Opposition Brief — City of McAlester v. Pittsburg County Rural Water District No. 7

Supreme Court, U.S.

@) FILED

: 40 OCT 3 0 onnn

No.00-4

WN THE___CLERK

SUPREME COURT OF THE UNITED STATES

PITTSBURG COUNTY RURAL WATER -

DISTRICT NO.7,

Petitioner,

V.

CITY OF MCALESTER, et al.,

Respondents. ~

On Petition For Writ Or CERTIORARI

To Tae Unitep STATES CourT OF APPEALS

= For Tae Tents Circuit

RESPONSE TO CROSS PETITION

WESLEY BROWN LInDA C. MARTIN *

Brown & BROWN JAMES C. MILTON

417 E. CHEROKEE DOERNER, SAUNDERS, DANIEL

McA Ester, OK 74501 & ANDERSON, L.L.P.

(918) 423-4606 320 SoutH Boston AVENUE

Surre 500

Tutsa, OK 74103-3725

(918) 582-1211

Counsel for Respondents

* Counsel of Record

BECKER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

TABLE OF CONTENTS

SMMEGD AMT GAMUEUINEE 85 bins OC sre be be ea bes i

TASLE OF AUTIRMneee 3 PEELS il

STATEMENT OF THE CASE 2... esa eceus 1

ARGUMENT AGAINST GRANTING PITTSBURG’S

CONDITIONAL CROSS-PETITION FOR

WHae Ge CREO i ee bw l

ARGUMENT 1

Every federal court to consider the issue has

rejected the argument advanced by Pittsburg in

its Cross Petition that it should receive

continued Section 1926(b) protection based on

federal loans that were satisfied in full. ...... 3

ARGUMENT 2

Pittsburg has misinterpreted and overstated the

test adopted by a handful of federal courts,

offered here by Pittsburg as a “bright line

NN rh ees ee a aes 10

TABLE OF AUTHORITIES

Federal Cases

Bell Arthur Water Corp. v. Greenville Util. Comm n,

173 F.3d 517 (4th Cir. 1999) ......------> 6

Bell Arthur Water Corp. v. Greenville Utils. Comm ‘Nn,

972 F. Supp. 951 (E.D.N.C. 1997), aff'd,

173 F.3d 517 (4th Cir. 1999) ......-----> 4,6

Lexington-South Elkhorn Water Dist. v. Wilmore,

93 F.3d 230 (6th Cir. 1996) .....-.-- 10, 14, 15

North Alamo Water Supply Corp. v. San Juan,

90 F.3d 910 (Sth Cir.), cert. denied,

519 U.S. 1029 (1996) ......----- 10, 11, 14

Rural Water System #1 v. Sioux Center,

967 F. Supp. 1483 (N.D. lowa 1997),

aff'd in part & rev'd in part, 202 F.3d 1035

(8th Cir.), cert. denied,

68 U.S.L.W. 3774 (2000) .....------- passim

Rural Water System #1 v. Sioux Center,

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

cert. denied, 68 U.S.L.W. 3774 (2000) ....-- 5

Scioto County Regional Water Dist. No. I v.

Scioto Water, Inc., 103 F.3d 38

(6th Cir. 1996), cert. denied,

$90 U.S. 1411 GESGT) 5 vc cee oes ties passim

ii

Sequoyah County Rural Water Dist. No. 7 v. Muldrow, 191

F.3d 1192 (10th Cir. 1999),

cert. denied, 120 S. Ct. 1532,

120 S. Ct. 1548 (2000) ............ a, shy Se

State Cases

Grand Junction v. UTE Water Conservatory Dist.,

Pee Fae Ol CMe, BPN) 6 ks oe ke ves 7,8

Mariposa County v. Merced Irrigation Dist.,

eg LS A | Ee ere 12

Public Water Supply Dist. No. 10 v. Peculiar,

971 S.W.2d 849 (Mo. Ct. App. 1998) ...... 4,6

West Norman Timber, Inc. v. State,

See Be Ges COM. TI) 6 i ee cee 12

Wetumpka v. Central Elmore Water Auth.,

ap oe. ae wet CAM. T997) ek ss 7

Federal Statutes

pe | er ee ae 1, 3, 10, 15

af eS ee ee ee ee ee eee eS

State Statutes

Sou. eee. OR. Be, BESO) oe eS 12, 13

ill

Gitte. Gent. Ot. Gh, BE 5 se 11

Cita, Som. 0 0S, § ISR. cc i ees 12, 13, 14

Federal Regulations

TCPR. BG THD) oc 6 eis 5 ees 15

TC.P.R. & PGR. THD sw vos ce eo ees 14

iV

STATEMENT OF THE CASE

Pittsburg’s Statement of the Case is incomplete in at

least one respect. Pittsburg asserts on page 9 of its Cross-

Petition that it purchased its original federal loans in 1989.

