Court Opinion

ID: 4221070
Source: CourtListenerOpinion
Date Created: 2017-11-16 18:00:39.357465+00
Date Added: 2024-06-11T07:47:49.209438
License: Public Domain

FILED
                                                                   United States Court of Appeals
                                     PUBLISH                               Tenth Circuit

                     UNITED STATES COURT OF APPEALS                     November 16, 2017

                                                                        Elisabeth A. Shumaker
                            FOR THE TENTH CIRCUIT                           Clerk of Court
                        _________________________________

CITY OF EUDORA, KANSAS,

     Plaintiff - Appellee,

v.                                                        No. 16-3319

RURAL WATER DISTRICT NO. 4,
DOUGLAS COUNTY, KANSAS,

     Defendant - Appellant.
                     _________________________________

                    Appeal from the United States District Court
                             for the District of Kansas
                          (D.C. No. 2:14-CV-02399-JAR)
                      _________________________________

Steven M. Harris, Doyle Harris Davis & Haughey, Tulsa, Oklahoma (Michael D. Davis
and S. Max Harris, Doyle Harris Davis & Haughey, Tulsa, Oklahoma; and John W.
Nitcher, Riling Burkhead & Nitcher, Lawrence, Kansas, with him on the briefs),
appearing for Appellant.

Curtis L. Tideman (Mark A. Samsel, with him on the brief), Lathrop & Gage LLP,
Overland Park, Kansas, appearing for Appellee.

                        _________________________________

Before BRISCOE, MATHESON, and PHILLIPS, Circuit Judges.
                  _________________________________

BRISCOE, Circuit Judge.
                     _________________________________
        Defendant Rural Water District No. 4, Douglas County, Kansas (“Douglas-4”)

appeals the district court’s order granting summary judgment in favor of Plaintiff

City of Eudora, Kansas (“Eudora”) in this declaratory judgment action. This is the

third appeal arising out of a dispute between Douglas-4 and Eudora over which entity

can provide water service to certain areas near Eudora, Kansas (the “Service Area”).

See Rural Water Dist. No. 4, Douglas Cty. v. City of Eudora (Eudora II), 720 F.3d

1269 (10th Cir. 2013); Rural Water Dist. No. 4, Douglas Cty. v. City of Eudora

(Eudora I), 659 F.3d 969 (10th Cir. 2011). We exercise jurisdiction pursuant to 28

U.S.C. § 1291 and affirm.

                                           I.

        In 2002, Douglas-4 was the water service provider for the Service Area, but

was running low on water. Douglas-4 decided to purchase water from an adjacent

rural water district, “Johnson-6.” The project required laying new pipes and building

additional pumping stations at an estimated cost of $1.25 million. To finance the

project, Douglas-4 received initial approval for a $1.25 million loan from the Kansas

Department of Health and Environment (KDHE) with a fixed rate and twenty-year

term.

        That same year, Eudora annexed the Service Area. The annexation positioned

Eudora to potentially assume Douglas-4’s water customers pursuant to Kan. Stat.

                                           2
Ann. (K.S.A.) § 12-527 (1987), a Kansas statute that permits municipalities to

replace a rural water district as the water service provider.1

      Understanding that it was facing a potential loss of customers, Douglas-4’s

governing board reduced its KDHE loan to $1 million and sought the remaining

$250,000 from a private, USDA-guaranteed loan. Douglas-4 believed that such a

loan would come with federal protection under 7 U.S.C. § 1926(b), which prevented

municipalities from assuming water customers while a USDA-guaranteed loan was in

repayment. Douglas-4 eventually secured a USDA-guaranteed loan for $250,000

from First State Bank & Trust and proceeded with the Johnson-6 project. Both the

KDHE loan and the USDA-guaranteed loan had twenty-year repayment terms,

beginning in 2004 and ending in 2024.

      Between 2004 and 2007, Douglas-4 and Eudora entered into negotiations in an

attempt to resolve the disputed Service Area, but the discussions were not successful.

In September 2007, Eudora moved to enforce its rights under K.S.A. § 12-527 to

replace Douglas-4 as the water service provider for the Service Area.

