Rural Water Dist. No. 4 v. City of Eudora, Kan.

FILED
United States Court of Appeals
Tenth Circuit

September 26, 2011
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

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

Plaintiff-Appellee/
Cross-Appellant,

v. Nos. 09-3282 & 09-3299

CITY OF EUDORA, KANSAS,

Defendant-Appellant/
Cross-Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF KANSAS
(No. 2:07-CV-02463-JAR)

Curtis Tideman (David Frye and Jeffrey R. King with him on the briefs), of
Lathrop & Gage LLP, Overland Park, Kansas, for Defendant-Appellant/Cross-
Appellee.

Steven M. Harris of Doyle Harris Davis & Haughey, Tulsa, Oklahoma (Michael
D. Davis of Doyle Harris Davis & Haughey; John W. Nitcher of Riling Burkhead
& Nitcher, Lawrence, Kansas, with him on the briefs) for Plaintiff-
Appellee/Cross-Appellant.

Before TYMKOVICH, McKAY, and GORSUCH, Circuit Judges.

McKAY, Circuit Judge.
 This appeal arises out of a dispute between a city and a rural water district

over their rights to serve customers in several recently annexed areas of Douglas

County, Kansas. Rural Water District No. 4 (“Douglas-4” or “the District”)

brought this suit against the city of Eudora under 42 U.S.C. § 1983, alleging the

City violated Douglas-4’s exclusive right to provide water service to current and

prospective customers in violation of 7 U.S.C. § 1926(b). On appeal, this court is

asked to resolve a host of federal and state legal issues concerning the

competitive relationship between a dueling water district and local municipality.

Finding jurisdiction under 28 U.S.C. § 1291, we affirm in part and reverse in part.

BACKGROUND

The parties are well aware of the facts, which we will not repeat in detail.

In basic form, Douglas-4 was created to provide water service to areas of Douglas

County, Kansas. Its purpose under Kansas law is to provide water to “promote

the public health, convenience and welfare” of the community. See K.S.A. § 82a-

614. Under its own bylaws, Douglas-4 was developed, inter alia, to “acquire

water and water rights and to build and acquire pipelines and other facilities, and

to operate the same for the purpose of furnishing water for domestic, garden,

livestock and other purposes to owners and occupants of land located within the

District, and others as authorized by these By-Laws.” (Appellant’s Add. at 7.)

To further its purpose, it is also authorized to borrow money, secure loans, and

enter into contracts or cooperate with any person or governmental agency. (Id. at

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7-8.)

Beginning in 2000, Douglas-4 developed and then enacted a plan to

increase its service area and effectiveness by purchasing water from a nearby

water district to meet increasing demand from existing and prospective customers,

but it needed to borrow $1.25 million to finance construction of new

infrastructure in order to exploit its new water source. It first secured a loan for

the full amount from the Kansas Department of Health and Environment

(“KDHE”), but upon a recommendation by the District’s administrator, it decided

to obtain part of its financing from a private bank backed by a federal guarantee

from the U.S. Department of Agriculture (“USDA”). Ultimately, Douglas-4

decided to separate its debt into two loans: the first $1 million from the KDHE

and the remaining $250,000 from First State Bank & Trust, a private bank. First

State in turn entered into a guarantee agreement with Rural Development, a

lending branch of the USDA. Douglas-4 does not deny that it pursued the

guaranteed loan specifically for the added benefit of § 1926(b) protection, despite

the additional costs to the District in the form of higher closing fees and interest

rates.

In 2006, the city of Eudora, which also provides water service within its

boundaries, annexed several areas around the southern edge of its city limits:

Fairfield Addition (also known as the “Garber Property”), Meadow Lark Property,

Grinnell Property, and Kurtz Addition. From May to September 2007, both

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Douglas-4 and Eudora repeatedly contacted the Fairfield Addition’s owner, Doug

Garber, to discuss his water needs. After the City’s annexation, Douglas-4

notified Mr. Garber it possessed the exclusive right to provide water service to his

property. It also exchanged correspondence with Mr. Garber regarding cost

estimates and a timeline to begin water service. For its part, Eudora informed Mr.

Garber it knew he intended to obtain water from Douglas-4 but it was still willing

to work with him to provide water service. Eudora also informed Mr. Garber that

it might de-annex his property should he refuse its water service.

Leading up to and during this same period, the parties communicated

extensively with each other. From 2004 to mid-2007, Douglas-4 and Eudora

engaged in a series of discussions regarding changes to both parties’ territories as

a result of the City’s annexations. The parties held what would ultimately result

in failed negotiations for a repurchase plan, to ensure that Douglas-4 could remain

financially viable as Eudora annexed portions of Douglas-4’s service area and

began serving water to Douglas-4’s customers.

Once the Garber property was annexed and Douglas-4 began speaking to

Mr. Garber about water service, Douglas-4 notified Eudora that attempts by the

City to provide water to the Garber property would violate the District’s right to

protection under § 1926(b). However, Eudora sought to continue where the failed

negotiations ended. It notified Douglas-4 that, unless Douglas-4 submitted to an

appraisal to sell its assets to Eudora by the end of September, the City would file

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suit to compel the District’s compliance. Rather than accept the City’s demands,

Douglas-4 filed a complaint with the district court.

During the course of litigation, the district court issued several critical

orders in which it denied both parties’ motions for summary judgment, denied

Eudora’s motions in limine to exclude certain communications by City officials

regarding attempts to provide water service to the affected areas, and rejected

proposed jury instructions submitted by both parties. At the conclusion of a ten-

day trial, the case was submitted to the jury by way of special interrogatories.