This assertion is inconsistent with the conclusion reached by

the U.S. Court of Appeals for the Tenth Circuit. The Tenth

Circuit concluded that while Pittsburg “repurchased” its

outstanding indebtedness to the FmHA, its promissory notes

to the FmHA were marked “SATISFIED IN FULL -

FmHA.” [Appendix A, at p. 5a.] This distinction between

Pittsburg’s assertion and the Tenth Circuit’s factual

conclusion is important because of existing circuit-made case

law on the impact on Section 1926(b) protection of the

satisfaction of an outstanding loan from the FmHA.

ARGUMENT AGAINST GRANTING

PITTSBURG’S CONDITIONAL CROSS-

PETITION FOR WRIT OF CERTIORARI

McAlester agrees with Pittsburg on one issue: that the

test for application of 7 U.S.C. § 1926(b) should be reviewed

by the U.S. Supreme Court. In its conditional cross petition

for writ of certiorari, Pittsburg argues that the Court should

adopt a “bright line rule” for application of Section 1926(b).

Pittsburg supports its proposed “bright line rule” with

selective quotation from a few decisions from courts that have

taken an extreme approach to Section 1926(b) interpretation.

The complexities of state law cause such a “bright line

rule” to be unworkable. In some states, the established

territory of a rural water association qualifying for federal

loans is determined on a step-by-step basis, with each addition

to the territory approved after a careful analysis of the needs

of the area and the capacity of the rural water association. In

l

other states, such as Oklahoma, the state statutes governing

creation of a rural water association allow a one-time

formation document to include a description of a vast and

typically vaguely described area as the association's territory.

The association’s original territory could include areas that

are located significant distances from the association’s water

distribution facilities. In some cases, an association’s

territory includes land that is separated from the association’s

water distribution facilities by a highway or a body of water.

As aresult, it is nearly impossible for the association to serve

the water needs of its entire territory without substantial

additional capital expenditures.

Pittsburg’s position on the “bright line rule” must be

viewed with skepticism, particularly when it is understood

that Pittsburg would argue against any action by governing

state agencies to remove an area from a rural water

association’s territory. [Appendix D, at p. 50a.] The “bright

line rule” would provide anticompetitive protection for areas

that were included within a rural water association’s territory

long before the association borrowed funds from the federal

government. The anticompetitive protection would apply

even if the association has insufficient capacity or facilities to

serve the area. Under Pittsburg’s proposed scheme,

landowners in the area would be powerless to remove their

land from the rural water association’s territory.

In short, Pittsburg’s proposed “bright line rule”

ignores the clear terms of the statute. The rule proposed by

Pittsburg should be rejected in favor of the standard offered

by McAlester in its Petition for Writ of Certiorari, filed in

Case No. 00-323.

ARGUMENT 1

Every federal court to consider the issue has

rejected the argument advanced by

Pittsburg in its Cross Petition that it should

receive continued Section 1926(b) protection

based on federal loans that were satisfied in

full.

The first question presented by Pittsburg’s Cross

Petition rests solely on a legal issue - whether Section

1926(b) protection was extinguished when Pittsburg satisfied

its obligations to the FmHA in 1989. The Agricultural Credit

Act of 1987 contained a provision known as “subsection (g),”

Stating that 7 U.S.C. § 1926(b) “shall be applicable to all

notes or other obligations sold or intended to be sold” under

the Agricultural Credit Act. See 7 U.S.C. § 1929a note

(“Applicability of Prohibition on Curtailment or Limitation of

Service”). Scioto County Regional Water Dist. No. I v.

Scioto Water, Inc., 103 F.3d 38, 40 (6th Cir. 1996), cert.

denied, 521 U.S. 1111 (1997). Pittsburg’s Cross Petition

raises the issue of whether subsection (g)’s provision that

Section 1926(b) applies to “all” obligations “sold or intended

to be sold” means that Section 1926(b)’s protection extends to

a borrower that buys back its own loans from the FmHA,

effectively extinguishing them. /d.