Eudora I

      On September 27, 2007, Douglas-4 filed suit in the United States District

Court for the District of Kansas to prevent Eudora from taking its water customers in

      1
        K.S.A. § 12-527, the statute cited repeatedly in the parties’ briefs, was
repealed in 2010 and replaced by K.S.A. § 12-540 et seq. See Kan. Sess. Laws ch.
15, House Bill No. 2283 (Mar. 24, 2010). As we previously observed in Eudora I,
the enactment of K.S.A. § 12-540 et seq. was not substantive; it only clarified
ambiguities in K.S.A. § 12-527. 659 F.3d at 984 n.8. The parties do not suggest
otherwise. Regardless, because we do not reach the merits of Douglas-4’s argument,
we also need not decide what prospective effect, if any, K.S.A. § 12-540 et seq. has.
                                            3
the Service Area. Douglas-4 argued that 7 U.S.C. § 1926(b) provided protection to

rural water districts like Douglas-4, and K.S.A. § 82a-619(g) gave Douglas-4 the

authority to accept such protection.

      At the time, § 82a-619(g) had two clauses. The first clause allowed Douglas-4

to “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 the second clause allowed

Douglas-4 “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)

(1997).

      After a ten-day trial, the district court directed the jury to determine “whether

the loan guaranteed by [the] Federal Government was necessary.” Eudora I, 659

F.3d at 977 (quoting the record) (alteration in original). The jury returned a special

verdict in favor of Douglas-4, concluding the loan guaranteed by the federal

government was necessary, and Eudora appealed.

      In Eudora I, we distinguished the private bank’s loan from the federal

government’s guarantee of that loan, and held that:

             [E]ven if the parties would agree that the loan was necessary to
             carry out the purposes of Douglas-4’s organization, Douglas-4
             must also prove that its cooperation with the USDA—i.e., the
             guarantee—was also necessary. The jury was not asked to
             consider this question. This error alone entitles Eudora to a new
             trial on this one issue.

                                           4
Id. at 978. Although this holding was premised on the first clause of § 82a-619(g),

we also noted that the second clause of § 82a-619(g) refers to financial aid provided

under “enumerated statutes, first enacted in 1937, [that] were repealed by the

Consolidated Farmers Home Administration Act of 1961 and are of no use to

Douglas-4.” Id. at 977 n.5; see § 82a-619(g) (1997 & Supp. 2002) (listing “16

U.S.C.A., secs. 590r, 590s, 590x-1, 590x-a and 590x-3, and amendments thereto”).

Eudora II

      On remand, the district court had new cross-motions for summary judgment

under advisement when the Kansas legislature amended § 82a-619(g) to replace the

repealed federal statutes with “7 U.S.C. § 1921 et seq.,” which includes § 1926(b).

Eudora II, 720 F.3d at 1274–75. Douglas-4 argued that the amendment was

retroactive and applied to its USDA-guaranteed loan. In effect, this would have

allowed Douglas-4 to avoid the “necessary” language in the first clause of § 82a-

619(g), and instead rely on the newly amended second clause that omitted any

“necessary” requirement. The district court rejected this argument, holding the

amendment was not retroactive, and Douglas-4 appealed.

      We agreed with the district court. Applying Kansas law, we held that the

amendment was “substantive,” precluding retroactivity. Id. at 1277. Thus, Douglas-

4 was still “constrained by the requirement that the USDA guarantee be ‘necessary to

carry out the purposes of its organization.’” Id. (quoting § 82a-619(g)). And

although the district court did not certify the merits of the “necessary” question to us,

we reached that question as well. Because “no reasonable jury could find in favor of

                                            5
Douglas-4 on the ‘necessary’ question,” we held that “Eudora therefore deserves

summary judgment.” Id. at 1281.

       On July 1, 2013, we issued our opinion in Eudora II. We denied rehearing and

rehearing en banc, and on August 5, 2013, issued our mandate.2 On August 16, 2013,

Douglas-4 filed a “Motion to Delay Entry of Order of Final Judgment,” requesting

that the district court “refrain from entering a final order in this case until after

September 10, 2013,” because its “Board meets again on September 10, 2013.” Aplt.

App. at 364–66. The district court rejected Douglas-4’s request, and on September 5,

2013, entered an Order of Final Judgment on Remand.