The jury found that Douglas-4 had obtained § 1926(b) protection and Eudora had

violated § 1926(b) in each of the disputed areas. 1 The district court then enjoined

Eudora from serving or limiting Douglas-4’s service to these areas. Eudora’s

appeal and Douglas-4’s cross-appeal followed.

DISCUSSION

“Where a jury instruction is legally erroneous, we must reverse if the jury

might have based its verdict on the erroneously given instruction.” City of

1
According to the verdict form, the jury first answered “yes” to the general
question of whether Douglas-4 had the power under Kansas law to cooperate with
and enter into agreements with the federal government. It then determined for
each affected property that Douglas-4 made water service available and that
Eudora had limited or curtailed Douglas-4’s water service. The jury also entered
for each property the amount of damages. Specifically, the jury determined that
$23,500.00 in damages arose from the Garber property and $1.00 in nominal
damages arose from each of the three other properties. (See Appellant’s App. at
1666-1669.)

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Wichita, Kan. v. U.S. Gypsum Co., 72 F.3d 1491, 1495 (10th Cir. 1996). We

therefore review de novo whether the district court’s jury instructions correctly

stated the governing law. See United States v. Platte, 401 F.3d 1176, 1183 (10th

Cir. 2005); Cann v. Ford Motor Co., 658 F.2d 54, 58 (2d Cir. 1981) (“We will

reverse a judgment entered upon answers to questions . . . which inaccurately

frame the issues to be resolved by the jury.”). We review evidentiary rulings for

abuse of discretion and will not reverse unless the challenging party shows that

the ruling was “based on a clearly erroneous finding of fact or an erroneous

conclusion of law or manifests a clear error of judgment.” Phillips v. Hillcrest

Med. Ctr., 244 F.3d 790, 799 (10th Cir. 2001).

In addition to appealing the district court’s legal conclusions, jury

instructions, and admissions of evidence, Eudora challenges the sufficiency of the

evidence at each step of the § 1926(b) analysis. It was required to renew these

challenges at the close of all the evidence in a motion for judgment as a matter of

law under Rule 50(a) and again after the entry of judgment as a renewed motion

under Rule 50(b). 2 Having failed to file a Rule 50(b) motion, Eudora has waived

2
Eudora claims the district court never entered a final judgment, and thus
the time to file a 50(b) motion has yet to expire. Even if the district court did not
enter a final judgment, we may nevertheless invoke jurisdiction under 28 U.S.C. §
1291. See Bankers Trust Co. v. Mallis, 435 U.S. 381, 386-88 (1978); Burlington
N. R.R. Co. v. Huddleston, 94 F.3d 1413, 1416 n.3 (10th Cir. 1996) (“Because the
district court’s order granted Plaintiff its requested relief and effectively
terminated the action, we may properly exercise appellate jurisdiction over this
(continued...)

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any challenges on appeal to the sufficiency of the evidence, see Unitherm Food

Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 404 (2006), including challenges to

any decisions at summary judgment where the facts were in dispute, see

Haberman v. Hartford Ins. Gr., 443 F.3d 1257, 1264 (10th Cir. 2006). However,

it may still challenge the district court’s decisions pertaining to issues of law, see

Wilson v. Union Pac. R.R., 56 F.3d 1226, 1229 (10th Cir. 1995), jury instructions,

see Kelley v. City of Albuquerque, 542 F.3d 802, 818-20 (10th Cir. 2008), and the

admission of evidence, see Fed. R. Evid. 103(a).

This court has thoroughly reviewed the history and purpose of 7 U.S.C. §

1926(b) in several recent opinions, and we need not repeat it again here. See,

e.g., Rural Water Sewer & Solid Waste Mgmt. v. City of Guthrie, Nos. 08-6003 &

08-6066, 2011 WL 3000591 (10th Cir. July 25, 2011); Pittsburg Cnty. Rural

Water Dist. No. 7 v. City of McAlester, 358 F.3d 694 (10th Cir. 2004); Rural

Water Dist. No. 1 v. City of Wilson, Kan., 243 F.3d 1263 (10th Cir. 2001);

Sequoyah Cnty. Rural Water Dist. No. 7 v. Town of Muldrow, 191 F.3d 1192

(10th Cir. 1999); Glenpool Util. Servs. Auth. v. Creek Cnty. Rural Water Dist. No.

2, 861 F.2d 1211 (10th Cir. 1988). For a water district indebted by a qualifying

loan to the federal government,

2
(...continued)
appeal under § 1291.”). However, given the absence of a 50(b) motion, Eudora is
still unable to challenge the sufficiency of the evidence.

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 [t]he service provided or made available through any such 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, or by the granting of any private franchise for
similar service within such area during the term of such loan.

7 U.S.C. § 1926(b). To receive this protection, a water district must have both a

continuing indebtedness to the USDA 3 and have provided or made available

service to the disputed area. See Pittsburg Cnty., 358 F.3d at 713. “Doubts about

whether a water association is entitled to protection from competition under §

1926(b) should be resolved in favor of the [USDA]-indebted party seeking

protection for its territory.” 4 Sequoyah Cnty., 191 F.3d at 1197. If the water

district is entitled to protection, it then must prove that its services were curtailed

or limited by the competing entity. See Pittsburg Cnty., 358 F.3d at 716.

We now turn to the first element of § 1926(b): Douglas-4’s qualifying

indebtedness.

A. Douglas-4’s cooperation to secure a USDA loan guarantee may qualify it
as an indebted association under § 1926(b), but only if its cooperation was
necessary to carry out its organizational purpose.