Every federal court that has addressed this issue,

including the District Court and Tenth Circuit in this case, has

decided the issue in McAlester’s favor. Scioto County

Regional Water Dist. No. I v. Scioto Water, Inc., 103 F.3d

38, 43 (6th Cir. 1996), cert. denied, 521 U.S. 1111 (1997);

Sequoyah County Rural Water Dist. No. 7 v. Muldrow, 191

F.3d 1192, 1200 (10th Cir. 1999), cert. denied, 120 S. Ct.

1532, 120 S. Ct. 1548 (2000); Bell Arthur Water Corp. v.

3

Greenville Util. Comm’n, 173 F.3d 517, 523 (4th Cir. 1999),

aff’g 972 F. Supp. 951, 957-59 (E.D.N.C. 1997); Rural

Water System #1 v. Sioux Center, 967 F. Supp. 1483, 1523

(N.D. Iowa 1997), aff'd in pertinent part, 202 F.3d 1035 (8th

Cir.), cert. denied, 68 U.S.L.W. 3774 (2000); see also Public

Water Supply Dist. No. 10 v. Peculiar, 971 S.W.2d 849, 852

(Mo. Ct. App. 1998).

The Scioto County court was the first federal court to

address the argument raised in this case by Pittsburg in its

first question presented on petition for certiorari. The

plaintiff rural water-association in Scioto County argued that

bond issuers (or FmHA borrowers) “that exercised their right

to buy back their bonds are entitled to the same § 1926(b)

curtailment protection that is available to third-party bond

purchasers.” /d. The plaintiff rural water association argued

that viewing subsection (f) and subsection (g) together leads

to the conclusion “that the bond issuer’s right of first refusal

incorporates the right to continued protection against

curtailment.” Jd. “Water 1 insists that it is therefore entitled

to the same § 1926(b) protection that would have been

available to a third-party purchaser of its bonds.” /d.

In Scioto County, the court’s conclusion on this issue

rested on one critical fact. The plaintiff rural water

association’s obligation to FmHA was marked “paid in full.”

Id. at 42. Asa result, its FmHA debt “was thus discharged,

not sold.” Jd. Based on this critical fact, the Scioto County

court concluded that “[w]hen an [FmHA bond] issuer buys

back it own bond and cancels the debt, ... it no longer

qualifies as a debtor for § 1926(b) protection. This statutory

interpretation is also faithful to one of the main legislative

purposes in enacting § 1926(b) - safeguarding Farmers Home

Administration loans. Although the government maintains an

interest in providing affordable rural water service, its interest

4

in protecting against competition diminishes as its loans are

repaid.” Jd.

This holding by the Scioto County court is conclusive _

in this case. The earlier FmHA loans received by Pittsburg

were repaid in 1989. As the trial court found, “[t]he

promissory notes to the FmHA were marked ‘SATISFIED IN

FULL - FmHA’ and the debt was no longer carried upon

[Pittsburg’s] financial records.” [Appendix D, at p. 38a.] As

a result, the FmHA obligations of Pittsburg were extinguished

in 1989, and any Section 1926(b) protection enjoyed by

Pittsburg ended at that time.

This conclusion is consistent with the decisions of all

subsequent federal courts that have addressed the issue of the

cancellation of FmHA indebtedness. In 1997, the U.S.

District Court for the Northern District of lowa conducted an

in-depth review of legislative history related to the issue of the

impact of extinguishment of FmHA debt on Section 1926(b)

protection. Sioux Center, 967 F. Supp. at 1521-23. Based on

this review, the Sioux Center court determined that it “can

only conclude ... that the protection of § 1926(b) through

subsection (g) does not extend to a party such as RWS #1 who

bought back its notes pursuant to subsection (f), and thereby

extinguished them. Consequently, RWS #1 lost the

protections of § 1926(b) when it bought back its notes in 1988

and did not regain any protection of § 1926(b) until RWS #1

again became indebted to the United States in 1992.” Jd. at

1523. In Sioux Center, the plaintiff rural water association’s

FmHA loans were marked “paid in full” at the time that they

were refinanced. Jd. at 1502. The district court’s decision

was recently affirmed in pertinent part by the U.S. Court of

Appeals for the Eighth Circuit. Rural Water System #1 v.

Sioux Center, 202 F.3d 1035 (8th Cir.), cert. denied, 68

U.S.L.W. 3774 (2000).

