eudora City Administrator – March 3, 2008 Page 12 10 A. Well, Lathrop & Gage is named as the city 11 attorney firm, so any of the attorneys within that 12 firm represent the city when asked upon to do so. 13 Q. So the law firm of Lathrop & Gage, as a


55

Under Kansas law, once an attorney has been retained, he has the authority to bind the

client, as a matter of law.40 Mr. Tideman and Mr. Waters were proceeding to act on the City’s

adoption of ordinances to annex (take) territory from Douglas-4, which included (1) threats of

legal action to enforce K.S.A. § 12-527, (2) threats to sue to preclude Douglas-4 from selling

water within the “annexed land”, (3) efforts to circumvent § 1926(b) and sell water to Mr.

Garber/Fairfield subdivision.

The City (signed by the Mayor) approved the plat for the Fairfield subdivision in

connection with its annexation. which included plans for the connection of water lines from

Eudora’s system to the Fairfield subdivision.41 (See Document 153-24) After the plat and plans

14 firm, is the attorneys for City of Eudora? 15 A. Yes. 16 Q. And then, in turn, any lawyer for that 17 firm would be acting for the city? 18 A. Uh-huh. 40 “In our view, the mere appointment of Johnson as attorney for the estate clothed him with sufficient apparent authority to obligate the estate for services, such as the survey, which were routinely and directly connected with the administration of the estate. This apparent authority, conferred by the employment of the attorney to represent the estate, is precisely the type of authority recognized in Reimer v. Davis, 224 Kan. 225, 580 P.2d 81 (1978) (an attorney has apparent authority to control procedural matters incident to litigation) and Smith v. Ward, 161 Kan. 453, 169 P.2d 93 (1946) (an attorney who has recovered judgment for a client has authority, by virtue of his employment, to receive payment and enter satisfaction of that judgment). In our view, these cases are in accord with the better reasoned of the general authorities recognizing the apparent authority of an attorney to obligate the client to pay for expenses incurred incidental to litigation, such as witness, detective, appraiser, stenographer, expert, and printing fees. See 7 C.J.S., Attorney & Client s 140, p. 180, and Annot., 15 A.L.R.3d 536.” Bucher & Willis Consulting Engineers, Planners and Architects v. Smith 7 Kan.App.2d 467, 470, 643 P.2d 1156, 1159 (Kan.App., 1982) 41Deposition of Cheryl Beatty, Eudora Administrator (Rule 30(b)(6) representative of Eudora) April 25, 2007 Page 15 5 Q. Relative to the -- and I may have asked 6 you this question a moment ago, but relative to the 7 final plat that's approved by the City relative to 8 Fairfield, there was a specific water connection 9 drawn in for the plans for that subdivision, right? 10 A. There is on the final plat, it shows where 11 it is drawn in for potential construction, but we -- 12 that is not a guarantee they're going to get


56

for water connection (along with other engineering matters) was signed by the Mayor,

construction for the water connection proceeded until the City ordered construction halted – only

after receiving a copy of the filed suit. See SOAF 7.

Eudora acts through its Mayor, City Council, and attorneys for the city – whose power is

derived by ordinance. As shown above Both Mr. Tideman and Mr. Waters held the official

position of City Attorney. They are, pursuant to Kansas law, in such a lofty position, that they

bind their client, as a matter of law. Bucher & Willis Consulting Engineers, Planners and

Architects v. Smith 7 Kan.App.2d 467, 470, 643 P.2d 1156, 1159 (Kan.App., 1982) Ms. Beatty

confirmed they were handling City business.

The authorities Eudora cites to the Court do not support Eudora’s argument. Eudora

argues at page 50 of its brief that Douglas-4 must allege an “agency” relationship in order to bind

the City and cites Haney v. Castle Meadows, Inc. 868 F.Supp. 1233(D.Colo.,1994) In Haney

plaintiff failed to allege and contend a relationship between two entities (“Haney alleges no such

relationship between the RTC and CMI and does not contend, as is required under a theory of

agency, that it was the RTC as principal that controlled the fraudulent conduct at issue. In fact,

Haney specifically contends it was CMI, and not the federal government, that misrepresented

material facts regarding the Meadows.” Haney at 1239 (emphasis added). Here, Eudora attempts

to distance itself from the conduct of its lawyers, however under Kansas law, a retained attorney

binds the client as a matter of law. Eudora presents no evidence that Mr. Tideman and Mr.

