ORAL ARGUMENT HEARD IN OKLAHOMA WATER DISTRICT CHALLENGE

On November 17, 2008, the U.S. Court of Appeals for the Tenth Circuit heard oral argument in an appeal by the City of Guthrie, raising several key issues for possible decision by the Tenth Circuit. Among other things, the case raises the issue of whether Oklahoma rural water districts violatestate and federal law when they borrow money from the U.S. Department of Agriculture, due to the Oklahoma constitutional prohibition against the creation of monopolies.  The case also raises the issue of whether fire protection can or must be considered in the made-service-available analysis.

THE TENTH CIRCUIT CLEARS THE WAY FOR TARRANT REGIONAL WATER DISTRICT CASE TO GO FORWARD

The Tarrant Regional Water District ("TRWD") sued the Oklahoma Water Resources Board ("OWRB") to enjoin the OWRB from enforcing its moratorium against approval of water permits for export of water outside the State of Oklahoma. The OWRB initially defended with procedural obstacles, challenging the trial court's jurisdiction to hear the case. The trial court denied the OWRB's motion to dismiss. The OWRB appealed the trial court's rulings on Eleventh Amendment immunity and abstention.

In a decision dated October 27, 2008, the Tenth Circuit affirmed a portion of the trial court's ruling, and refused to address the remainder of the lower court's decision.

The Tenth Circuit agreed with the trial court in determining that "a fair reading of the statutes at issue demonstrates that the OWRB is arguably precluded from granting the TRWD's application. TRWD has thus shown it faces threat of injury sufficient to invoke federal jurisdiction." Thus, the lawsuit meets the "case or controversy" requirement for federal-court jurisdiction.

The Tenth Circuit rejected the OWRB's Eleventh Amendment defense, concluding that "the defendants are state officials within the ambit of the Eleventh Amendment, and they are sued in their official capacities. Moreover, the complaint purports to seek only prospective, injunctive relief ...." Thus, the TRWD's lawsuit falls within the doctrine of Ex parte Young, an old doctrine of federal court jurisdiction that holds that Eleventh Amendment immunity does not extend to a state official sued in his official capacity when the plaintiff only seeks prospective, injunctive relief. The Tenth Circuit rejected the OWRB's argument that there exist particular sovereignty issues that would require the application of the Eleventh Amendment.

Critically, in going through the analysis described above, the Tenth Circuit held that "[i]t is well established that Oklahoma does not enjoy an 'ownership interest' in water resources located in the state."

The Tenth Circuit declined to reach the issue of abstention, on the basis that a denial of a motion to abstain is not reviewable on appeal. It might have been possible for the OWRB to have obtained an order certifying the abstention issue for interlocutory appeal. Although the Tenth Circuit was silent on the issue, if the OWRB had obtained appellate review of the abstention decision, there was some level of possibility that the appellate court would have disagreed with the trial court and determined that the TRWD's lawsuit should have been delayed until the OWRB completes the current Comprehensive Water Plan, based on abstention arguments that were raised, or could have been raised, at the trial court level.

GRAND RIVER DAM AUTHORITY LITIGATION

On November 7, 2007, a group of water providers filed suit against the Grand River Dam Authority, the USA, the Federal Energy Regulatory Commission, the Army Corps of Engineers, the OWRB, and the Cherokee Nation, seeking greater access to water rights in Grand Lake. The water providers base their claim on an old U.S. Supreme Court decision that rejected an argument by the GRDA that the GRDA held title to the water in Grand Lake. In a Tulsa World article on November 9, 2007, the plaintiffs’ counsel stated that the lawsuit was filed because of an increase in raw water rates charged by the GRDA.

On February 26, 2008, the Court dismissed the Cherokee Nation on the basis of sovereign immunity. The plaintiffs had argued that the federal McCarran Amendment had abrogated immunity because the McCarran Amendment allowed suits against the USA for adjudication or administration of certain water rights. But in 1983, the U.S. Supreme Court held that the McCarran Amendment does not extend to Native American parties to lawsuits. Arizona v. San Carlos Apache Tribe, 463 U.S. 545, 567 n.17 (1983).

With their March 27, 2008 First Amended Complaint, the plaintiffs named the USA as trustee of the Oklahoma Indian Tribes, along with the Federal Energy Regulatory Commission and the Army Corps of Engineers.

The U.S. Attorney filed a motion to dismiss on April 7, 2008. The USA argued that the McCarran Amendment does not apply because the plaintiffs seek to adjudicate only the rights of certain parties. The lawsuit is not a comprehensive adjudication of water rights as required by the McCarran Amendment. The lawsuit does not include all potential water right claimants to the Grand River watershed. The GRDA and Cherokee Nation are indispensable parties.

