Moongate Water Co. v. Dona Ana Mutual Domestic Water Consumers Ass'n

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
July 28, 2005
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

MOONGATE WATER CO., INC., a
New Mexico Public Utility,

Plaintiff - Counter-
Defendant - Appellee,
v. No. 04-2250
DONA ANA MUTUAL DOMESTIC
WATER CONSUMERS
ASSOCIATION,

Defendant - Counter-
Claimant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. NO. CIV-02-1615 RB/LCS)

Michael D. Davis, of Doyle Harris Davis & Haughey, Tulsa, Oklahoma (Steven
M. Harris, of Doyle Harris Davis & Haughey, Tulsa, Oklahoma, and Rachel
Brown, of Hubert & Hernandez, Las Cruces, New Mexico, with him on the
briefs), for Defendant - Counter-Claimant - Appellant.

William A. Walker, Jr., Las Cruces, New Mexico (Kyle W. Gesswein, Las Cruces,
New Mexico, with him on the brief), for Plaintiff - Counter-Defendant - Appellee.

Before KELLY , BALDOCK , and HARTZ , Circuit Judges.

HARTZ , Circuit Judge.
 This appeal arises out of a dispute between two water-service providers

over their rights to serve customers in an area northeast of Las Cruces, New

Mexico, referred to by the parties as the Disputed Area. Moongate Water

Company, Inc. is a public utility organized under the New Mexico Public Utilities

Act, N.M. Stat. Ann. 1978, §§ 62-1-1 et seq. Doña Ana Mutual Domestic Water

Association, a nonprofit association formed for the purpose of providing water

services, is organized under the New Mexico Sanitary Projects Act, N.M. Stat.

Ann. § 3-29-1 et seq. Moongate brought this action in the United States District

Court for the District of New Mexico to obtain a declaratory judgment that

7 U.S.C. § 1926(b) does not protect Doña Ana from competition in the Disputed

Area. Doña Ana now serves one customer in the area, whereas Moongate serves

about 1,000 in several developments within the area.

The district court entered summary judgment for Moongate, concluding that

because Doña Ana had not made service available to the Disputed Area, it was not

entitled to § 1926(b) protection. Doña Ana appealed to this court. Doña Ana’s

principal argument has been that § 1926(b) protection cannot be decided on a

geographic basis but only customer by customer, as customers seek specific

service, so the question whether Doña Ana can acquire § 1926(b) protection in the

future is not ripe for review.

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 The issues on appeal have been narrowed by the parties. At oral argument

Moongate stated that it does not challenge Doña Ana’s § 1926(b) protection with

respect to Doña Ana’s single present customer in the Disputed Area, and Doña

Ana stated that it no longer claims any such protection with respect to Moongate’s

present customers in the area. The dispute before us thus relates solely to Doña

Ana’s claim to § 1926(b) protection with respect to future customers in the

Disputed Area.

Our jurisdiction over this dispute, however, has been limited by litigation in

another forum. As part of its effort to restrict competition from Doña Ana,

Moongate not only pursued this action but also filed an action with the New

Mexico Public Regulation Commission (PRC) 1 seeking even more extensive

relief: a declaration that the Disputed Area has been part of Moongate’s service

area since 1984 and an order prohibiting Doña Ana from extending its facilities

into the Disputed Area. (Doña Ana removed the PRC action to federal court, but

the district court remanded it back to the PRC.) While this appeal was pending,

the PRC ruled that under New Mexico law Doña Ana “does not currently have the

legal right to serve the Disputed Area.” Moongate Water Co., Inc. v. Doña Ana

Mut. Domestic Water Consumers Assoc., No. 03-00247-UT, Final Order at

1
The PRC was formerly known as the Public Utility Commission. See NMSA 1978,
§ 8-8-21 (1998). For simplicity, we use PRC to refer to both.

