Opinion
Case No. 3:03 CV 7303
March 25, 2004
ORDER
This is a dispute over who may provide water service in a particular area of Erie County, Ohio. Plaintiff Northern Ohio Rural Water ("NORW") claims that it has a superior right to construct water lines and provide water service in the disputed territory under 7 U.S.C. § 1926(b) and that defendant Erie County Board of County Commissioners ("Board") has violated that right by constructing water lines and providing service in the territory. This court has jurisdiction over this dispute pursuant to 28 U.S.C. § 1331.
Pending are the parties' cross motions for preliminary injunction. For the following reasons, plaintiff's motion shall be denied and defendant's motion shall be granted.
BACKGROUND
Plaintiff is a rural water district and political subdivision created in 1989 pursuant to Ohio Revised Code § 6119.01 et seq. It serves thirteen townships in rural areas of Lorain, Huron, and Erie Counties. Defendant operates and maintains a water and sewer district pursuant to Ohio Revised Code §§ 6117.01 et seq. and 6103.01 et seq. Defendant's water district covers Erie County, with the exception of the Cities of Sandusky, Vermillion, and Milan.
It appears, based on the evidence offered at the January 8, 2004 hearing, that both parties have authority under Ohio law to provide water service in the disputed territory. Some of the disputed territory is within plaintiff's district, some is in defendant's district, and some is in areas where the parties' districts overlap. The dispute in the instant case, though, concerns who has a superior right to provide water service given the present circumstances.
In October, 2001, plaintiff applied for a loan from the United States Department of Agriculture, with plans to extend water service to, inter alia, Kelly, Mason, Fox, Camp, and Huron-Avery Roads, which are all in Erie County along what defendant calls the "State Route 250 corridor." (Doc. 32, at 3). Plaintiff received provisional approval for the USDA loan in July, 2002, and drew the first funds on that loan on August 23, 2002.
The State Route 250 corridor is of particular interest to both parties because State Route 250 is the main road leading from the Ohio Turnpike to Cedar Point, a popular amusement park and tourist destination. Accordingly, areas proximate to State Route 250 are targeted for commercial and residential development.
At the same time that plaintiff applied for the USDA loan, defendant was developing plans to extend water service to the same areas as part of a larger project, conceived in late 2000 and early 2001, to expand water service throughout Erie County. Defendant explains that its project was implemented both to facilitate commercial development, especially along State Route 250, and to respond to the concerns and needs of rural residents whose water sources (wells) were inadequate.
Defendant consulted with plaintiff and others before it began construction of water lines in these areas. During these discussions plaintiff made clear that it opposed defendant's plan to build water lines in the disputed territory. Defendant, however, obtained funding from the State of Ohio to finance its project, which involved installation of water lines in the disputed areas and elsewhere in Erie County. Defendant began construction in the disputed areas in March, 2002.
Defendant defends its decision to proceed with construction despite plaintiff's objections by explaining that water quality in the disputed territory was poor and residents had long requested service. Defendant also insists that it needed to fulfill its responsibility as the "elected body responsible for providing necessary public services and planning for future economic growth." (Doc. 32, at 14).
The future economic growth defendant anticipates includes plans, which currently are being pursued with private developers, to construct a large water park, convention center, and residential area known as the "Kalahari Project." (Doc. 32, at 7). Defendant claims that this project, and others like it that may be built in the future in State Route 250 corridor, require high-capacity water lines. Defendant contends that plaintiff's system is not intended or designed to provide such high-capacity water lines, which are essential, inter alia, for fire protection.
Between March and July, 2002, defendant installed water lines of various sizes along Kelly, Mason, Fox, Camp, and Huron-Avery Roads. It estimates it invested approximately one million dollars to install these lines.
Plaintiff claims that defendant's construction of these lines and subsequent provision of water service to customers along the disputed roads violates its rights under a federal statute, 7 U.S.C. § 1926(b), which extends certain protections to rural water districts, like the plaintiff, that have received loans from the USDA. Plaintiff alleges that its indebtedness to the USDA gave rise to an exclusive right to provide water service to customers in the disputed territory. Thus, plaintiff argues, defendant's extension of water service into those areas violates that exclusive right.
Plaintiff requests both an injunction prohibiting defendant from signing up any more customers in the disputed area and an order requiring defendant to forfeit its installed water lines to plaintiff for reasonable reimbursement of costs.