The Reaffirmation

       Unbeknownst to Eudora, the district court, or this court, Douglas-4 was

concurrently pursuing a separate strategy to obtain § 1926(b) protection for its

USDA-guaranteed loan. On July 9, 2013, two months before the district court’s final

order, Douglas-4’s governing board held a meeting where it unanimously approved

the following resolution:

              In light of the change to K.S.A. 82a-619(g) passed in 2012 by the
              Kansas Legislature, and the recent decision of the Tenth Circuit
              announced on July 1, 2013, the Board of Directors for [Douglas-
              4] do hereby re-adopt, ratify, re-affirm and re-authorize all
              documents, contracts, motions, resolutions, representations,
              certifications, cooperation given and/or granted, and the receipt
              of all financial aid in the form of a guarantee or other aid from
              the [USDA], relative to the loan transaction made and entered
              into by and between [Douglas-4] and the First State Bank &

       2
         Douglas-4 filed a petition for certiorari on October 18, 2013, which the
Supreme Court denied on January 21, 2014. See Rural Water Dist. No. 4, Douglas
Cty. v. City of Eudora, 134 S. Ct. 1002, 1002 (2014).
                                             6
             Trust, to finance a part of the improvement of and addition to [the
             Johnson-6 project], and, further, to direct [its attorney] to notify
             the USDA and First State Bank & Trust that [Douglas-4] desires
             and requests that the USDA and First State Bank & Trust re-
             adopt, ratify, re-affirm, and reauthorize all documents, contracts,
             motions, resolutions, representations, certifications, cooperation
             given and/or granted, and the receipt of all financial aid in the
             form of a guarantee or other aid from the [USDA], relative to the
             loan transaction made and entered into by and between [Douglas-
             4] and First State Bank & Trust, to finance [the Johnson-6
             project].

Id. at 412–13.

      On July 30, 2013, the USDA sent the following correspondence to First State

Bank & Trust:

             As of the date of this letter, USDA, Rural Development reaffirms
             its loan guarantee as executed via loan note guarantee dated June
             15, 2004. A copy of the loan guarantee is attached for your
             convenience.

Id. at 414. And on June 18, 2014, First State Bank & Trust responded, stating that it

too “reaffirms, re-authorizes and ratifies” the loan guarantee. Id. at 419.

The Present Litigation

      Eudora and Douglas-4 representatives held a meeting on April 3, 2014, where

Eudora expressed its desire to provide water services to customers in the Service

Area. Douglas-4’s governing board responded by letter on April 29, 2014. In the

letter, Douglas-4 revealed that Douglas-4 and the USDA had reaffirmed their

guarantee, and claimed that the reaffirmation entitled Douglas-4 to federal protection

under § 1926(b) through the 2012 amendment to K.S.A. § 82a-619(g). Eudora

responded on July 3, 2014, seeking to clarify Douglas-4’s newly reasserted legal

                                           7
basis for its federal protection, and Douglas-4 replied on July 14, 2014, repeating that

the reaffirmation brought the loan guarantee under the 2012 amendment,

notwithstanding Eudora II.

      On August 13, 2014, Eudora filed the present declaratory judgment action,

seeking a declaration that Eudora can initiate the procedures in K.S.A. § 12-527 to

provide water service to the Service Area without fear that Eudora would be violating

Douglas-4’s rights under § 1926(b). The parties filed cross-motions for summary

judgment.

      On September 29, 2016, the district court issued a Memorandum and Order

and, on October 3, 2016, an accompanying final Judgment. Id. at 1483-532. The

district court denied Eudora’s res judicata argument, but granted summary judgment

in Eudora’s favor after reaching the merits and finding that Douglas-4 did not “accept

financial or other aid,” K.S.A. § 82a-619(g), because: (1) Douglas-4 “reaffirmed” the

guarantee, but never “accepted” anything from the USDA; and (2) the reaffirmation

was, at most, “cooperation” under § 82a-619(g)’s first clause, rather than “financial

or other aid” in the second clause, and Douglas-4 still failed the “necessary”

requirement of the first clause, as decided in Eudora II. Aplt. App. at 1514–18.

                                          II.