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7 (N.M.P.R.C. May 3, 2005) [hereinafter PRC Order]. The PRC declared that

“Moongate has the right and duty to serve . . . all land in the Disputed Area . . .

without interference from Doña Ana,” id., and it prohibited Doña Ana from

further construction of facilities in the area, id. at 5-8. As a result of the PRC

Order, we must divide the issue before us into two components: (1) whether Doña

Ana presently has § 1926(b) rights with respect to future customers in the

Disputed Area and (2) whether it can acquire such rights in the future when

potential customers request service. We hold against Doña Ana on the first

component. As for the second, the PRC Order renders it moot. We explain below

that because of our holding on the first component, the PRC Order is not

preempted by § 1926(b). Thus, there is no real and immediate likelihood of Doña

Ana’s serving future customers in the Disputed Area. Accordingly, there is not a

sufficient controversy to support jurisdiction to hear a request for declaratory

judgment regarding whether Doña Ana can acquire § 1926(b) protection with

respect to future customers in the Disputed Area.

We affirm the district court judgment in part and remand the remainder of

the judgment so that the district court can dismiss it as moot.

I. BACKGROUND

In 1961 Congress amended the Consolidated Farm and Rural Development

Act, 7 U.S.C. §§ 1921-2009n, to allow nonprofit water associations to borrow

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federal funds for “the conservation, development, use, and control of water . . .

primarily serving . . . rural residents.” 7 U.S.C. § 1926(a)(1); Pittsburg County

Rural Water Dist. No. 7 v. City of McAlester, 358 F.3d 694, 701 (10th Cir. 2004).

To protect the investments of an indebted water association, the Act restricts

other water utilities from competing with the association. See 7 U.S.C.

§ 1926(b) 2. In Sequoyah County Rural Water Dist. No. 7 v. Town of Muldrow,

191 F.3d 1192 (10th Cir. 1999), we held that “to receive the protection against

competition provided by § 1926(b) a water association must (1) have a continuing

indebtedness to the [federal government], and (2) have provided or made

available service to the disputed area.” Id. at 1197 (internal quotation marks and

citations omitted). Essential to the second element is the indebted association’s

right under state law to serve the disputed area. Id. 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 under § 1926(b) in the first instance because

2
The provision states:
The 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; nor
shall the happening of any such event be the basis of requiring such
association to secure any franchise, license, or permit as a condition
to continuing to serve the area served by the association at the time
of the occurrence of such event.
7 U.S.C. § 1926(b).

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the association would not legally have ‘provided or made available’ any service.”

Id. (quoting 7 U.S.C. § 1926(b)).

The approximately 10-square-mile Disputed Area is northeast of Las

Cruces, New Mexico, just east of Interstate 25 (I-25) and north of U.S. Highway

70. Every point in the Disputed Area is within half a mile of Moongate’s existing

pipes or facilities.

In 1983 some residents living within the Disputed Area desired water

service. A Doña Ana County Commissioner approached Doña Ana about

providing them service, but Doña Ana refused. After determining that the County

Commission lacked legal authority to force Doña Ana to serve the area, the

Commissioner asked Moongate, which served a nearby area, to provide water to

the residents. Moongate responded by surveying the needs of the residents and

then applying for and receiving approval from the PRC for a line extension. In

March 1985 Moongate finished construction of the extension and began serving

about 130 customers within the Disputed Area. A few years later Moongate

acquired the Apollo Estates water system within the Disputed Area. By April

2004 Moongate’s service to the Disputed Area had increased to nearly 1000

customers.

Doña Ana has long had facilities near or in the Disputed Area. It has a

10-inch main line on Del Rey Boulevard, which runs along the western edge of

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the Disputed Area, just east of I-25. It also has two water-storage tanks located

within the Disputed Area. But they are designed to serve Doña Ana’s customers

west of I-25. Most of the Disputed Area is above 4,000 feet, and water pressure

for the system, which derives from the level of water in the storage tanks, cannot

properly supply water to elevations above 4,000 feet.

Considerable evidence before the district court showed that Doña Ana has

traditionally identified the eastern boundary of its service area as I-25. The

current president of Doña Ana, however, testified that the association had planned

to expand its service east of I-25 since at least 1996. Concrete action occurred in

2002 when Doña Ana reached an agreement with the former owners of Apollo

Estates under which Doña Ana was to perfect water rights east of I-25. In

November 2002 Doña Ana wrote a letter to Moongate stating, “[Y]ou are advised

Doña Ana does intend to serve areas east of I-25, and has had an obligation to

provide service to certain areas east of I-25 since its creation.” R. Vol. I, Aplt.