Waters were not the lawyers for Eudora, nor evidence that they were “loose cannons” acting

outside the scope of their authority.

(D) Response to Eudora Arguments VI(B)(5)(a)____________________________

(i) Annexation Alone In Kansas – Constitutes A § 1926(B) Violation____- 13 services until the day they're ready to connect.


57

Eudora concedes as it must, that it has annexed territory from Douglas-4. This admission

alone entitles Douglas-4 to summary judgment, as it is forbidden by § 1926(b) to the extent that

such annexation limits or curtails the legal right of Douglas-4 to provide water service.

As early as 1960 the Supreme Court of Kansas recognized that once a territory was

annexed by a city a water district no longer had any right to provide waters to users, absent

specific legislative decree42. See State, ex rel. Foster v. Kansas City, 187 Kan. 286, 289-90

(1960) citing Murphy v. Curtis, 184 Kan. 291. The Court in Water District No. 1 of Johnson

County v. Mission Hills Country Club, 265 Kan. 355 (1998) observed: “it is firmly established

that there cannot be, at the same time, within the same territory, two distinct municipal

corporations exercising the same powers, jurisdictions and privileges”. Under Kansas law, the

event of annexation, will limit/curtail (absent § 1926(b) protection and federal preemption) a

rural water district’s right to sell water within the annexed area.

The 10th Circuit held in Pittsburg County No. 743 that “[T]o the extent that a local or state

action encroaches upon the services provided by a protected water association, the local or state

act is invalid. Pittsburg County No. 7 at 715. The Pittsburg County No. 7 Court further stated:

“There is thus preemption of any local or state law that purports to take away from the indebted

rural water association any territory for which the association is entitled to invoke the protection

of § 1926(b).” Pittsburg County No. 7 at 716. (emphasis added) Footnote 6 of the Pittsburg

County No. 7 Opinion, states: “Federal law, not state law controls the geographic scope of the §

1926(b) protections, which attach as of the entry into the loan agreement, and remains as long as

the conditions for § 1926(b) protection discussed above-FMHA indebtedness and service “made

42 K.S.A. § 12-527 permits a water district to serve its existing customers within the area annexed by the city, until the acquisition process outlined in § 12-527 is completed. The statute grants no authority for the water district to serve new customers within the annexed areas. 43 Pittsburg County Rural Water District No. 7 v. City of McAlester, 358 F.3d 694 (10th Cir. 2004)


58

available “are met.” As illustrated below in the SOAF, Douglas-4 is entitled to § 1926(b)

protection for the Annexed Land beginning no later than July 19, 2004 (date of the federal

guaranty – see Document 153-5). The Annexed Land was annexed by Eudora, after July 19,

2004. SOAF ¶4, see also Documents 153-7, 153-8 153-9, 153-10.

Eudora’s actual taking of territory coupled with terminating Douglas-4’s legal right to

sell water within the annexed land (plus its threats to file suit force an acquisition of Douglas-4’s

assets and file suit to preclude Douglas-4 from selling water inside the annexed land) violates §

1926(b), and therefore violates § 1983.

(E) Eudora’s Argument That K.S.A. § 12-527 Is Directory And Not Mandatory Under The Facts Of This Case Is Frivolous. (Response to Eudora Arguments VI(B)(5)(b), Eudora Brief At Pages 53-58)_____________________________

Eudora’s argument is moot here because Eudora, following an annexation of Douglas-4

territory (which serves as an independent basis for Eudora’s § 1926(b) violation as discussed

above), proceeded to enforce K.S.A. §12-527 in September 2007, when it threatened suit to

force Douglas-4 to comply with K.S.A. §12-527. See SOAF ¶ 4. Eudora engages in a theoretical

discussion of whether Eudora is required (mandatory) to enforce K.S.A. §12-527, without

consideration of its own actions to force an acquisition of Douglas-4’s assets pursuant to K.S.A.

§12-527. Independent of any consideration of whether K.S.A. §12-527 is mandatory or

directory, Eudora was enforcing the statute in a mandatory way. Despite having been warned of

Douglas-4’s § 1926(b) federal right (Document 153-17) Eudora continued to enforce K.S.A.