The action was dismissed by order entered on July 21, 2008, siding with the USA on the lack of a comprehensive adjudication for purposes of the McCarran Amendment. Notably, Chief Judge Eagan stated as follows regarding the old Supreme Court decision:

Regardless of whether the McCarran Amendment permits parties with predetermined rights to be absent from “supplemental” adjudications, the United States Supreme Court did not determine GRDA’s rights to the water at issue in Grand River Dam Authority. The Court merely found that the United States possessed the superior right under the Commerce Clause to build the Fort Gibson dam or to license another to do so. The Court did not decide the totality of GRDA’s rights to the water in the Grand River vis-à-vis the United States or any other potential claimant. In fact, the Court expressly left unanswered the United States’ contention that its rights preempted state-created property rights in nonnavigable waters. Contrary to plaintiffs’ assertion, therefore, GRDA’s rights have not been determined.

This action is currently on appeal to the Tenth Circuit. The case is in the very early stages of a Tenth Circuit appeal.

TENTH CIRCUIT TO CONSIDER MUNICIPAL WATER ISSUES

On February 21, 2008, the United States District Court for the Western District certified various jurisdictional questions relating to municipal water use for appeal to the Tenth Circuit Court of Appeals. 2008 WL 490635 (W.D. Okla.). The Court found that there exist no “just reasons to delay the appeal” of its earlier rulings dismissing the municipality’s third-party claims against the United States Department of Agriculture and its counterclaims against the rural water district.

The Court dismissed the third-party claims on the grounds that the USDA is immune under the principal of sovereign immunity. The Court also found that the municipality lacked prudential standing to assert its claims against the USDA. As a result, the Court dismissed the counterclaims, finding that the USDA was a necessary and indispensable party to those claims and that such claims could not be adjudicated without USDA involvement.

The rulings were jurisdictional in nature, and the Court did not review the substantive merits of the municipality’s claims, which include a challenge to the constitutionality of 7 U.S.C. § 1926(b) and Okla. Stat. tit. 82, § 1324.10(4), which purportedly authorizes rural water districts to obtain federal funding and exclusive protection under 7 U.S.C. § 1926(b). The February 21, 2008 Order will allow for expedited interlocutory appeal of these rulings. In the event that the Tenth Circuit finds in favor of the municipality on the jurisdictional questions, the case will be sent back down to the District Court for review of the substantive merits of these constitutional challenges.

Courtney Bru

INDIAN TRIBES ENJOY SOVEREIGN IMMUNITY TO 1926(B) LAWSUITS

According to a recent ruling of the District Court for the Southern District of Alabama, §1926(b) limitations likely do not apply to Indian Tribes, and even if they do, the Tribes are immune from suit for any violation of §1926(b) protections. In Freemanville Water Systems v. Poarch Band of Creek Indians, 2008 WL 80644 (S.D. Ala.), the Poarch Band of Creek Indians (the “Tribe”), along with entities owned by the Tribe, planned to build a water facility on tribal land. The water facility would serve several noncontiguous patches of tribal land in the area. The tribal lands were within the rural water district’s (the “District”) service area and the District had been supplying water to the areas. The proposed infrastructure connecting the noncontiguous areas of tribal land would run through protected territory.

The District brought suit claiming the threatened action would violate the District’s §1926(b) protection. The Tribe filed a motion to dismiss on the grounds of tribal sovereign immunity. The District argued the Tribe was not entitled to sovereign immunity because Congress had abrogated such immunity, the Tribe had waived such immunity, and Tribal immunity did not exist as to the Tribe’s actions off of tribal land.

Abrogation: The District first argued that §1926(b) prohibitions apply to “public bodies” which includes Indian Tribes. Based on the premise that the only time a court will find that Congress abrogated tribal immunity is where the legislation specifically states that intent, the court rejected the District’s argument. According to the court, the statute did not define “public body” and thus remained ambiguous as to whether Indian Tribes are included. The court then went on to state that even if a Tribe is a “public body” within §1926(b), the only implication is that a Tribe is obligated to comply with the anti-curtailment provisions—an entirely different issue than whether the tribe may be sued for failure to comply. In other words, “whether an Indian Tribe is subject to a statute and whether the tribe may be sued for violating the statute are two entirely different questions.”

Waiver: The District also argued the Tribe waived sovereign immunity by receiving a HUD grant to build housing which was serviced by the District’s system. The court found no evidence showing that the Tribe had promised or committed to the District’s services. According to the court, without such a promise or commitment, the District’s claim failed because the court will not imply a waiver based on the actions of a Tribe.

Off-Reservation Conduct: The District also argued that the Tribe did not have sovereign immunity for the pipes it would have to run between the tribal lands. In rejecting the District’s claims, the court reiterated its previous finding that even if the Act applies to the Tribe off of tribal land, it does not mean the Tribe can be sued for any violation.