App. at 20. Doña Ana asserted that Moongate’s right to serve the area east of

I-25 through its acquisition of the Apollo Estates system was limited to only a

fraction of the territory.

Moongate responded by initiating the present litigation on December 23,

2002. It sought a declaration that “the provisions of 7 U.S.C. § 1926(b) do not

apply to Doña Ana regarding service by Moongate to persons either on their

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system or in the area of their system.” Aplt. App. at 17. Doña Ana

counterclaimed, seeking a declaration that Moongate’s sale of water within Doña

Ana’s service area violated § 1926(b), money damages from Moongate for

violating § 1926(b), a permanent injunction restraining Moongate from providing

service within Doña Ana’s service area, an order compelling Moongate to transfer

its customers to Doña Ana, and forfeiture of Moongate’s lines to Doña Ana.

On June 20, 2003, Moongate filed a complaint with the PRC asking for a

declaration that the Disputed Area is and has been a part of its service area since

1984; a finding that extension of Doña Ana’s facilities into the Disputed Area

would be unnecessarily duplicative, economically wasteful, and an unreasonable

and unnecessary interference with Moongate’s service of the area; and an order

preventing Doña Ana from extending its lines into the Disputed Area.

Meanwhile, in 2003 Doña Ana began serving a single customer within the

Disputed Area, an R.V. storage facility located on Del Rey Boulevard. In

addition, it initiated plans to construct a one-million-gallon storage tank within

the Disputed Area.

Moongate filed a motion for summary judgment in district court, seeking a

declaration that “the provisions of § 1926(b) do not apply to Doña Ana with

regard to service by Moongate to persons either presently on the Moongate system

or elsewhere in the [D]isputed [A]rea . . . .” R. Vol. I, Aplt. App. at 196. Doña

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Ana responded in kind, seeking a summary judgment “that it has § 1926(b)

protection in relation to the ‘Disputed Area’ . . . [and] that because it has

§ 1926(b) protection for the ‘Disputed Area’, any action taken in the ‘PRC Case’

that will take away Doña Ana’s legal right to serve or its ability to serve the

‘Disputed Area’, will be void and/or of no effect.” R. Vol. I, Aplt. App. at 101-

02, 129-30. In its supporting brief Doña Ana retreated from portions of its

counterclaim, conceding that it was “not aware of any customer currently

requesting water from Moongate to which Doña Ana asserts § 1926(b)

protection.” Id. at 108. As a result, it stated, “[t]he only question remaining in

[this case] is whether Moongate can obtain a declaratory judgment that Doña Ana

has no § 1926(b) protection to customers who may locate in the future within the .

. . Disputed Area, and before those customers materialize and request water

service.” Id. (internal quotation marks and parentheses omitted). Doña Ana

summarized its legal theory as follows:

The question of whether Doña Ana is entitled to § 1926(b) protection
for a given customer is determined on a customer by customer basis
and is determined based upon the pipes in the ground test, i.e., at the
time the specific customer requested water service, did Doña Ana
have facilities within sufficient proximity from which water service
could have been provided within a reasonable time.

Id.

Doña Ana submitted affidavits of two expert witnesses in district court who

said that the association was generally capable of providing water service east of

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I-25 as far back as 1985. They further stated, however, that they would need

information concerning specific customer requirements before they could

determine how long it would have taken Doña Ana to provide service.

The district court granted summary judgment for Moongate. It rejected the

expert opinions that Doña Ana could have provided service to the Disputed Area

within a reasonable time in 1985 on the grounds that they were conclusory and

unsupported by facts, as well as being legally irrelevant. It held that whatever

right Doña Ana had to provide service under New Mexico law, “Doña Ana has

not made service available to the [D]isputed [A]rea within the meaning of

§ 1926(b) at any relevant time. Therefore, Doña Ana is not entitled to § 1926(b)

protection with respect to the [D]isputed [A]rea.” Dist. Ct. Order at 15, R. Vol.