§12-527 by (1) threatening suit if Douglas-4 failed to appoint an appraiser as part of the forced

acquisition process (Document 153-11) and (2) threatening suit if Douglas-4 proceeded to sell

water inside the annexed land. (Document 153-12). Though Eudora argues that it is not required


59

to acquire Douglas-4 assets after an annexation, it was proceeding to do precisely that (by force

of law).

Eudora contends that if the statute has no provision for non-compliance, it becomes

directory not mandatory. In other words, if any statute has no penalty clause or enforcement

mechanism within its provisions, it becomes directory only. However the statute needs no such

provision, since it can be enforced either by the annexing city or the water district, which is what

Eudora was doing here and which served at least in part, the reason Douglas-4 filed suit (to stop

its enforcement).

The word “shall” appears eleven (11) times in the provisions of K.S.A. § 12-527.

Nevertheless Eudora relies on an Attorney General Opinion 93-47 which contains an opinion

that K.S.A. § 12-527 is not mandatory if the annexing city and the water district reach an

agreement wherein the water district retains its assets and continues to provide service. This is of

course, consistent with K.S.A. § 12-527(e) which permits the City to select the water district as

the service provider. Absent an agreement, the Attorney General makes clear in an earlier

opinion that the K.S.A. § 12-527 is mandatory and must be observed and complied with within a

reasonable period of time. See Attorney General Opinion 85-166 (1985 WL 204858) “…while

K.S.A. 12-527 prescribes no time limit within which a city must purchase rural water district

lines and facilities located upon land annexed by the city, such purchase must be accomplished

within a reasonable time following annexation.” (emphasis added) This is consistent with this

Court’s prior description of the statute44, consistent with the language of the statute (absent an

44 “Under K. S.A. § 12-527, when a municipality annexes territory that is served by a water district, the municipality is required to negotiate with the water district to acquire title to the water district's property and to begin to service those residents in that territory. If the municipality and the water district are unable to reach an agreement as to the value of the property, then each party must select an appraiser, and, in turn, those two appraisers must select an independent appraiser to assign the value of the property. If the independent appraiser is unable to value the property, then the value agreed to by the majority of the three appraisers is assigned, or alternatively, the


60

agreement between city and water district) and consistent with experts retained by both sides

(Mr. Tetwiler, Eudora’s expert and Mr. Connell, Douglas-4’s expert) who agree that in the

absence of an agreement the statute was mandatory (See Document 143, page 15, last paragraph

on the page).

K.S.A. § 12-527 reserves to cities the power to grant franchises within an annexed area,

i.e. once a city annexes it must either provide water service or grant a franchise to another to

provide water service. If the city elects to grant a franchise Kansas law mandates that the City

be compensated:

“(a) The governing body of any city may permit any person, firm or corporation to:

(1) Manufacture, sell and furnish artificial or natural gas light and heat; electric light,

water, power or heat; or steam heat to the inhabitants”

(3) No such grant, right, privilege or franchise shall be made to any person, firm,

corporation or association unless it provides for adequate compensation or

consideration therefore to be paid to such city, and regardless of whether or not other

or additional compensation is provided for such grantee shall pay such fixed charge

as may be prescribed in the franchise ordinance.”

K.S.A. § 12-2001 (emphasis added)

1926(b) forbids “conditions” such as the granting of a franchise before a water district

indebted on a federally guaranteed loan is permitted to provide water service.45 Pursuant to

municipality or the water district may institute an action in the district court to resolve the disagreement.” (emphasis added) Rural Water Dist. No. 4, Douglas County v. City of Eudora, Kansas 2008 WL 1867984, 1 (D.Kan.) (D.Kan.,2008), Doc. 94, pp. 1-2. 45 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; nor shall the happening of any such event be the basis of requiring such association to secure any franchise,


61

Kansas law (K.S.A. § 12-2001) Eudora is forbidden from permitting Douglas-4 to provide water

service within city limits unless and until (1) a franchise is granted and (2) compensation is paid

to the city.

As further support for its position, Eudora cites to the board chairman of Douglas-4, Mr.

