Court Opinion

ID: 3024063
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:30:22.045921+00
Date Added: 2024-06-11T11:47:39.663143
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 98-4160
                                    No. 99-2005
                                   ___________

Rural Water System #1, an Iowa          *
Non-Profit Corporation,                 *
                                        *
            Appellee,                   *
                                        * Appeals from the United States
      v.                                * District Court for the Northern
                                        * District of Iowa.
City of Sioux Center, Iowa,             *
                                        *
            Appellant.                  *
                                   ___________

                              Submitted: December 15, 1999

                                  Filed: January 26, 2000
                                   ___________

Before BEAM and HEANEY, Circuit Judges, and KYLE,1 District Judge.
                            ___________

BEAM, Circuit Judge.

       The City of Sioux Center, Iowa, appeals the district court's decision that it
violated 7 U.S.C. § 1926(b) by curtailing the service area of Rural Water System #1
(RWS #1). Sioux Center also appeals the district court's decision to award RWS #1
attorney fees. We affirm in part and reverse in part.

      1
      The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota, sitting by designation.
I.    BACKGROUND

       RWS #1 is a nonprofit corporation organized under chapter 504A2 of the Iowa
Code that provides water to rural customers. It furnishes service in an area that is
eighteen miles by thirty-six miles surrounding Sioux Center.3 RWS #1 brought suit
against Sioux Center under section 1983 and the Declaratory Judgment Act alleging a
violation of 7 U.S.C. § 1926(b). Section 1926(b) prevents municipalities from
curtailing the service area of rural water service providers who are indebted to the
United States. RWS #1 claimed that Sioux Center had encroached on its service area
by providing water to customers outside of Sioux Center's city limits. RWS #1 also
asserted that Sioux Center violated section 1926(b) when it traded one of its water
customers for one of RWS #1's customers. The parties filed cross-motions for summary
judgment.

       In the district court's ruling on these motions, it determined that RWS #1 fell
under the protection of section 1926(b) on July 1, 1992, when RWS #1 took out a loan
from the Farm Home Administration4 (FmHA). See Rural Water System # 1 v. City
of Sioux Center, 967 F. Supp. 1483, 1524 (N.D. Iowa 1997) (RWS #1 I). The district
court also held that the applicable test for a section 1926(b) violation is whether the
water provider has "made service available" to the disputed customers. See id. at
1524-25. Making service available has two components: (1) the physical ability to

      2
       Chapter 504A is the Nonprofit Corporation Act of Iowa. It allows all types of
nonprofit entities to incorporate including churches, charities, and schools. It does not
have any specific rules for water districts or even utility providers generally.
      3
       For a drawing depicting the service area see Rural Water System #1 v. City of
Sioux Center, 29 F. Supp. 2d 975, 983 (N.D. Iowa 1998) (RWS #1 II).
      4
       We note that the FmHA is now know as the Rural Utilities Service. See 7
C.F.R. § 1780.3(a). We, however, will continue to refer to it as the FmHA to avoid
confusion.

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serve an area;5 and (2) the legal right to serve an area. See id. at 1527-28. In its
summary judgment ruling, the district court held that RWS #1 had the legal right to
serve the area in question, and left the physical ability to serve as an issue for trial. See
id. at 1533.

       After a bench trial, the district court found that Sioux Center had violated section
1926(b) with respect to four customers. Sioux Center had encroached on RWS #1's
service area by providing water to three customers RWS #1 had both the physical
ability and legal right to serve. The court also found that Sioux Center had violated
section 1926(b) by trading customers.

        Sioux Center appeals, contending that under Iowa law RWS #1 did not have the
legal right to serve the three customers. Sioux Center also contends that the trading of
customers does not violate section 1926(b).

II.    ANALYSIS

       A.       The Legal Right to Serve

     On appeal, the parties argue that interpretation of Iowa law, specifically section
357A.2 of chapter 357A, controls the outcome of this case.6 The statute reads:

       5
           This is sometimes referred to as the pipes-in-the-ground test.
       6
         Sioux Center has made a motion requesting certification of this question of
interpretation to the Iowa Supreme Court. Sioux Center made this motion after the
district court determined the meaning of section 357A.2. We deny the motion because
we think this is not a particularly appropriate case for certification and because
appellants should be discouraged from the practice of asking for certification after an
adverse judgment has been rendered. See Perkins v. Clark Equip. Co., Melrose Div.,
823 F.2d 207, 209-10 (8th Cir. 1987).

                                             -3-
      Water services, other than water services provided as of April 1, 1987,
      shall not be provided within two miles of the limits of a city by a rural
      water district incorporated under this chapter or chapter 504A except as
      provided in this section.

Iowa Code § 357A.2 (1992). The district court found that this section was not
applicable to RWS #1 because it is simply the operator of a water system and is not a
water "district," and, therefore, RWS #1 had the legal right to serve the three customers
who were within two miles of the city limit. See RWS #1 I, 967 F. Supp. at 1533;
RWS #1 II, 29 F. Supp. 2d at 991-992. We agree.