Defendant alleges that § 1926(b) does not apply to plaintiff and therefore does not provide plaintiff exclusive rights in the disputed area. Defendant argues that because plaintiff became indebted to the USDA on August 23, 2002, which was after defendant completed construction of its water lines in the disputed area, § 1926(b) does not apply to grant plaintiff the exclusive right it asserts. Additionally, defendant alleges that plaintiff had not provided or made service available in the disputed area, as is required for plaintiff to assert rights under § 1926(b). Defendant, therefore, requests a preliminary injunction stopping plaintiff from constructing water lines in areas of Erie County where defendant already provides water service.
STANDARD OF REVIEW
The purpose of a preliminary injunction is to determine whether sufficient evidence supports preliminary equitable relief. See Adams v. Federal Express Corp., 547 F.2d 319 (6th Cir. 1976). In deciding whether to issue a preliminary injunction, a district court must consider:
(1) whether the moving party has a strong likelihood of success on the merits; (2) whether the moving party will suffer irreparable injury without the injunction; (3) whether the issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by issuance of the injunction.National Hockey League Players' Ass'n v. Plymouth Whalers Hockey Club, 325 F.3d 712, 717 (6th Cir. 2003) (citing Nightclubs, Inc. v. City of Paducah, 202 F.3d 884, 888 (6th Cir. 2000)).
These four considerations are factors to be balanced, not prerequisites that must be met. Id. (citing In re DeLorean Motor Co., 755 F.2d 1223, 1229 (6th Cir. 1985)). A district court is not required to make findings concerning each of the four factors if fewer factors are determinative of the issue. Id.
DISCUSSION A. The Parties' Likelihood of Success on the Merits
Plaintiff bases its claim to an exclusive right to provide water service in the disputed territory on 7 U.S.C. § 1926(b), which states: "The service provided or made available through any [rural water district] 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." The Sixth Circuit has explained that § 1926(b) grants exclusive rights to rural water districts, like plaintiff, only when the party asserting such protection can establish: "(1) it is an `association' within the meaning of the Act; (2) it has a qualifying outstanding Farmers Home Administration loan obligation; and (3) it has provided or made service available in the disputed area." Lexington-South Elkhorn Water Dist. v. City of Wilmore, 93 F.3d 230, 234 (6th Cir. 1996).It is undisputed that plaintiff is an "association" for the purposes of § 1926(b) with an outstanding qualifying USDA loan. The parties, however, dispute whether plaintiff had the USDA loan when defendant allegedly committed the acts that plaintiff claims violated its rights under § 1926(b).
Plaintiff alleges that defendant's signing up new customers (not its construction of water lines) triggers plaintiff's § 1926(b) protection. Because seventeen of the twenty customers defendant serves with the disputed water lines were signed up after plaintiff received its first disbursement of money from its USDA loan, plaintiff argues that those acts violate § 1926(b).
Defendant asserts that construction of lines is the determinative event. If so, plaintiff cannot meet the second Lexington-South Elkhorn requirement because defendant had finished installing its lines about a month before plaintiff drew any money on its loan.
To support its argument, plaintiff cites the Sixth Circuit's explanation in Lexington-South Elkhorn that "water lines must either be within or adjacent to the property claimed to be protected by Section 1926(b) prior to the time an allegedly encroaching association begins providing service in order to be eligible for Section 1926(b) protection." Id. at 237 (emphasis added). Although the phrase "begins providing service" is somewhat ambiguous and may suggest that the operative act is, as plaintiff argues, the provision of service, not the installation of water lines, plaintiff's likelihood of success on the merits on the application of § 1926(b) is still very low. The citation plaintiff relies on establishes that the party claiming § 1926(b) protection must show that it either had water lines installed in or adjacent to the disputed areas when the allegedly infringing acts occurred.
Thus, regardless of whether defendant's installation of water lines or its provision of water service to customers was the alleged infringing act, plaintiff has only shown that it has lines in areas surrounding the disputed territory, not within or adjacent to the specific areas at issue. To be sure, plaintiff has shown that it plans to provide service in the disputed areas, and claims it could install lines in those areas within a few days. But the desire, even when coupled with the ability to install lines, is simply not sufficient to come within § 1926(b). See Le-Ax Water Dist. v. City of Athens, 346 F.3d 701, 706 (6th Cir. 2003) (explaining that if a rural water district association does not already have service in existence in the disputed area, it must 1) have water lines within or adjacent to the disputed territory and 2) have a legal right to provide service to that territory to claim exclusivity under § 1926(b)) (citing Lexington-South Elkhorn, 93 F.3d at 235-36); see also Scioto County Reg'l Water Dist. v. Scioto Water, Inc., No. C-1-95-204, 1997 WL 706478 at *3 (S.D. Ohio 1997) (because water district did not have water lines in or adjacent to the disputed area, it could not prevail on its § 1926(b) claim).