3
The USDA has operated the loan and guarantee program since 1994. See
Pittsburg Cnty., 358 F.3d at 701 n.1; United States Dept. Of Agriculture, Rural
Development Loan Assistance, www.rurdev.usda.gov/RD_Loans.html (last visited
Aug. 15, 2011).
4
This presumption does not mean, as Douglas-4 claims, that all doubts and
evidentiary uncertainties must be resolved in favor of the indebted water district
or that the City must meet a “clear and convincing” standard on every issue for
which it carries the burden of proof. Rather, we simply note that “[e]very federal
court to have interpreted § 1926(b) has concluded that the statute should be
liberally interpreted.” Sequoyah Cnty., 191 F.3d at 1197 (emphasis added).

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 1. Federal and State Law empower Douglas-4 to cooperate for and accept
the benefits of a federal guarantee.

To obtain protection, a water district must first show it has a qualifying,

continued indebtedness to the federal government, as the water district is

protected only “during the term of such loan.” 7 U.S.C. § 1926(b). Under

Section 1926(a), “such loans” include loans the government makes or insures, see

id. § 1926(a)(1), and loans the government guarantees, see id. § 1926(a)(24).

Therefore, under § 1926(b), the federal guarantee of Douglas-4’s private loan may

be considered one “such loan” for purposes of meeting the requirements of §

1926(b).

In addition to meeting the requirements set forth in § 1926(b), a water

district’s qualifying action (i.e. assumption of the qualifying loan or guarantee)

must also fall within its enumerated powers under state law. As a quasi-

municipal corporation, see Dedeke v. Rural Water Dist. No. 5, 623 P.2d 1324,

1331 (Kan. 1981), a rural water district possesses only those powers given to it by

law or as may necessarily be implied to give effect to powers specifically granted,

see Wiggins v. Hous. Auth. of Kansas City, 916 P.2d 718, 720 (Kan. Ct. App.

1996); Hous. Auth. of Kaw Tribe of Indians of Okla. v. City of Ponca City, 952

F.2d 1183, 1192 (10th Cir. 1991) (“Since political subdivisions are creatures of

the state, they possess no rights independent of those expressly provided to them

by the state.”). Indeed, “any reasonable doubt as to the existence of a particular

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power must be resolved against its existence.” Wiggins, 916 P.2d at 721. The

state, by limiting a rural water district’s powers, is “ultimately free to reject both

the conditions and the funding [of federal loans], no matter how hard that choice

may be.” Pittsburg Cnty., 358 F.3d at 718.

Turning then to K.S.A. § 82a-619, the statute that enumerates a rural water

district’s powers, there is only one clause under which Douglas-4 may claim

authority to accept a federal loan guarantee. Specifically, Douglas-4 may

“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.” 5 K.S.A. § 82a-619(g).

Thus, Douglas-4 must have either cooperated or entered into an agreement with

the USDA, and this cooperation or agreement must be necessary to carry out the

purposes of its organization.

5
Douglas-4 claims it is also empowered 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,” and that this authority does not require that the aid be
“necessary” in any form. See K.S.A. § 82a-619(g). However, this clause only
applies to financial aid provided under the specific federal statutes listed “and
amendments thereto.” The enumerated statutes, first enacted in 1937, were
repealed by the Consolidated Farmers Home Administration Act of 1961 and are
of no use to Douglas-4. Nor do we consider Congress’s repeal of § 590r et seq.
and replacement with a radically different statutory scheme in § 1926 an
amendment to the repealed sections. Compare 7 U.S.C. § 1926(b) (providing
annexation protection for qualifying loans), with 16 U.S.C. § 590x-3 (no
protection from annexation).

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 Here, although the guarantee agreement was between the USDA and First

State Bank, Douglas-4 was the entity that sought the guarantee and hoped to

benefit from it. Rural Development, a funding component of the USDA, provided

Douglas-4 with a “Conditional Commitment for Guarantee,” which outlined the

terms and conditions of the guarantee, and Douglas-4 then signed and returned the

Commitment documents to Rural Development. This interaction between

Douglas-4 and the USDA may qualify as “cooperation” under K.S.A. § 82a-

619(g), but the cooperation must be necessary to carry out a purpose of Douglas-

4’s organization. And in this case, if Douglas-4’s cooperation is to be necessary,

the guarantee itself must too be necessary.

The district court determined that, in its view, “the guarantee [was] just a

piece of” the loan and was not something for which Douglas-4 contracted.

(Appellant’s App. at 3417). It therefore considered the guarantee and the loan to

be “one and the same.” (Id. at 3402.) Based on this conclusion, it directed the

jury at the close of trial to determine whether “the loan guaranteed by [the]

Federal Government was necessary.” (Id. at 1648 (emphasis added).)

By allowing the jury to consider the loan as a trigger for Douglas-4’s

indebtedness, the district court shifted the focus of the jury’s inquiry away from

the actual subject matter of the cooperation, i.e., the guarantee. Yet while the

loan and the guarantee are certainly related, they are not one and the same. A

loan may be pursued either with or without a guarantee. Each may be contracted

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for with or without government assistance. Each has its own unique purpose.

Generally, a loan functions as a source of funds, see USDA Rural Development,

Water and Waste Disposal Direct Loans and Grants, www.rurdev.usda.gov/UWP-

dispdirectloansgrants.htm (last visited Aug. 15, 2011), whereas a guarantee serves

to bolster an organization’s existing credit, see USDA Rural Development, Water

and Waste Disposal Guaranteed Loans, www.rurdev.usda.gov/UWP-

dispguaranteedloan.htm (last visited Aug. 15, 2011).

Although each has its own purpose and must be analyzed independently,

without a loan there is nothing to guarantee. Thus, for a guarantee to be

necessary the underlying loan must also be necessary. The converse, however, is

not always true: not every loan gives rise to a guarantee. Therefore, even if the

parties would agree that the loan was necessary to carry out the purposes of

Douglas-4’s organization, Douglas-4 must still 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.