Also in 1997, the U.S. District Court for the Eastern

District of North Carolina the issue of the impact of

extinguishment of FmHA debt on Section 1926(b) protection.

Bell Arthur Water Corp. v. Greenville Utils. Comm ’n, 972 F.

Supp. 951, 956-59 (E.D.N.C. 1997). In Bell Arthur, the

plaintiff rural water association conceded that its earlier

FmHA debt “may technically have been ‘satisfied’ or ‘paid in

full.’” Jd. at 956. Nonetheless, the plaintiff rural water

association argued that its participation in a congressionally

authorized “buy-out” program - the same program addressed

by the Scioto County and Sioux Center courts - provided it

with continued Section 1926(b) protection. /d. Relying on

Scioto County and Sioux Center, the Bell Arthur court

concluded that “any protection afforded to BAWC pursuant

to § 1926(b) was extinguished when it paid off its FmHA

loans in 1987.” Bell Arthur, 972 F. Supp. at 959. The

district court decision was affirmed by the U.S. Court of

Appeals for the Sixth Circuit, which specifically affirmed the

district court’s decision on this issue. Bell Arthur Water

Corp. v. Greenville Util. Comm'n, 173 F.3d 517, 523 (4th

Cir. 1999).

On June 16, 1998, the Missouri Court of Appeals

addressed the issue of the impact on Section 1926(b)

protection of the extinguishment of FmHA debt. Public

Water Supply Dist. No. 10 v. Peculiar, 971 S.W.2d 849, 852

(Mo. Ct. App. 1998). The Peculiar court noted that

“(njeither subsection (g) nor any other statutory language

mentions service area protection in the event a water district

takes advantage of its right of first refusal and decides to

refinance its loan through issuance of refund bonds or a

conventional bank loan.” Jd. at 852. In Peculiar, the rural

water association “extinguished its indebtedness to FmHA in

July, 1987 when it repurchased [its] 1983 bonds, and FmHA

returned them, marked ‘Cancelled.’” /d. Based on these

6

facts, the Peculiar court concluded that the rural water

association “did not intend that the debt on the 1983 bonds

remain outstanding. Instead, it issued a new series of bonds

and sold them to various private parties to finance the

repurchase and subsequent cancellation of the\1983 bonds.

When faced with identical fact situations, where a rural water

district refinances its FmHA loan and in the process

completely extinguishes its debt on the bonds purchased by

[sic] the government, other jurisdictions hold that § 1926(b)

protection is lost.” Jd. at 853.

In its conditional cross petition for writ of certiorari,

Pittsburg is faced with a difficult challenge on this issue.

Pittsburg cannot avoid the fact that all federal courts that have

addressed the issue have concluded that Section 1926(b)

protection ends when an FmHA loan is paid and marked as

“satisifed” or “paid in full.” Pittsburg cannot avoid the fact

that the most critical factual issue relied upon by the Scioto

County, Sioux Center, and Bell Arthur courts is clearly against

Pittsburg in this case: As the trial court found, “(t]he

promissory notes to the FmHA were marked ‘SATISFIED IN

FULL - FmHA.’” [Appendix D, at p. 38a.] Faced with this

daunting challenge, Pittsburg can turn only to two state-court

decisions that have reached a different conclusion on narrow

and distinguishable facts. [Cross Petition, at pp. 12-13 (citing

Grand Junction v. UTE Water Conservatory Dist. , 900 P.2d

81 (Colo. 1995), and Wetumpka v. Central Elmore Water

Auth. , 703 So. 2d 907 (Ala. 1997).

The decision by the Supreme Court of Colorado in

Grand Junction v. UTE Water Conservatory District was

closely examined by both the Scioto County and Sioux Center

courts. In Scioto County, the U.S. Court of Appeals for the

Sixth Circuit distinguished the Grand Junction decision. “In

that case, the Colorado court found that § 1926(b)’s

7

protection extends to those that buy back bonds only if the

bonds are reacquired ‘with the intent not to discharge the

instrument.’ 900 P.2d at 92. The Ute Water court analyzed

the question of intent and looked to Colorado law to

determine whether the reacquisition of a bond discharged the

debt. Unlike the loan documents in Ute Water, the loan

documents in this case were marked ‘paid in full.’” Scioto

County, 103 F.3d at 42. The point of distinction upon which

the Scioto County court relied was the rural water

association’s treatment of the paid FmHA obligation. In

Scioto County, as in the case before this Court, the FmHA

obligation was marked as paid in full.