Miller and Douglas-4’s legal counsel Steve Harris. Mr. Miller and Mr. Harris simply

acknowledge, that a water district indebted on a federally guaranteed loan, may use § 1926(b) to

shield itself from an annexing municipality and preclude that municipality from interfering

(curtailing or limiting) with the legal right of the district to provide water service within its

federally recognized service area (an area where it has made service available or can do so within

a reasonable period of time).

Eudora had been warned not to encroach on the federal rights of Douglas-4. Document

153-17. Despite this warning, Eudora proceeded to enforce K. S.A. § 12-527, threaten Douglas-

4 with suit to preclude it from selling water inside its territory (land that had been in the territory

since 1973) and secretly solicit (and scheme) with a land owner (Mr. Garber) to circumvent §

1926(b).

VII Eudora’s Motion For Partial Summary Judgment As To Its Counterclaims Must Be Denied (Response To Eudora’s Argument VII (A-B) At Pages 58-61 Of Its Brief)_______________________________________________________

Eudora describes five (5) issues it asks the Court to enter judgment on (declaratory relief),

namely (1) the scope of Douglas-4’s § 1926(b) rights, (2) the effect of the County

Commissioners’ Order (Document 152-25), (3) the City’s right to communicate with third

license, or permit as a condition to continuing to serve the area served by the association at the time of the occurrence of such event. 7 U.S.C.A. § 1926 (emphasis added)


62

parties, (4) the effect of Kansas law on § 1926(b) rights, and (5) Douglas-4’s right of

compensation under K.S.A. § 12-527.

Douglas-4 is entitled to § 1926(b) protection as to the annexed land (the only land in

controversy in this case). See Document 153. The County Commissioner’s Order has no impact

on this case, because according to the Order, it imposed no conditions on the existing territory of

the district (which includes the annexed land). Eudora may communicate with third parties,

unless its communications are in furtherance of a violation of § 1926(b). Kansas law has little or

no effect here other than (1) to show that annexation law in Kansas serves to take territory and

sever the legal rights of a water district (absent federal preemption) and (2) K.S.A. § 12-527 is a

form of taking (condemnation) of water district assets (appraisal and forced sale process).

Because Douglas-4 enjoyed § 1926(b) protection prior to annexation or commencement of

K.S.A. § 12-527 enforcement by Eudora, both are preempted. K.S.A. § 12-527 is irrelevant,

because Douglas-4 is not seeking compensation under K.S.A. § 12-527 (although Eudora

threatened suit to force Douglas-4 to appoint an appraiser as part of the compensation process).

Because there is no merit to Eudora’s motion for summary judgment as to Douglas-4’s

complaint, there can be no merit to Eudora’s motion for summary judgment as to its

counterclaim – since Eudora offers nothing new in support of the counterclaim.

CONCLUSION

For the reasons stated above, Douglas-4 prays the Court deny Eudora’s Motion for

Summary Judgment in its entirety, and grant Douglas-4’s Motion for Summary Judgment.


63

Respectfully submitted, /s/ John W. Nitcher John W. Nitcher, Bar No. 09749 RILING, BURKHEAD & NITCHER 808 Massachusetts Street P.O. Box B Lawrence, Kansas 66044 Telephone: (785) 841-4700 Fax: (785) 843-0161 [email protected] Steven M. Harris, OBA #3913 Michael D. Davis, OBA #11282 1350 South Boulder, Suite 700 Tulsa, OK 74119 (918) 592-1276 (918) 592-4389 (fax) [email protected] [email protected] and Michael C. Kirkham, KS Bar #20284 SANDERS CONKRIGHT & WARREN LLP 9401 NDIAN Creek Parkway, Suite 1250 Overland Park, KS 66210 Telephone: (913) 234-6100 Fax: (913) 234-6199 Attorneys for the Plaintiff, Douglas County Rural Water District No. 4


64

CERTIFICATE OF SERVICE

I hereby certify that on September 2, 2008, I electronically transmitted the attached document to the Clerk of Court using the ECF System for filing. Based on the records currently on file, the Clerk of Court will transmit a Notice of Electronic Filing to the following ECF registrants:

John Nitcher, [email protected]

Steven M. Harris, [email protected]; [email protected]

Michael D. Davis, [email protected]

Curtis L. Tideman, [email protected]

Michael C. Kirkham, [email protected]

Jeffrey R. King, [email protected]

/s/ John W. Nitcher

1476-2.respdefendmsj-9-2-08:tf