2. Douglas-4’s cooperation must relate to one of its purposes for the
cooperation to be necessary.

Douglas-4 and Eudora also disagree over what exactly constitutes a

“necessary” cooperation or agreement under Kansas law, with both parties

challenging the district court’s jury instruction on the matter. Instruction No. 17

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first stated that the guaranteed loan must be:

necessary for: (1) an operational purpose identified under Kansas law
and Douglas-4’s bylaws; (2) a business purpose identified under
Kansas law and Douglas-4’s bylaws; or (3) protecting Douglas-4
from impairment of its ability to fulfill an operational or business
purposes [sic] identified under Kansas law and Douglas-4’s bylaws.

The term “necessary” does not mean there must be showing of
absolute need.

(Appellant’s App. at 1648.) The instruction then listed for the jury Douglas-4’s

purposes under Kansas law and its own bylaws. Last, the instruction informed the

jury:

Douglas-4 did not have the power under Kansas law to cooperate
with and enter into agreements with the Federal Government for the
sole purpose of securing federal protection under 7 U.S.C. § 1926(b).
If obtaining federal protection under 7 U.S.C. § 1926(b) was
Douglas-4’s only purpose for cooperating with and/or entering into
agreement with the Federal Government, you must enter judgment in
favor of Eudora.

(Id. at 1649.)

Douglas-4 argues that the Kansas legislature left the determination of

necessity to the discretion of the acting water district, and that the burden of

proof is upon the party challenging the water district’s exercise of discretion to

establish that the district’s decision was the result of fraud, bad faith, or abuse of

discretion. See, e.g., Steele v. Mo. Pac. R.R. Co., 659 P.2d 217, 222 (Kan. 1983)

(applying a “reasonable discretion” standard to determine the necessity of a

railroad’s exercise of eminent domain). Eudora in turn argues that Kansas’s

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statutory scheme does not permit Douglas-4 to claim that monopoly

protection—or the strength of its business that would result from such

protection—is necessary to its organization. Nor, it claims, does any statute grant

Douglas-4 reasonable discretion or a presumption to determine for itself whether

a loan or guarantee is necessary.

The legislature did not further define in K.S.A. § 82a-619 the meaning of

“necessary to carry out the purposes of [a water district’s] organization.”

However, parallel language exists, at least in part, across Chapter 82a. Other than

two similar occurrences within § 619(e) and § 619(h), the only identically worded

limitation in Chapter 82a is found in § 606, which authorizes rural water supply

districts to “construct, install, maintain and operate such dams, wells and other

works and such appurtenant structures and equipment as may be necessary to

carry out the purposes of its organization.” 6 But while the Kansas legislature

limited rural water and water supply districts’ exercise of some powers to those

actions necessary to the purposes of their organizations, it expressly granted

discretionary power in other circumstances. See K.S.A. § 82a-610 (authorizing a

water supply district board to levy maintenance fees of “such amount as in its

judgment is necessary to properly maintain and operate such works”); id. § 82a-

644 (authorizing water district boards to change the bylaws of consolidated

6
The same language can also be found outside of Section 82a in K.S.A. §
19-3531 and § 80-1618.

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districts “as the directors shall deem necessary”); id. § 82a-1028 (authorizing

groundwater management districts to buy and sell water and property rights that,

“in the opinion of the board, [are] deemed necessary or convenient”). Other

sections employ different language that may at first appear restrictive, but would

likely result in a similar grant of discretion. See, e.g., id. § 82a-618 (directing

rural water district boards to adopt rules and regulations “as are deemed necessary

for the conduct of the business of the district”). Yet, other sections grant express

discretionary authority to the state rather than to the district. See, e.g., id. § 82a-

1022 (authorizing the chief engineer of Kansas’s Division of Water Resources to

“make any necessary modifications” to a proposed water district map “so that, in

the opinion of the chief engineer, a manageable area will result”).

Douglas-4 asks this court to view the question of necessity with the same

level of deference given under Kansas law to decisions made by public utilities,

for, as Douglas-4 points out, “[i]n law and in fact, a rural water district exercises

the powers of a public utility.” Dedeke, 623 P.2d at 1331. If the deference given

to utilities broadly applied to all water-district actions, then presumably Douglas-

4 could simply assert any reasonable excuse to justify taking out the private loan.

Cf. Schuck v. Rural Tel. Serv. Co., 180 P.3d 571, 576-78 (Kan. 2008) (holding

that utility company’s exercise of eminent domain was “necessary to [its] lawful

corporate purpose” where it unintentionally installed a cable outside of a pre-

existing easement and then asserted after the fact that placing the cable along the

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easement would have caused a service interruption).

However, the cases under which the Kansas Supreme Court has favorably

compared a water district’s powers to those of a public utility appear limited to

the realm of eminent domain. Nor is it clear the reasoning underlying a favorable

comparison between public utilities and water districts is even applicable to a

case where a water district seeks some form of federal aid to protect it from

market competition. For example, in General Communications System, Inc. v.

State Corp. Commission, 532 P.2d 1341, 1348 (Kan. 1975), the Kansas Supreme

Court held that, for the issuance of public utility certificates, “necessity does not

necessarily mean there must be a showing of absolute need,” but rather that “the

word ‘necessity’ means a public need without which the public is inconvenienced

to the extent of being handicapped.” It is unclear how this use of the word

“necessity” for a “public need” would apply by analogy to the exercise of powers

reserved to water districts for at least the incidental benefit of protection from

competition. Furthermore, we are reminded that under Kansas law, any

reasonable doubt as to the existence of a water district’s power must be resolved

against its existence.

Douglas-4’s decision to seek out a federal guarantee must therefore be

justified by more than the incidental monopoly protections afforded by § 1926(b);

the guarantee must further at least one of the District’s purposes as a rural water

service provider as provided in its charter, bylaws, or enacting statutes.