II, Aplt. App. at 458.

On appeal Doña Ana argues its entitlement to “§ 1926(b) protection as to

[its] existing customer located within the Disputed Area and as to future

customers who may later locate in the Disputed Area.” Aplt. Br. at 6. The

existing customer, however, is no longer at issue because at oral argument

Moongate abandoned its challenge to Doña Ana’s § 1926(b) protection with

respect to that customer. Accordingly, our task is limited to resolving whether (1)

Doña Ana now has § 1926(b) protection with respect to future customers in the

Disputed Area or (2) can obtain such protection in the future.

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 As we shall discuss, however, the second issue (given our resolution of the

first) has been mooted by the PRC decision. After oral argument in this appeal,

the PRC issued its final order concluding that Doña Ana “does not currently have

the legal right to serve the Disputed Area,” and prohibiting Doña Ana from

extending its facilities into the Disputed Area. PRC Order at 7.

II. DISCUSSION

We first reject the proposition that Doña Ana presently possesses § 1926(b)

rights with respect to future customers in the Disputed Area. We then declare

moot the portion of the declaratory-judgment action relating to whether Doña Ana

will be able to obtain § 1926(b) rights with respect to future customers in the

Disputed Area.

A. Present § 1926(b) rights of Doña Ana in Disputed Area

The parties have consistently disputed how one determines whether rights

have accrued under § 1926(b). Moongate is not entitled to any protection under

that statute because, unlike Doña Ana, it is not a qualifying nonprofit association

with a continuing indebtedness to the federal government. It contends, however,

that Doña Ana cannot obtain rights under § 1926(b) with respect to an area if

Moongate preceded Doña Ana in establishing that it could provide service to the

area. Moongate, noting its willingness to serve the Disputed Area and its

maintenance of facilities within half a mile of every point in the area, concludes

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that it beat Doña Ana to the punch, so Doña Ana cannot obtain any rights under

§ 1926(b) in the Disputed Area. Doña Ana, in contrast, argues that whether a

utility has provided service must be decided customer by customer and depends

on whether the association can respond within a reasonable time to a request by a

potential customer seeking service, even if a competitor actually provided service

in response to the request. It has therefore contended that Moongate’s suit is

premature and that the determination whether Doña Ana has exclusive rights to

serve a customer under § 1926(b) must await a request for service and a finding

whether Doña Ana could provide that service within a reasonable time.

We need not resolve this dispute because Doña Ana loses on its own theory.

It states that “the only question [with respect to an association’s § 1926(b) rights]

should be whether at the time the customer requested service did the association

have sufficient facilities from which to provide service within a reasonable time.”

Aplt. Br. at 39. This proposition might serve Doña Ana well with respect to its

claim that in the future it may acquire § 1926(b) rights within the Disputed Area,

but it is of no avail with respect to any claim by Doña Ana to present rights in the

Disputed Area. Doña Ana does not assert before this court that any potential

customer in the Disputed Area has requested service. As Doña Ana’s briefs

repeatedly emphasize, until a customer makes such a request, Doña Ana cannot

establish that it could provide the desired service within a reasonable time. Thus,

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Doña Ana cannot establish a vested § 1926(b) right under its own test. Although

Doña Ana argues that it is entitled to a presumption that it can provide service, so

that “the party opposing § 1926(b) protection must establish that there is no doubt

after resolving all evidentiary uncertainties in favor of the association, that the

association has not made service available to the customer in dispute,” Aplt. Br.

at 33, it does not explain (nor can we conceive) how this alleged presumption can

assist it in the absence of a customer request. Rejecting the only argument

proffered by Doña Ana, we must conclude that Doña Ana does not currently have

an accrued § 1926(b) exclusive right to serve future customers in the Disputed

Area.

B. Future § 1926(b) Rights in Disputed Area

We now turn to possible future § 1926(b) rights of Doña Ana in the

Disputed Area and conclude that the dispute over such rights is moot.