Pittsburg’s treatment of this issue in its conditional

cross petition for writ of certiorari, and in particular its

treatment of the Scioto County decision, reveals the weakness

of its position. Pittsburg’s only effort to persuade this Court

to disagree with the Scioto County decision is to argue that the

Scioto County court determined that Section 1926(b)

protection “is only extended when the notes are purchased by

third parties,” and to argue that “such decision ignores the

plain language of [7 U.S.C. § 1929a].” [Cross Petition, at p.

12.]

First, Pittsburg’s characterization of the Scioto County

court’s decision misstates its rationale. The Scioto County

court concluded that “[w]hen an issuer buys back its own

bond and cancels the debt, ... it no longer qualifies as a debtor

for § 1926(b) protection.” Scioto County, 103 F.3d at 42.

Thus, the Scioto County court leaves open the possibility that,

in a Grand Junction circumstance where “a bond issuer ...

reacquire[s] its own bond without extinguishing the debt,” as

allowed by Colorado law. /d. at 41.

Second, Pittsburg offers no support whatsoever for its

conclusory argument that the Scioto County decision “ignores

the plain meaning” of 7 U.S.C. § 1929a. Without elaboration

by Pittsburg regarding its “plain meaning” argument, it would

be difficult for the Respondents to respond to the argument.

However, Pittsburg may be referring to arguments raised by

the plaintiff rural water association in Sioux Center. In Sioux

Center, the plaintiff argued that the plain meaning of

subsection (g) to 7 U.S.C. § 1929a would include, within the

extended protection offered by subsection (g), those FmHA

bonds that are repurchased by the rural water association that

is obligated on the bonds. Sioux Center, 967 F. Supp. at

1516-20. The Sioux Center court rejected that argument,

holding that “it is irrational to read subsection (g) as including

notes sold under subsection (f) within a strained reading of

notes ‘intended to be sold under this section,’ when a sale

under subsection (f) involves significantly different timing and

terms from a sale under subsections (a)-(e).” Sioux Center,

967 F. Supp. at 1520. 3

The Court should reject Pittsburg’s request for

certiorari review of this issue. Pittsburg has failed to show a

disagreement among the federal courts addressing the issue.

The federal courts that have addressed the issue have properly

applied federal statutory law, and have determined that a rural

water association that satisfies its federal debt, whether

through refinance or repurchase, is no longer entitled to

Section 1926(b) protection based on that debt.

ARGUMENT 2

Pittsburg has misinterpreted and overstated

the test adopted by a handful of federal

courts, offered here by Pittsburg as a

“bright line rule.”

McAlester agrees with Pittsburg that the Court should

review and address the proper standard for application of the

anticompetitive protection found in 7 U.S.C. § 1926(b). The

“bright line rule” offered by Pittsburg in the second question

presented in its conditional cross petition for writ of

certiorari, however, is inconsistent with the terms of the

Statute.

The terms of Section 1926(b) require, as a condition

for any anticompetitive protection, that a rural water

association make water service available to its claimed

customers. The nature of rural water associations formed

under state law requires that the complexities of state law be

considered in determining whether the association has made

service available. The federal courts faced with the issue

have looked to state law to determine the boundaries of the

rural water association, and to determine whether a rural

water association has made service available. Sioux Center,

967 F. Supp. at 1525, 1530; North Alamo Water Supply

Corp. v. San Juan, 90 F.3d 910, 913 (Sth Cir.), cert. denied,

519 U.S. 1029 (1996); Lexington-South Elkhorn Water Dist.

v. Wilmore, 93 F.3d 230 234-35 (6th Cir. 1996).

The Sioux Center court defined the importance of state

law to this determination. “State law, and only state law, ...

defines a municipality’s right to annex portions of the

association’s service area, just as state law, and only state

law, otherwise defines where it is the association can legally

10

initiate or continue to provide service. If the association again

becomes indebted to the FmHA, its protected service area is

defined by state law as of the date of the renewed

indebtedness.” Sioux Center, 967 F. Supp. at 1530.

At least one court has determined that a state law duty

to provide service “is the legal equivalent to” making service

available under Section 1926(b). North Alamo Water Supply

Corp. v. San Juan, 90 F.3d 910, 916 (Sth Cir.), cert. denied,

519 U.S. 1029 (1996). In the case at bar, the Tenth Circuit

was asked to determine whether Oxlahoma law imposed on

rural water associations a duty to serve their customers. The

Tenth Circuit determined that state law imposed no such duty

to serve. Sequoyah County Rural Water Dist. No. 7 v.