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Protection from competition does not suffice. Nor can Douglas-4 justify its

cooperation by appealing to the abstract goals of maintaining its corporate

existence, profits, or integrity without some direct association to an enumerated

purpose under its charter, bylaws, or relevant statutes.

This does not mean that Douglas-4’s cooperation with the USDA must be

“absolutely necessary,” i.e., that it could not receive financing without the

guarantee. Nor must Douglas-4 prove that a guarantee was the only or even the

cheapest course of action available. Additionally, nothing within § 82a-619, or

any other section governing water districts, prohibits a water district from

benefitting from the protections of § 1926(b) so long as its triggering cooperation

or acceptance of aid furthered a purpose of its organization.

To conclude, because the jury instructions incorrectly framed the necessity

issue, we must reverse, vacate the judgment, and remand for a new trial for the

limited purpose of determining whether Douglas-4’s cooperation to secure the

federal guarantee was necessary for the purposes of its organization. 7

7
It is appropriate for the trial court to limit retrial here only to the issue of
necessity. “A principal advantage of using a special rather than a general verdict
is that an error may only affect a few of the trial court’s findings, thus limiting a
new trial or vacatur of the judgment to the issues covered by the tainted findings.”
United States v. Ofchinick, 883 F.2d 1172, 1180 (3rd Cir. 1989); see generally
David A. Lombardero, Do Special Verdicts Improve The Structure of Jury
Decision-Making?, 36 Jurimetrics J. 275, 277-78 (1996) (observing that special
verdicts facilitate appellate review and “may promote judicial economy by
limiting the issues in a possible retrial”).

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B. The district court’s decisions and portions of the jury verdict pertaining
to the “made services available” prong are affirmed.

To receive the protections afforded by § 1926(b), Douglas-4 must also

establish it “made services available” to the affected areas “prior to the time an

allegedly encroaching association began providing service.” Sequoyah Cnty., 191

F.3d at 1202 (internal brackets and quotation marks omitted). “In order to

determine whether a water association has made service available, the focus is

primarily on whether the water association has in fact made service available, i.e.,

on whether the association has proximate and adequate ‘pipes in the ground’ with

which it has served or can serve the disputed customers within a reasonable time.”

Rural Water Dist. No. 1, 243 F.3d at 1270 (internal quotation marks omitted). To

meet this test, the water district must demonstrate that “it has adequate facilities

within or adjacent to the area to provide service to the area within a reasonable

time after a request for service is made.” Id.

The parties dispute several issues of law pertaining to the “made services

available” prong, discussed below.

1. The burden of proving unreasonable, excessive, and confiscatory costs
rests with Eudora.

The parties first disagree over whether Eudora must prove that Douglas-4’s

costs of services are unreasonable, excessive, and confiscatory, or whether

Douglas-4 must prove the counterfactual.

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 Even where a rural water district meets the “pipes in the ground” test, “the

cost of [its] services may be so excessive that it has not made those services

‘available’ under § 1926(b).” Id. at 1271. The water district’s costs of service

need not be competitive with the costs of services provided by other entities,

including municipalities, but “the protection granted . . . by § 1926(b) should not

be construed so broadly as to authorize the imposition of any level of costs.” Id.

Thus, costs may not be unreasonable, excessive, and confiscatory. See id.

Although a determination of the reasonableness of costs is based on the totality of

the circumstances, we have also identified four non-exclusive factors from Kansas

law which help guide the factfinder in its determination: “(1) whether the

challenged practice allows the district to yield more than a fair profit; (2) whether

the practice establishes a rate that is disproportionate to the services rendered; (3)

whether other, similarly situated districts do not follow the practice; (4) whether

the practice establishes an arbitrary classification between various users.” Id.

Eudora argues that Douglas-4 carries the burden of proving that its costs

are not unreasonable, excessive, and confiscatory because the question of costs

falls under the broader “made services available” prong, which the water district

generally must establish. However, we have previously held that even if the

water district meets the “pipes in the ground” test, then it is up to the defending

city to show that the water district’s rates are unreasonable, excessive, and

confiscatory. See id. at 1272 (“[T]he City should be afforded an opportunity to

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show that Post Rock’s practice was excessive, unreasonable, and confiscatory. If

the City makes such a showing, then the court should conclude that the water

district has not provided or made service available.”) (internal quotation marks

and brackets omitted). This distribution of burdens also aligns our case law with

the decisions of the Kansas Supreme Court. See, e.g., Shawnee Hills Mobile

Homes, Inc. v. Rural Water Dist. No. 6, 537 P.2d 210, 217 (Kan. 1975) (holding

that water rates set by a municipal corporation such as a water district are

generally presumed to be valid and reasonable until the contrary has been

established by the challenging party).

2. The district court properly informed the jury that the cost of fire
protection is relevant to the issue of whether Douglas-4’s costs of service
are unreasonable, excessive and confiscatory.

In its cross-appeal, Douglas-4 challenges the district court’s jury

instruction that the cost of fire protection services may be considered when

determining the reasonableness of its cost of services. Specifically, the court

informed the jury in Instruction No. 20 that:

Water service does not include water service for fire
protection. Thus, to provide or make service available, Douglas-4 is
not required to provide or make water service available for fire
protection.

But, in determining whether Douglas-4’s prices for water
service were unreasonable, excessive, and confiscatory, you may
consider the quality of water service that could be provided by
Douglas-4, including whether and to what extent it could provide
water for fire protection.

-20-
(Appellant’s App. at 1652.) Douglas-4 argues that because it is not required to

provide fire protection any fees it charges to offer fire protection to its customers

are irrelevant.

The District reads too much into this circuit’s case law on fire protection.