1. Mootness

“Under Article III of the Constitution, federal courts may only adjudicate

live controversies.” Fischbach v. N.M. Activities Assoc., 38 F.3d 1159, 1160

(10th Cir. 1994). The controversy “must exist at all stages of appellate or

certiorari review, and not simply at the date the action is initiated.” Id. (internal

quotation marks and brackets omitted). Thus, “when intervening acts destroy a

party’s legally cognizable interest in the outcome of adjudication[,] . . . Article III

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. . . deprive[s] the federal courts of jurisdiction over that party’s claim.” Tandy v.

City of Wichita, 380 F.3d 1277, 1290 (10th Cir. 2004).

The intervening judgment of another tribunal may be the cause of

mootness. See Esparza v. Valdez, 862 F.2d 788, 791-92 (10th Cir. 1988) (claims

mooted by state-court decision); N. Alamo Water Supply Corp. v. City of San

Juan, 90 F.3d 910, 919 (5th Cir. 1996) (issue of § 1926(b) preemption mooted by

state administrative decision agreeing that the rural water supplier “had the

exclusive right to provide water service to the disputed areas”); 13A Wright,

Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3533.2, at 241

& n.28 (2d ed. 1984) (“If full relief is accorded by another tribunal, a proceeding

seeking the same relief is moot . . . .”).

It is well settled that mootness principles “govern[] cases brought . . . under

the Declaratory Judgment Act.” Cox v. Phelps Dodge Corp., 43 F.3d 1345, 1348

n.3 (10th Cir. 1994), superseded by statute on other grounds as stated in Walker

v. UPS Inc., 240 F.3d 1268, 1278 (10th Cir. 2001); Esparza, 862 F.2d at 791-92

(claims for prospective declaratory and injunctive relief mooted by Colorado

Supreme Court decision). Otherwise, a declaratory judgment could be an

improper advisory opinion. Cox, 43 F.3d at 1348. “[W]ith respect to declaratory

relief, we look beyond the initial controversy which may have existed at one time

and decide whether the facts alleged show that there is a substantial controversy

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of sufficient immediacy and reality to warrant the issuance of a declaratory

judgment.” Beattie v. United States, 949 F.2d 1092, 1094 (10th Cir. 1991)

(internal quotation marks, brackets, and ellipses omitted).

Although neither party raises mootness on appeal, we have “an affirmative

obligation to consider this [jurisdictional] issue sua sponte.” Tandy, 380 F.3d at

1290 n.15. We explored the matter with the parties at oral argument.

2. Application to this case

Moongate filed its complaint with the PRC under NMSA 1978, § 62-9-1. 3

3
N.M. Stat. Ann. 1978, § 62-9-1 provides:

A. No public utility shall begin the construction or operation of any
public utility plant or system or of any extension of any plant or
system without first obtaining from the commission a certificate that
public convenience and necessity require or will require such
construction or operation. This section does not require a public
utility to secure a certificate for an extension within any municipality
or district within which it lawfully commenced operations before
June 13, 1941 or for an extension within or to territory already served
by it, necessary in the ordinary course of its business, or for an
extension into territory contiguous to that already occupied by it and
that is not receiving similar service from another utility. If any
public utility or mutual domestic water consumer association in
constructing or extending its line, plant or system unreasonably
interferes or is about to unreasonably interfere with the service or
system of any other public utility or mutual domestic water consumer
association rendering the same type of service, the commission, on
complaint of the public utility or mutual domestic water consumer
association claiming to be injuriously affected, may, upon and
pursuant to the applicable procedure provided in Chapter 62, Article
10 NMSA 1978, and after giving due regard to public convenience
(continued...)

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Relying on this statute, New Mexico caselaw, the PRC’s line-extension rule,

17.5.440.10 N.M.A.C. (allowing a public utility to undertake certain line

extensions without reporting to the PRC), and Moongate’s certificate of

convenience and necessity, the PRC determined that Moongate may “extend its

existing infrastructure up to one-half mile without seeking or obtaining the

[PRC’s] approval so long as the extension will not invade another provider’s

territory.” PRC Order at 7. Accordingly, the PRC concluded that “Moongate has

the right and duty to serve all its existing customers and all land in the Disputed

Area . . . without interference from Doña Ana.” Id. Most importantly for our

purposes, the PRC held that Doña Ana “does not currently have the legal right to

serve the Disputed Area[,]” id., and issued an order prohibiting Doña Ana from

constructing the new storage tank and line extensions into the Disputed Area.