It is telling that, in Plaintiff's Brief in Response to Defendant's Post-Hearing Brief, plaintiff cites the third Lexington-South Elkhorn requirement, which is written in past tense ("has provided or made service available") and then, in its discussion of the requirement, states that "NORW is able to provide or make service available to the areas in dispute" using the future tense of the same verbs. (Doc. 33, at 1-2). Although plaintiff tries to change the meaning of the requirement by altering the verb tense, its attempt only further demonstrates that plaintiff simply has not met the requirement and does not qualify for § 1926(b) protection in this case.
Thus, it is not likely that plaintiff will succeed on the issue of whether it has provided or made service available in the disputed area, as that requirement has been interpreted by the Sixth Circuit.
Moreover, although plaintiff has authority under Ohio law to provide service in most, if not all, the disputed areas, defendant established at the hearing that plaintiff has not procured necessary easements from adjacent property owners to begin construction of water lines in the disputed areas. (Tr. at 81-84, 106). Plaintiff, therefore, has no present legal right or lawful ability to install water lines in the disputed areas. See Le-Ax, 346 F.3d at 706. Nor does it seem likely that it will overcome this impediment within the near future, in view of the refusal of many property owners to grant easements.
Plaintiff simply was not and is not able to provide water service in the disputed areas, and, therefore, has no reasonable expectation of success on this issue. Compare Le-Ax, 346 F.3d at 707 (noting that the water district had both the legal right to serve the disputed area and had lines adjacent to the property; therefore, it established that it had provided or made service available in the area) with Lexington-South Elkhorn, 93 F.3d at 235-36 (noting that the water district did not have water lines in or adjacent to the disputed area and did not have necessary permits to install water lines; therefore, § 1926(b) did not apply).
Because plaintiff has little likelihood of success on its claim for § 1926(b) protection, Ohio law governs this lawsuit. Defendant argues that the dispute should be resolved with a balancing test articulated by the Ohio Supreme Court in Delaware County Bd. of Commrs. v. City of Columbus, 26 Ohio St.3d 179, 181 (1986):
`The police power and the power of local self-government are constitutional grants of authority equal in dignity.'. . . In such instance, `the judiciary must ultimately determine the facts in such controversies, balance the rights of the county against those of the municipality and endeavor to protect the respective interests of each.'Id. (quoting City of Columbus v. Teater, 53 Ohio St.2d 253, 257 (1978)).
Although, as plaintiff points out, the balancing test was meant to apply to disputes between counties and municipalities, this test is also useful in resolving disputes between two other entities having authority under law to provide water service in a disputed area. Plaintiff suggests that, because it is a rural water district organized under O.R.C. § 6119.01 et seq., not a municipality with state-delegated police power, the only source of law for resolving the instant dispute is the March 31, 1989 Journal Entry Final Order establishing plaintiff's water district. Plaintiff claims that the Journal Entry gave it exclusive authority to provide water service in its designated territory.
I am persuaded that the balancing test defendant advocates is the proper state law basis for resolving this dispute. The March 31, 1989 Journal Entry does not address resolution of disputes between plaintiff and other authorities claiming a right to provide service within plaintiff's territory. It is entirely appropriate to apply the Supreme Court's balancing test.
Applying this test, I conclude that defendant has a strong likelihood of success on the merits.
Defendant has already expended almost a million dollars to construct water lines in the disputed areas as part of a larger project to provide water service to Erie County residents who had inadequate individual water supplies. Defendant currently provides service to at least twenty customers. Plaintiff has shown that it had plans to expand service to the disputed areas, but has neither obtained the necessary easements nor begun construction in those areas. That the defendant has invested more in and proceeded further with its project tips the balance in its favor, making its likelihood of success much stronger than plaintiffs. See, e.g., Bd. of Commrs. of Ottawa County v. Village of Marblehead, 102 Ohio App.3d 306, 314 (1995) (relying on the fact that the county water district had already expended substantial funds to develop a "master plan" for a water system, while the municipal water district had not and was simply endeavoring to preserve its rights, to hold that the county's authority outweighed the city's under the balancing test).