It is well established that a water district’s ability to provide water for fire

protection is not a factor the court should analyze when determining whether the

district has made service available. See, e.g., Rural Water Sewer, 2011 WL

3000591 at *6 (reviewing the case law on fire protection and concluding that the

“ability to provide fire protection is simply not relevant to the specific question of

whether [a rural water district] has adequate pipes in the ground to ‘make service

available’ for purposes of the § 1926(b) protection from competition”); Sequoyah

Cnty., 191 F.3d at 1204 n.10 (“[A] water association’s capacity to provide fire

protection is irrelevant to its entitlement to protection from competition under §

1926(b)”) (emphasis added). But in cases where a water district’s fees are at

issue and the fact-finder must—as we have previously held—analyze these costs

under the totality of the circumstances, an inspection of the nature and cost of all

services offered by the water district might very well include an inquiry into costs

associated with fire protection.

Should a water district decide to provide fire-protection services, its pricing

of such services could also bear on several of the factors outlined in Rural Water

-21-
District No. 1. A water district may charge excessive fees for fire protection

where no competing provider exists, or it may charge higher fees for fire

protection only to lowball its fees for residential water. Perhaps it charges a flat

fee for all water service when only some of its customers receive fire protection,

thus providing more benefits to some customers over others. The cost of fire

protection within the district’s broader pricing scheme could allow the district to

yield more than a fair profit, establish a rate that is disproportionate to the

services rendered, or establish an arbitrary classification between various users.

We therefore find no legal error in the district court’s conclusion that fire-

protection services may be considered solely to determine whether Douglas-4’s

prices for water service were unreasonable, excessive, and confiscatory.

Of course, at no time does a water district’s decision to provide or forgo

fire-protection services affect its ability to establish that it has sufficient “pipes in

the ground” to make service available, and it is up to the party challenging the

water district’s § 1926(b) protection to prove that the water district’s costs are

unreasonable, excessive, and confiscatory. Moreover, costs must be examined

individually for each property. See Rural Water Dist. No. 1., 243 F.3d at 1271.

Thus, the relationship between fire-protection services and costs is highly

context-specific.

-22-
 Last, we note that Eudora cannot now debate whether Douglas-4’s costs of

services were in fact unreasonable, excessive, and confiscatory because it has

waived its arguments on the sufficiency of the evidence.

3. Douglas-4 lacks the authority under state law to provide service to the
Church Property.

Douglas-4 also challenges the district court’s dismissal of its claim that

Eudora curtailed Douglas-4’s service to property owned by the First Southern

Baptist Church of Eudora. At issue is whether Douglas-4 may legally serve water

to properties outside its boundaries such that it could plausibly make service

available and therefore claim protection under § 1926(b). We review the district

court’s dismissal of Douglas-4’s claim de novo, see Christy Sports, LLC v. Deer

Valley Resort Co., 555 F.3d 1188, 1191 (10th Cir. 2009), reversing only if

Douglas-4’s complaint states a claim for relief that is plausible on its face, see

Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949 (2009). We do not,

however, accept as true any of Douglas-4’s legal conclusions. See id.

Eudora annexed the church property after the start of this litigation. At no

time was the property within Douglas-4’s geographic boundary. Douglas-4 then

obtained leave to file a supplement to its first amended complaint, alleging §

1926(b) protection from the City’s provision of water service to the church

property. It claimed Eudora violated § 1926(b) by annexing the property and then

offering incentives to the church to obtain water service from it rather than from

-23-
Douglas-4. On the City’s motion to dismiss, the district court concluded that

Kansas law did not authorize Douglas-4 to serve the church property. Viewing

the Kansas statutory scheme in its entirety, the court determined that a water

district only has the legal right to provide service within its boundaries. On

appeal, Douglas-4 challenges the district court’s construction of the relevant

statutes.

As part of a court’s determination that a water district made service

available, it must necessarily evaluate whether the water district possesses the

legal authority to make service available. See Sequoyah Cnty., 191 F.3d at 1201

n.8 (“Without a right to provide service arising from state law, a water association

would be unable to assert its entitlement to protection.”). Kansas law does not

expressly permit or prohibit a rural water district from serving customers outside

of its boundaries. See K.S.A. § 82a-619. However, a review of the statutes

concerning rural water districts reveals a clear association between a water

district’s geographic boundaries and those laws pertaining to its corporate

governance, facilities, and operations. For example, a petition to create a rural

water district must be signed by property owners within the district’s proposed

boundaries and state that lands within the boundaries lack an adequate water

supply. See id. § 82a-614. A water district possesses the express power of

eminent domain only within its boundaries. See id. § 82a-619(a). It may employ

labor “necessary to the proper performance of such work or improvement as is

-24-
proposed to be done within any such district.” Id. § 82a-620 (emphasis added).

To attach lands outside the district, the new landowners must follow procedures

similar to those in § 82a-614: a petition must be signed by owners of the land

within the newly proposed area stating that such lands are without adequate water

supply, see id. § 82a-622, and upon the county’s approval, those landowners are

entitled to subscribe to the water district’s benefit units, see id. § 82a-624.

There is no indication within the statutory scheme of any authority that

suggests water districts may serve customers outside their boundaries. Cf. id. §

82a-621 (permitting “[o]wners of land located within the district who are not

participating members” to subscribe to benefit units) (emphasis added); id. § 82a-

619(f) (authorizing the power to contract with cities or counties to treat

wastewater “within the boundaries of the district”); id. § 82a-625 (authorizing the

power to construct new works “within such district”). Although § 82a-619 does

provide water districts with the general power to “contract” and to “construct,

install, maintain and operate” facilities “necessary to carry out the purposes of its

organization,” the statutory scheme leaves more than a reasonable doubt as to the

existence of the power to provide water service outside of a district’s boundaries.