Muldrow, 191 F.3d 1192, 1202 (10th Cir. 1999), cert.

denied, 120 S. Ct. 1532, 120 S. Ct. 1548 (2000).

In urging a reversal of the Tenth Circuit on this issue

of state law, Pittsburg references several provisions of the

Oklahoma statutes governing formation of rural water

districts. First, Pittsburg urges that its claimed legal

obligation to serve “residents within its Territory” is found in

Okla. Stat. tit. 82, § 1324.3. Section 1324.3 provides that

“[pJublic nonprofit rural water districts ... may be organized

under this act for the purpose of developing and providing an

adequate rural water supply, gas distribution facilities, sewage

disposal facilities and solid waste management system to serve

and meet the needs of rural residents within the territory of

the district.” Okla. Stat. tit. 82, § 1324.3 (1991). This

statement of purpose falls far short of the creation of a duty

to provide water service, or any other utility, to residents of

the rural water district’s territory.

To extend the general statements contained in Section

1324.3 to impose an obligation on Oklahoma rural water

11

associations would be contrary to general principles of

statutory construction. Courts generally are not eager to

interpret statutes as imposing obligations or liabilities on a

state agency, unless the obligation is clearly stated in the

statute. See, e.g., Mariposa County v. Merced Irrigation

Dist., 196 P.2d 920, 925 (Cal. 1948); West Norman Timber,

Inc. v. State, 224 P.2d 635, 640 (Wash. 1950). As the

Mariposa County court concluded, “[s}tatutes are ordinarily

designed for the government of citizens and residences rather

than the state, and it is settled that the state is not bound by

general words of a statute or code provision which would

operate to trench upon its sovereign rights, injuriously affect

its capacity to perform its functions, or establish a right of

action against it, unless the intent to bind it thereby otherwise

clearly appears.” Mariposa County, 196 P.2d at 925 (quoting

23 Cal. Jur. 625).

Second, Pittsburg points to the “benefit unit” system

contained in Okla. Stat. tit. 82, § 1324.12 as the source of its

claimed legal obligation to serve “residents within its

Territory.” The “benefit unit” system demonstrates that

water service to residents within Pittsburg’s territory is a

function of Pittsburg’s discretion, rather than a “duty to

serve.” Section 1324.12 provides as follows:

The total benefits of any such

improvement shall be divided into a suitable

number of benefit units. Upon determining a

schedule of benefit units and unit fees, the

board of directors shall cause a declaration of

availability of such units for subscription to be

entered in its minutes and except for residents

of cities and towns as provided in paragraph 5

of Section 1324.2 of this title any individual

who fails to become a participating member

12

within thirty (30) days thereafter shall not be

eligible to hold office as a director, nor shall

any individual, firm, partnership, association,

or corporation which fails to become a

participating member within ninety (90) days

after such declaration be qualified to

participate at any meeting or vote at any

election held thereafter unless such individual,

firm,-partnership, association, or corporation

shall thereafter become a participating

member. Each landowner within the district

Shall subscribe to a number of such units in

proportion to the extent he desires to

participate in the benefits of the improvements.

As long as the capacity of the district’s

facilities permits, participating members of the

district may subscribe to additional units upon

payment of a unit fee for each such unit.

Owners or tenants of land located within the

district who are not participating members may

subscribe to such units as the Board in its

discretion may grant, and upon payment of the

unit fee for each such unit shall be entitled to _

the same rights as original participating

members.

Okla. Stat. tit. 82, § 1324.12 (Supp. 1997) (emphasis added).

As can be seen from the text of the statute, the

“benefit units” referred to by Pittsburg in its conditional cross

petition for writ of certiorari are available only at the rural

water district’s discretion and the occupant’s desire. Okla.

Stat. tit. 82, § 1324.12 (Supp. 1997). While Okla. Stat. tit.

82, § 1324.2(7) may provide “a legal right to one service

connection,” Section 1324.12 limits the availability of

13

additional benefit units to current subscribers, based on the

capacity of the district’s facilities. Jd. Section 1324.12

further limits the availability of benefit units to “[o]wners or

tenants of land located within the district who are not

participating members” of the rural water association.