      Douglas-4 now appeals, arguing (1) Eudora’s action is barred by res judicata,

(2) Eudora’s action is barred by the rule against claim-splitting, and (3) Douglas-4’s

reaffirmation of the USDA-guaranteed loan satisfies K.S.A. § 82a-619(g), entitling

Douglas-4 to federal protection under 7 U.S.C. § 1926(b).

                                           8
      We “review a district court’s grant of summary judgment de novo, applying

the same legal standard as the district court.” Parker Excavating, Inc. v. Lafarge W.,

Inc., 863 F.3d 1213, 1220 (10th Cir. 2017) (citation omitted). “The court shall grant

summary judgment if the movant shows that there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.

P. 56(a). “In applying this standard, we view the evidence and the reasonable

inferences to be drawn from the evidence in the light most favorable to the

nonmoving party.” Parker, 863 F.3d at 1220 (citation omitted).

      Before the district court, both parties argued that res judicata barred the other

party’s claims, each relying on the final judgment that adjudicated the parties’ claims

in Eudora II. Aplt. App. at 727–34, 765–69. The district court rejected both parties’

res judicata arguments, and went on to grant summary judgment in Eudora’s favor on

the merits, holding that Douglas-4’s reaffirmation of the USDA-guaranteed loan does

not entitle Douglas-4 to § 1926(b) protection. Although Eudora has not reasserted its

res judicata argument on appeal, “we can affirm on any ground supported by the

record, so long as the appellant has ‘had a fair opportunity to address that ground.’”

Alpine Bank v. Hubbell, 555 F.3d 1097, 1108 (10th Cir. 2009) (quoting Maldonado v.

City of Altus, 433 F.3d 1294, 1302-03 (10th Cir. 2006)) (determining there was a fair

opportunity when the appellant addressed that ground in response to the summary

judgment motion at the district court).

      “The preclusive effect of a judgment is defined by claim preclusion and issue

preclusion, which are collectively referred to as ‘res judicata.’” Taylor v. Sturgell,

                                            9
553 U.S. 880, 892 (2008). As relevant here, “[c]laim preclusion generally refers to

the effect of a prior judgment in foreclosing successive litigation of the very same

claim, whether or not relitigation of the claim raises the same issues as the earlier

suit.” New Hampshire v. Maine, 532 U.S. 742, 748 (2001). The district court’s

“application of res judicata to the facts . . . is a pure question of law subject to de

novo review.” Plotner v. AT&T Corp., 224 F.3d 1161, 1168 (10th Cir. 2000).

       Claim preclusion requires: “(1) a final judgment on the merits in an earlier

action; (2) identity of the parties in the two suits; and (3) identity of the cause of

action in both suits.” MACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th Cir. 2005).

Here, the first two elements are easily met: Eudora II addressed a final judgment on

the merits, and that action involved Eudora and Douglas-4—the same parties in this

action. Aplt. App. at 375-76. Douglas-4 admits as much. Aplt. App. at 1249

(“Eudora is correct that the parties here are the same as in [Eudora II], and that a

final judgment on the merits was entered.”). As a result, the only disputed element is

whether there is “identity of the cause of action in both suits,” MACTEC, 427 F.3d

at 831.

       “To determine what constitutes a ‘cause of action’ for preclusion purposes,

this court has adopted the ‘transactional approach’ found in the Restatement (Second)

of Judgments § 24.” Id. at 832. This approach, as adopted by this court, states:

              [A] final judgment extinguishes all rights of the plaintiff to
              remedies against the defendant with respect to all or any part of
              the transaction, or series of connected transactions, out of which
              the action arose. What constitutes a “transaction” or a “series” is
              to be determined pragmatically considering whether the facts are

                                            10
             related in time, space, origin, or motivation, and whether they
             form a convenient trial unit.

King v. Union Oil of Cal., 117 F.3d 443, 445 (10th Cir. 1997) (quoting Lowell Staats

Mining Co., Inc. v. Philadelphia Elec. Co., 878 F.2d 1271, 1274 (10th Cir. 1989))

(alteration in original). In this analysis, a “contract is generally considered to be a

‘transaction’ for claim preclusion purposes.” MACTEC, 427 F.3d at 832.