We thus affirm the court’s dismissal of Douglas-4’s claim on the church property.

C. The district court’s decisions and portions of the jury verdict pertaining
to curtailment or limitation of Douglas-4’s water service are affirmed.

-25-
 We next review the legal grounds upon which the district court based its

conclusion that Eudora curtailed or limited Douglas-4’s water service.

Without the City’s sufficiency-of-the-evidence arguments, we are left with two

legal issues to resolve: first, whether a city’s annexation of a protected area can,

standing alone, violate § 1926(b); and second, whether a city’s threats or

solicitations regarding water service may, in the alternative, serve as the violative

act.

7 U.S.C. § 1926(b) prevents a municipality from curtailing or limiting

water service “by inclusion of the area served by [a protected] association within

the boundaries of any municipal corporation or other public body.” Although it

annexed the affected area, Eudora never actually provided water service to any of

Douglas-4’s customers or prospective customers. There are instead two possible

bases for Douglas-4’s 1926(b) claim: Eudora’s annexation of the affected areas,

and Eudora’s alleged threats to Douglas-4 and Douglas-4’s customers that it

might elect to de-annex the affected areas or condemn Douglas-4’s assets.

Eudora argues that neither annexation nor threats to de-annex or appraise

Douglas-4’s assets may be treated as actual curtailments or limitations under §

1926, while Douglas-4 asserts that both acts violate the statute. We address each

in turn.

1. Annexation alone does not necessarily curtail water service.

-26-
 As a matter of federal law, annexation alone does not cause curtailment;

rather, there must be some further action that limits the protected water district’s

ability to serve its customers. See Glenpool, 861 F.2d at 1214 (“[A city] may not

legally use inclusion of [an area] within the boundaries of any municipal

corporation as a springboard for providing water service to the area, and thereby

limit the service made available by [a protected water district].”) (emphasis

added) (internal quotation marks omitted). A city may annex land within a water

district’s boundaries so long as it does not use the annexation as a means to

provide water service or limit the water district’s services to the annexed area.

Similarly, as a matter of Kansas law, an annexing municipality is not

compelled to engage in some post-annexation conduct that would necessarily

curtail or limit a water district’s ability to serve the annexed area. K.S.A. §§ 12-

540 and 541(a), enacted by the Kansas legislature in 2010, describe the process

by which a city may, if it chooses, designate itself or some other water supplier

for the recently annexed area. 8 “Following annexation, the rural water district

8
K.S.A. § 12-527, the statute cited in Douglas-4’s briefs, stated:
“[w]henever a city annexes land located within a rural water district . . . the city
shall negotiate with the district” to acquire title to the district’s assets within the
annexed area. However, it was repealed in March 2010 and replaced by K.S.A. §
12-540 et. seq. See 2010 Kan. Sess. Laws Ch. 15, House Bill No. 2283 (March
24, 2010). We thus apply the law in existence at the time of this appeal. See
State ex rel. Stephan v. Bd. of Cnty. Comm’rs of Lyon Cnty., 676 P.2d 134, 139
(Kan. 1984) (“When called upon to consider legislative enactments which follow
trial court rulings, this court has not hesitated.”).
Yet, we also conclude that the enactment of K.S.A. § 12-540 et seq. “d[id]
(continued...)

-27-
shall remain the water service provider to the annexed area unless the city gives

written notice designating a different supplier.” K.S.A. § 12-541(a). Or,

“[f]ollowing annexation . . . , the city and the [water] district may contract for the

district to provide water service to all or certain portions of the annexed area.”

Id. § 12-540. Nor is the city required to impose a franchise, license, or permit

should the water district retain its water service over an annexed area. Id. (“If the

agreement includes a provision for the payment of a franchise fee to the city, such

agreement shall be subject to the provisions of K.S.A. § 12-2001 et seq.”).

Because §§ 12-540 and 541(a) do not obligate Eudora to violate § 1926(b),

annexation alone cannot serve as the sole ground for Douglas-4’s claim against

Eudora.

2. A competing municipality may, however, curtail services through threats
if the threats effectively limit the water district’s ability to serve existing
customers or acquire potential customers to whom it would otherwise
provide service.

8
(...continued)
nothing more than clarify the ambiguities in the statute rather than [] change the
law.” Trees Oil Co. v. State Corp. Comm’n, 105 P.3d 1269, 1285 (Kan. 2005).
Even § 12-527’s directive that the city “shall negotiate with the district” to
acquire title would not necessarily compel the City to acquire Douglas-4’s assets.
In Kansas, statutory provisions directing these types of proceedings “are not
regarded as mandatory[] unless accompanied by negative words importing that the
acts required shall not be done in any other manner or time than that designated.”
Paul v. City of Manhattan, 511 P.2d 244, 249 (Kan. 1973). Similarly, “failure to
comply with the requirements of [a mandatory statute] either invalidates
purported transactions or subjects the noncomplier to affirmative legal liabilities.”
Wilcox v. Billings, 438 P.2d 108, 111 (Kan. 1968). Section 12-527 contained
neither proviso. Thus, if we apply K.S.A. § 12-527 rather than § 12-540 et seq.,
we reach the same conclusion.

-28-
 We must also determine whether a city’s threat to either de-annex a

protected area or force an appraisal process violates 7 U.S.C. § 1926(b) by

dissuading potential customers from seeking water service from the protected

water district. The district court concluded that threats could limit Douglas-4’s

ability to provide water service if the threats deterred existing or potential

customers from using the water district’s services. On appeal, Eudora argues that

such actions do not rise to the level of “competition” contemplated by § 1926(b).