Benefit units are available to such owners and tenants only

upon the discretion of the rural water association’s board. /d.

Finally, Pittsburg argues that its “legal duty to serve”

can be found in the federal regulations governing FmHA

loans. [Cross Petition, at p. 20 (citing 7 C.F.R. §

1942.17(n)(2)(vii)).] Faced with the absence of supporting

state law, Pittsburg has turned to federal law as providing an

obligation to provide service. In doing so, however, Pittsburg

has overlooked the clear terms of the cases upon which it

relies in making this argument. The legal obligation to

provide water service, urged by Pittsburg, must be provided

by state law, rather than by federal law. See North Alamo

Water Supply Corp. v. San Juan, 90 F.3d 910, 916 (Sth Cir.),

cert. denied, 519 U.S. 1029 (1996). Pittsburg’s claimed

territory is determined by reference to state law, rather than

to federal law. Lexington-South Elkhorn Water Dist. v.

Wilmore, 93 F.3d 230, 234 (6th Cir. 1996); Sioux Center,

967 F. Supp. at 1530.

Pittsburg attempts to bootstrap the provisions of 7

C.F.R. § 1942.17(n)(2)(vii) into the Oklahoma statutes

governing rural water associations, by pointing to the

Oklahoma statute authorizing rural water associations to

borrow money from the federal government. [Cross Petition,

at p. 20-21.] The Court should reject this attempted bootstrap

because Pittsburg has put the cart before the horse. Section

1926(b) protection, and its attendant regulations, do not apply

to Pittsburg if Pittsburg has failed to meet the elements of

Section 1926(b) protection. The federal obligation to provide

14

water, therefore, does not apply to Pittsburg until it can

establish that it has “made service available.” This is the

conclusion that was reached by the Tenth Circuit in Sequoyah,

when faced by the same-argument by attorneys for Pittsburg.

Sequoyah, 191 F.3d at 1203 n.9.

Even if this Court determines that an obligation to

serve may be based on federal law, the regulation cited by

Pittsburg does not provide the necessary obligation to serve.

Section 1942.17 does not impose an obligation to serve. A

rural water association may deny water service to a user

within the district’s service area, even if the user desires

service. 7 C.F.R. § 1942.17(e)(1). Section 1942.17(e)(1)

states that installation of water services is dependent upon the

feasibility of such service. /d. Similarly, water service from

a rural water district may be declined by the user. /d.

As these authorities demonstrate, Oklahoma law

imposes no obligation to serve. Pittsburg has failed to

demonstrate any source of an obligation to serve occupants

within its territory. As a result, the “legal-duty-to-serve” test

does not apply in this case. Furthermore, it is not enough in

a Section 1926(b) case for Pittsburg to simply show that it has

“a precisely-drawn service area,” or that it has water lines in

the general vicinity of the disputed area. Lexington-South

Elkhorn, 93 F.3d at 234. A rural water association asserting

anticompetitive protection based on 7 U.S.C. § 1926(b)

should be required to show more. The clear text of Section

1926(b) requires, as a condition for anticompetitive

protection, that the rural water association make service

available. 7 U.S.C. § 1926(b) (protecting “[t]he service

provided or made available through any such association”).

To expand the concept of “made available” to reach areas that

were never served by the claiming rural water association,

that the rural water association could not serve, and that

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simply fall within a geographic territory vaguely described in

a years-old formation document would be to create a legal

fiction that would destroy the purpose of Section 1926(b).

CONCLUSION

For the reasons outlined above, Respondent McAlester

respectfully suggests that the Court deny Pittsburg’s

conditional cross petition for writ of certiorari. The first

question presented by Pittsburg’s cross petition raises an

argument that has been universally rejected by the federal

~ courts confronted with it. The second question presented is

closely aligned with the issues raised by McAlester’s Petition

for Writ of Certiorari in Case No. 00-323. However, the

second question is based upon a strained reading of legal

authorities, and represents an attempt by Pittsburg to impose

an onerous interpretation on Section 1926(b), one that would

be entirely inconsistent with the statute’s plain terms.

/s/

LINDA C. MARTIN, ESQ.

Counsel of Record

James C. Milton, Esq.

Doerner, Saunders, Daniel

& Anderson, L.L.P.

320 South Boston Ave., Ste. 500

Tulsa, Oklahoma 74103-3725

(918) 582-1211

Attorneys for Respondents

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Ses

Mae

HSK. Fist