      In this case, Douglas-4 argues that four events, together, prevent preclusion of

its claim of § 1926(b) protection: (1) the Kansas legislature amended the second

clause of K.S.A. § 82a-619(g) in 2012, creating an avenue for § 1926(b) protection

that did not have a “necessary” requirement; (2) Eudora II voided the 2004 USDA

guarantee;3 (3) Douglas-4 and the USDA reaffirmed the loan’s guarantee after the

amendment, entitling Douglas-4 to § 1926(b) protection under the new law’s second

clause; and (4) Eudora has attempted to enforce its K.S.A. § 12-527 rights after the

reaffirmation, qualifying as new conduct that would violate Douglas-4’s newfound

§ 1926(b) protection. Aplt. App. at 1249–56.

      3
         Our holding in Eudora II directed the district court to “enter summary
judgment in Eudora’s favor on the question of whether Douglas-4’s USDA guarantee
was ‘necessary to carry out the purposes of its organization’ and otherwise proceed in
a manner consistent with [that] opinion.” 720 F.3d at 1281 (quoting § 82a-619(g)).
The district court then ordered: “In as much as all of [Douglas-4]’s claims were
based upon the enforcement of rights it claimed under § 1926(b), all of [Douglas-4]’s
claims are hereby dismissed with prejudice.” Aplt. App. at 375-76. Notably, neither
we nor the district court reached the question of whether the USDA guarantee was
void in its entirety—only that it did not entitle Douglas-4 to § 1926(b) protection.
                                            11
       Douglas-4’s arguments can only succeed if the reaffirmation of the loan’s

guarantee creates a separate “transaction” for claim preclusion purposes. We hold

that it does not.

       Given that Douglas-4 and the USDA reaffirmed the guarantee at issue in

Eudora II, the reaffirmation is clearly “part of the transaction, or series of connected

transactions, out of which [Eudora II] arose,” King, 117 F.3d at 445 (quoting Lowell,

878 F.2d at 1274). In fact, the reaffirmation involves no new terms whatsoever. See

Aplt. App. at 412–13 (Douglas-4 resolution reaffirming the guarantee without adding

any new terms); id. at 414 (USDA letter stating that it “reaffirms its loan guarantee

as executed via loan guarantee dated June 15, 2004” (emphasis added)). Nor did it

involve any new transaction. Id. at 1517 (finding that, “by the time the Guarantee

was made by the USDA, the First State Loan had already been closed, the funds had

already been disbursed, and the underlying Johnson-6 project had already been

substantially completed”). Viewed “pragmatically,” King, 117 F.3d at 445 (quoting

Lowell, 878 F.2d at 1274), the reaffirmation is the very same contract that was at

issue in Eudora II, and “[a] contract is generally considered to be a ‘transaction’ for

claim preclusion purposes,” MACTEC, 427 F.3d at 832. Moreover, Douglas-4 failed

to raise its reaffirmation argument before the district court entered final judgment on

remand in Eudora II. See Aplt. App. at 1252–53; id. at 1510 n.94. Douglas-4

reaffirmed the guarantee on July 9, 2013, id. at 412–13, the USDA reaffirmed the

guarantee on July 30, 2013, id. at 414, and the district court entered final judgment

                                           12
on September 5, 2013, id. at 376. Douglas-4 had an opportunity to pursue this

argument before the district court, but remained silent.

      Under these facts, the reaffirmation was a legal nullity. Douglas-4 cannot

circumvent res judicata by simply reaffirming a previously adjudicated contract.

      The other issues Douglas-4 raises on appeal are similarly without merit.

Neither res judicata nor the doctrine against claim-splitting bar Eudora’s declaratory

judgment action. We held in Eudora’s favor in Eudora II, and now Eudora, after

learning of Douglas-4’s reaffirmation activities, seeks a declaration that Douglas-4’s

USDA-guaranteed loan still lacks § 1926(b) protection. This claim could not have

been brought in a previous action. In addition, the doctrine against claim-splitting is

irrelevant here, as it applies against a party who “is involved in another pending suit

regarding the same subject matter against the same defendants.” Katz v. Gerardi,

655 F.3d 1212, 1219 (10th Cir. 2011) (emphasis added).

                                           III.

      For the reasons stated, we affirm.

                                           13