Thus, defendant has demonstrated a substantial likelihood of success on the merits on both the federal and state law issues in this case.
B. Irreparable Injury and Harm to Others
Both parties have Ohio statutory authority to provide water service in the disputed areas. Defendant, however, constructed its water lines in those areas first, and is currently supplying water to at least twenty customers in those areas. It appears that defendant and Erie County residents and businesses will suffer considerable harm if plaintiff prevails. Concomitantly, it does not appear that plaintiff will be irreparably injured by issuance of defendant's requested injunction.
Defendant claims that it needs the revenues from its customers to repay the Ohio Water Development Authority loan which financed the lines in the disputed areas. Allowing plaintiff to install additional lines and provided service in the disputed areas will cause serious financial harm to defendant.
Plaintiff suggests that this harm can be mitigated by having it acquire the lines from the defendant for reasonable compensation. This court cannot grant such extraordinary relief, however, absent compelling reasons to do so. Those reasons are not present in the instant case, given plaintiff's unlikelihood of success on the merits.
Defendant also argues, quite convincingly, that granting plaintiff exclusive rights to provide water service in the disputed areas will adversely affect development along the State Route 250 corridor. Defendant contends that plaintiff, even if it were to install lines to that project, would not have the capacity to meet requirements for fire protection — which would mean that the development could not go forward. Defendant's arguments in support of this contention are more persuasive than plaintiff's assertions that it could, in time, provide service of sufficient capacity to meet the commercial, recreational, and residential development that is planned in the area. Despite plaintiff's claims that it could meet those demands, its raisond'etre and primary business have been to provide water service to rural homes that otherwise would have to rely on wells for their water supplies. This is a publicly useful, and possibly essential objective — but it is not the same as meeting the water needs of large commercial entities or residential subdivisions.
Defendant has, therefore, shown that an order denying injunctive relief to it while granting such relief to the plaintiff would very likely cause irreparable harm to the County, its residents, and businesses.
Plaintiff claims that failure to grant it the injunction and equitable relief it requests will cause it irreparable financial damage. Plaintiff's general manager testified that plaintiff's overall financial picture would be harmed were it unable to provide service in the disputed areas. This contention appears to be based primarily on plaintiff's fear that its failure to obtain relief in this case would be an inducement to defendant and others to construct water lines in plaintiff's district. Plaintiff has not, however, presented specific evidence of actual, present financial harm from defendant's request for limited injunctive relief relating to the disputed areas in which it already provides service. Granting relief under the circumstances of this case does not mean that plaintiff's right to provide service to other areas will be left unprotected.
Plaintiff has likewise not shown that any of its customers or others will be harmed by failure to grant its requested relief or by granting defendant's requested injunction. Thus, on balance, the issue of irreparable harm favors the defendant.
C. Public Interest
Defendant has shown that many of the rural residents of Erie County have for a long time had inadequate and unsanitary water sources. Defendant and plaintiff have both done important and necessary work to provide service to those residents. It is unfortunate for the residents and businesses of Erie County that the parties could not work together to agree on a solution to this dispute. At this point, the public interest is better served by allowing the customers being served by the defendant to continue to benefit from that service without interruption or disruption.
Moreover, defendant is a board of representatives elected to serve the best interests of the people of Erie County, and defendant has decided that it is in the public's interest to promote development for additional tourist destinations and commercial and residential construction in the disputed areas and elsewhere in Erie County. Defendant has provided evidence that granting its requested injunction will further those objectives, and benefit the public.
Plaintiff simply contends that it can serve the public as well if allowed to fulfill its mandate. On balance, I find that the public interest favors the defendant.
CONCLUSION
Plaintiff has failed to establish that its requested injunction is supported by any of the four considerations the court weighs in deciding whether to grant injunctive relief. Defendant, on the other hand, has presented evidence that supports its request for a preliminary injunction.
In light of the foregoing, it is hereby
ORDERED THAT
1) Plaintiff Northern Ohio Rural Water's motion for preliminary injunction be, and the same hereby is denied; and
2) Defendant Erie County Board of County Commissioners' motion for preliminary injunction be, and the same hereby is granted. Plaintiff is hereby prohibited from installing any additional water lines or providing new water service in the disputed areas where there is existing water service provided by defendant.
So ordered.