In the end, this case stands for the proposition that Indian Tribes, whether or not subject to §1926(b) protections, cannot be sued by a rural water district for any violation thereof—on or off of tribal lands.

Sharolyn C. Whiting

On September 27, 2007, the U.S. District Court for the Western District of Oklahoma entered a new decision addressing several aspects of the "made service available" test under Section 1926(b). The decision contains two critical treatments of this test. First, the Court determined that fire protection is relevant to the "made service available" test. Specifically, the Court stated: "By accepting loans from the FmHA, the District agreed to abide by the governing federal regulations. Those regulations provide that fire protection service is to be supplied to the extent practicable. 7 C.F.R. § 1780.57. It thus becomes an issue of fact whether such service was practicable with respect to the Disputed Customers." You will recognize this argument from prior posts on this blog. Second, the Court determined that it would apply a customer-by-customer analysis of the "made service available" test rather than the area-by-area analysis urged by the City of Guthrie. The September 27, 2007 decision is not yet published. You can view it here.

On February 7, 2007, the U.S. District Court for the Northern District of Oklahoma entered an Opinion and Order vacating the July 3, 1979 injunction in Rural Water Dist. No. 3 v. Owasso Utilities Authority. This is the same injunction that was entered based upon the published opinion found at 530 F. Supp. 818 (N.D. Okla. 1979). In vacating the 1979 injunction, the District Court found that "[t]he law governing Section 1926(b) protection has changed significantly during the twenty-seven years that have passed since entry of the July 3, 1979 Judgment." The February 7, 2007 Opinion and Order can be found at Rural Water Dist. No. 3 v. Owasso Public Works Authority, No. 06-CV-231-JHP-FMH, 2007 WL 464697 (N.D. Okla., Feb. 7, 2007). You may also review this decision here.

"[I]n Oklahoma, cities have been on the cutting edge of a new trend - trying new and innovative legal strategies for overturning or circumventing 1926(b) precedents - including arguing that every USDA loan in that state is unconstitutional and must be cancelled – and challenging the USDA loan contracts."

The quo warranto action will remain in federal court. The federal court has denied our motion to remand, stating that the quo warranto petition raises a federal question regarding Section 1926(b). The federal court also denied our request to refer the question to the Oklahoma Supreme Court. As a result, it will be the federal court that determines whether the Oklahoma Constitution bars rural water districts in Oklahoma from borrowing money from the USDA.

In another interesting development, the federal court has ruled that the USDA should be a party to the litigation. What position will the USDA take on the issue of whether Oklahoma rural water districts have the authority to borrow funds?

We know that the rural water district's lawyers are asking for help. Indeed, their newsletter states: "The outcome of the Beckham-3 suit is of vital importance to every district in the state since it affects districts which already have a federal loan and those that may want one in the future."

For a brief description of the reasoning behind this challenge, please review the quo warranto action. Plus, watch this site for a more in-depth analysis of the issue.

The quo warranto action was removed to federal court. On this blog, I have described a quo warranto action filed by an Oklahoma municipality, challenging a rural water district's actions in borrowing money from the federal government despite a state constitutional prohibition against such loans. The municipality has filed a motion to remand the quo warranto action back to state court, along with a motion to certify questions to the Oklahoma Supreme Court. Watch this site for further developments.

An action in the nature of quo warranto has been filed in Beckham County, Oklahoma. The action has garnered national attention. For the National Rural Water Association’s discussion on this new action, click here or here. For a copy of the Beckham County action, click here. The rural water district has removed the action to the U.S. District Court for the Western District of Oklahoma. The municipality anticipates filing a motion to remand. For more information, contact Mr. Milton.

Is fire protection part of the Section 1926(b) analysis? Rural water districts argue that water needs for fire protection should not be included in the "made service available" analysis because Section 1926(b) "was not enacted for the purpose of fire protection." But federal regulations require rural water districts to "have sufficient capacity to provide reasonable fire protection to the extent practicable." 7 C.F.R. section 1780.57(d). Furthermore, federal regulations and USDA loan documents require rural water districts to comply with state and local laws and regulations, particularly regarding engineering requirements for water service facilities. Many states require water service systems to be built to certain requirements so that fire protection needs can be met. Finally, the Rural Utilities Service regularly provides funding for water systems that provide water for fire protection. In fact, in its 2004 annual report, the Rural Utilities Service noted that its funding for public body projects (loans made to public agencies like water districts) were substantially impacted by "the increased demand for fire protection in public body water systems." U.S. Dept. of Agriculture Rural Development, Water and Environmental Programs: Annual Activity Report 5 (FY 2004).

Rural water districts in Oklahoma lack the authority to borrow funds from the U.S. Department of Agriculture, if the loan carries with it Section 1926(b) protection. That is the result of two Oklahoma Supreme Court decisions, announced thirty years apart. The decisions are Coppage and Comanche County.