We must first apply the general principle that Ҥ 1926(b) indicates a

congressional mandate that local governments not encroach upon the services

provided by [federally indebted water] associations, be that encroachment in the

form of competing franchises, new or additional permit requirements, or similar

means.” Pittsburg Cnty., 358 F.3d at 715 (emphasis omitted). We therefore

construe § 1926(b) liberally to protect water districts from the various forms of

municipal encroachment. See id. Indeed, the type of encroachment contemplated

by § 1926(b) is not limited to the traditional guise of an annexation followed by

the city’s initiation of water service. It also encompasses other forms of direct

action that effectively reduce a water district’s customer pool within its protected

area. See id. at 716 (“[T]he question becomes whether McAlester’s sales to

customers . . . purport to take away from Pitt 7’s § 1926 protected sales

territory.”).

-29-
 If a city informs a water district’s customer that it will de-annex his

property unless he requests water from the city and not the water district, the

customer is effectively forced to make a choice: either cease water service from

the water district or find a new provider for all other public services. Under these

circumstances, the city’s conduct creates a wedge between the water district and

its customer anethmatic to the protections intended by Congress. The property

owner’s dependence on the city for virtually all non-water services, from road and

sewer maintenance to police and fire security, puts him—and by association the

servicing water district—in a vulnerable position. It very well may prevent the

water district from further developing and maintaining its customer base.

However, a city may instead act in a manner that does not curtail or limit

water services provided or made available by a protected district. This might

occur where, after annexation, a city allows the water district to continue as

before. Or it may initiate negotiations with the district for purchase of the

district’s assets. When a city first notifies a water district of its intent, there is

nothing impeding a customer from obtaining—or the water district from

providing—water services. Under Kansas law, for instance, the parties still must

agree on the assets’ value. If they cannot agree, then no change in water service

provider shall occur until at least 120 days pass and the parties complete

mandatory mediation. See K.S.A. § 12-541(a). If mediation is unsuccessful, only

then is a third-party appraiser appointed. Throughout this entire period, the water

-30-
district may continue to provide or make available water service, and ultimately

the city may decide to either assert or waive its appraisal rights as the situation

develops. Of course, a city’s assertion of appraisal rights may give rise to an

actual curtailment or limitation, but this occurs only when there is evidence that

the city’s assertions impeded the water district’s ability to provide or make

service available or deterred customers from obtaining the water district’s

services.

Eudora’s remaining arguments that target whether its communications to

Douglas-4 and Mr. Garber actually curtailed or limited Douglas-4’s ability to

provide or make service available to any of the affected properties challenge the

sufficiency of the evidence and are waived.

3. The district court properly admitted Douglas-4’s threat-based evidence.

Eudora also objects to the admissibility of so-called “threat” evidence

based on a lack of relevance under Rule 401 and its potential for prejudice under

Rule 403. Specifically, it challenges the admission of various letters from

Eudora’s attorney to Mr. Garber’s attorney and Douglas-4’s attorney regarding

Eudora’s intent to appraise Douglas-4’s property, and statements by Eudora’s

attorney to Mr. Garber contemplating de-annexation of Mr. Garber’s development

should Eudora be unable to provide water service. Yet, evidence that Eudora

sought to influence, deter, or impede potential customers within Douglas-4’s

protected service area goes to the very heart of Douglas-4’s theory of the case,

-31-
and any such communication will make more or less probable that Eudora

effectively curtailed or limited Douglas-4’s ability to serve or make available its

water service. The district court did not abuse its discretion by admitting such

evidence.

Eudora also claims that letters between its attorney and Douglas-4’s

attorney were settlement negotiations and therefore should have been excluded

under Rule 408. Upon reviewing the letters, the district court did not find

evidence of “discussions between these two parties trying [to] work this out,

trying to settle it, [or] trying to compromise,” (Appellant’s App. at 1805), but

rather found evidence suggesting Eudora had staked out its position that it would

ultimately enforce its appraisal rights without Douglas-4’s immediate

capitulation. For example, in his letter of September 18, 2007, counsel for

Eudora informed counsel for Douglas-4 that Eudora planned to file suit against

Douglas-4 if it did not begin complying with Kansas’s appraisal law by October

1. And in his letter of September 21, 2007, counsel for Eudora informed

Douglas-4 it would immediately file suit if Douglas-4 took “any further action to

expand its service into City limits” prior to October 1. (Appellant’s Add. at 52.)

By contrast, the district court did exclude portions of an earlier 2006 letter, (id. at

189-90), which contained elements of “a classic settlement offer,” (Appellant’s

App. at 2675). We see no abuse of discretion in the district court’s decision to

-32-
distinguish between letters containing clear settlement offers and letters

containing near-term demands for immediate compliance alongside promises of a

possible lawsuit.

4. Eudora may not challenge the sufficiency of the evidence pertaining to
its curtailment of the other properties.

The City’s challenge to the jury verdict as it pertains to the non-Garber

properties is waived for failure to file a Rule 50(b) motion.

D. Douglas-4’s remaining claims on cross-appeal are not subject to review.

Finally, Douglas-4’s remaining challenges in its cross-appeal have no

bearing on the ultimate outcome of this case and are therefore unavailable for

review. See, e.g., Affiliated Ute Citizens v. Ute Indian Tribe, 22 F.3d 254, 255

(10th Cir. 1994) (“A prevailing party may not appeal and obtain a review of the

merits of findings it deems erroneous which are not necessary to support the

[district court’s] decree.”).

CONCLUSION

The district court’s judgment is REVERSED and the trial verdict VACATED.

The matter is REMANDED for further proceedings solely on the issue of whether

Douglas-4’s cooperation to secure a Rural Development guarantee was necessary

to carry out the purposes of its organization. All other issues on appeal and

cross-appeal are AFFIRMED. Both parties’ motions to strike portions of each

other’s reply briefs are DENIED.

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