       Under Iowa law, rural water providers can choose to be organized in a variety
of ways. A water vendor can be: (1) a cooperative association under chapter 499; (2)
a nonprofit corporation under chapter 504A; (3) a benefitted water district under
chapter 357; or (4) a rural water district under chapter 357A. Each chapter furnishes
both the organizational and governing rules for the entity. RWS #1 chose to organize
under chapter 504A as a nonprofit corporation. At issue is whether specific provisions
of chapter 357A also apply to water providers organized under chapter 504A.

       Section 357A.1 defines "district" for the purposes of chapter 357A as "a rural
water district incorporated and organized pursuant to the provision of this chapter."
Iowa Code § 357A.1 (1991) (emphasis added). Thus, the term "district," as written in
section 357A.2, does not include providers organized under chapter 504A.
Additionally, there is no separately defined entity which is a 504A rural water "district"
because an entity organized under chapter 504A is simply a nonprofit corporation.
Properly interpreting section 357A.2, in light of the definition given in 357A.1, requires
us to cut the "or chapter 504A" language out of the statute because a 504A corporation
is clearly not a "district" within the meaning of section 357A.1. If we leave the "or
chapter 504A" language in the statute the sentence is definitionally incorrect because
"rural water district" modifies both "this chapter" and "chapter 504A." Therefore, we

                                           -4-
find that the prohibition established by section 357A.2 does not apply to RWS #1
because it is not a "district" within the meaning of the statute.

       While we would prefer to construe the statute without excising words, not to do
so requires us to find, without supporting statutory language, that RWS #1 is a "district"
as described by section 357A.2. This result would require us, in essence, to add the
words "or chapter 504A" into the section 357A.1 definition. So, as can be seen, there
is no clean cut approach to the problem.

      The surplusage problem probably can be explained by looking at the history of
another section in the same chapter, section 357A.20. This section allows a rural water
corporation organized under chapter 504A to reincorporate under chapter 357A. See
Iowa Code § 357A.20 (1994). Under the 1987 version of the section, a water provider
could be both a 504A corporation and a 357A water district after reincorporation. It
is likely that section 357A.2 applied to these corporations having dual status. In 1991,
however, section 357A.20 was amended, and now when a 504A corporation
reincorporates as a 357A district, the 504A corporation ceases to exist upon filing the
notice of reincorporation. At that point, the entity is only a 357A district.7 See Iowa
Code § 357A.20(1) & (2) (1992). Thus, the "or chapter 504A" language had meaning
under the 1987 version of the code when water providers could have dual status. The
amendment to the statute rendered this language unuseable and the Iowa legislature
failed to strike the surplus words.

       7
        The district court noted that the reincorporated entity continues to operate under
all the 504A rules until its first annual meeting, and it is the districts in the transition
process to which the statute applies. See RWS #1 I, 967 F. Supp. at 1532-33. We
disagree. Although the district may continue to operate under the bylaws and articles
of incorporation of the 504A corporation, it is no longer a 504A corporation once it is
reincorporated.

                                            -5-
       Finally, any "[d]oubts about whether a water association is entitled to protection
from competition under § 1926(b) 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) (citations omitted).
Congress enacted section 1926(b) to encourage rural water development and to provide
greater security for FmHA loans. See id. at 1196. Therefore, our holding is supported
by the policy underlying the federal statute.
       B.     The Customer Trade

       Sioux Center also appeals the determination that the customer trade violated the
statute. As previously noted, section 1926(b) prohibits a city from curtailing or limiting
the area served by a rural water association in debt to the government. Additionally,
7 CFR § 1942.17(n)(2)(xii) requires the government's written consent before a "facility"
can be sold, leased, transferred or encumbered. The parties agree that the customer
traded is not a facility.

       RWS #1, however, argues by analogy that the statute and the regulation create
a requirement that the government must consent to an exchange of customers or a
violation of the statute will result. The district court found that neither the statute nor
the regulation directly addressed the issue of customers or a trade of customers. See
RWS #1 II, 29 F. Supp. 2d at 990. The court did find, however, "the principles behind
§ 1926(b) do [prohibit a trade], at least where the FmHA is not a party to the agreement
to transfer." Id. at 991. We disagree.

      Although the statute was enacted to protect the government's security, the
government's security was not impaired by this trade. It was an equal exchange of one
customer for another. Therefore, the policy justification utilized by the district court to
support its decision fails. Accordingly, we reverse on this issue, and the city can
continue to provide water to the traded customer.
      C.     Attorney Fees

                                           -6-
       RWS #1 requested $377,516.61 in attorney fees under section 1988. The district
court reduced this amount by forty-four percent, to $212,866.61 on the basis of partial
success, excess hours, and duplication. We review an attorney fees award under
section 1988 for an abuse of discretion. See Harmon v. City of Kansas City, 197 F.3d
321, 329 (8th Cir. 1999). Given the complicated facts of this case, and the district
court's well-reasoned decision, we affirm the fee award.

III.   CONCLUSION

       Accordingly, the district court is affirmed in part and reversed in part.

       A true copy.

             Attest:

                 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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