3
(...continued)
and necessity, including reasonable service agreements between the
utilities, make an order and prescribe just and reasonable terms and
conditions in harmony with the Public Utility Act to provide for the
construction, development and extension, without unnecessary
duplication and economic waste.

B. As used in this section, "mutual domestic water consumer
association" means an association created and organized pursuant to
the provisions of:
...

(2) the Sanitary Projects Act.

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 As a result of the PRC decision, there is no point in deciding whether Doña

Ana could acquire § 1926(b) protection in the Disputed Area in the future. Under

state law Doña Ana is restricted from extending service to the Disputed Area, so

it will have no occasion to invoke any right under the federal statute. “Where an

indebted association has no legal right [under state law] to provide service, . . . it

should not obtain protection from § 1926(b) for illegal provision of service.”

Sequoyah, 191 F.3d at 1201 n.8 (internal quotation marks omitted).

Consequently, Moongate can no longer demonstrate “a substantial controversy of

sufficient immediacy and reality to warrant the issuance of a declaratory

judgment.” Beattie, 949 F.2d at 1094 (internal quotation marks, ellipses, and

emphasis omitted). So long as Doña Ana is prohibited by state law from

extending its facilities into the Disputed Area, there is neither an immediate

controversy over Doña Ana’s § 1926(b) future rights nor a reasonable likelihood

of one actually materializing. See Esparza, 862 F.2d at 791-93 (potential changes

in agency interpretation insufficient to sustain controversy); Enrico’s Inc. v. Rice,

730 F.2d 1250, 1255 (9th Cir. 1984) (same). No exception to the mootness

doctrine is claimed, or appears to apply. See Riley v. INS, 310 F.3d 1253, 1257

(10th Cir. 2002) (listing exceptions as cases in which “(1) secondary or collateral

injuries survive after resolution of the primary injury; (2) the issue is deemed a

wrong capable of repetition yet evading review; (3) the defendant voluntarily

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ceased an allegedly illegal practice but is free to resume it at any time; or (4) it is

a properly certified class action.” (internal quotation marks omitted)); see also

Esparza, 862 F.2d at 793 (future changes in agency interpretation were “too

speculative and remote to bring [a] case within any exception to the traditional

mootness doctrine”).

Doña Ana claims that it is not bound by the PRC Order. It argues that the

PRC cannot terminate rights it previously acquired under §1926(b). In its

supplementation under Fed. R. App. P. 28(j) it asserts that “once the association

becomes indebted, the state has no power to take away the association’s legal

right to provide service to a given area or customer.” But, as just discussed, Doña

Ana has no accrued right to serve anyone in the Disputed Area (except for its

conceded right to serve its single customer within the Disputed Area).

We addressed this issue in Pittsburg County Rural Water Dist. No. 7 v. City

of McAlester, 358 F.3d 694 (10th Cir. 2004), which concerned the deannexation

of a portion of the existing service territory of a qualified association. We held

that “where the federal § 1926 protections have attached, § 1926 preempts local

or state law that can be used to justify . . . encroachment upon [a] disputed area in

which an indebted association is legally providing service under state law.” Id. at

715 (emphasis added) (internal quotation marks and brackets omitted). In other

words, a state or local government may not act “to take away from an indebted

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rural water association any territory for which the association is entitled to invoke

the protection of § 1926(b).” Id. at 716 (emphasis added).

Here, in contrast, there is no accrued right. Doña Ana has no vested

§ 1926(b) protection in the Disputed Area. Accordingly, the PRC Order is not

preempted by § 1926(b) with respect to the Disputed Area.

III. CONCLUSION

We AFFIRM the district court judgment to the extent that it holds that

Doña Ana has no present § 1926(b) rights in the Disputed Area. We VACATE

the remainder of the judgment and REMAND with instructions to dismiss it as

moot.

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