UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
PITTSBURG COUNTY RURAL
WATER DISTRICT NO. 7, an agency
and legally constituted authority of the
State of Oklahoma,
Plaintiff-Appellant,
v.
CITY OF McALESTER, a
municipality, and THE McALESTER
PUBLIC WORKS AUTHORITY, a No. 02-7080
public trust,
Defendants-Appellees.
and
KENNETH W. SHERILL; LINDA F.
SHERILL; BAR-19; HUNTSMAN
EDISON FILMS CORPORATION,
successor to Blessing Corp., d/b/a
Edison Plastics; MIG, INC.;
SOUTHEAST OKLAHOMA BOX
COMPANY; TRI-CAT, INC.;
SIMMONS POULTRY FARMS, INC.;
DENNIS DEFRANGE; TERRY
KINYON; PITTSBURG COUNTY
REGIONAL EXPOSITION
AUTHORITY; THE BOARD OF
COUNTY COMMISSIONERS OF
THE COUNTY OF PITTSBURG; H.
G. GILLIAM; BILL WEBBER; OBEN
WEEKS; THUNDERCREEK GOLF
COURSE TRUST AUTHORITY,
Defendants.
ORDER
Filed February 6, 2004
Before HENRY, HOLLOWAY, and MURPHY, Circuit Judges.
The parties’ petitions for rehearing and for rehearing en banc are denied,
except with regard to the “internal inconsistency,” see Appellee’s Pet. for Reh’g
at 8-9 n.5, regarding the description of “Group 3” customers in the panel opinion.
See Pittsburg County Rural Water Dist. No. 7. v. City of McAlester, 346 F.3d
1260, 1270, 1277 (10th Cir. 2003). With regard the discussion of “Group 3”
customers, the court now clarifies the panel opinion as follows:
The district court’s holding that “[w]hen a municipality is serving
water to a property prior to a water district’s FMHA loan date, the
rural water district has no right to serve water to that property, and
thus, no 1926(b) protection,” see id. at 1277 (quoting Aplt’s App. at
1101), did not concern “Group 3” customers
Instead, that district court ruling concerned customers served by
McAlester prior to the date of the 1994 FMHA loan. It is as to those
customers that the panel held: “all § 1926 claims based on service by
McAlester to customers within the limitations period were not
otherwise barred by the fact that McAlester was serving those
customers prior to the 1994 loan.” Id. at 1277.
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The amended opinion reflecting this clarification is attached.
Entered for the Court,
Patrick Fisher, Clerk
By:
Deputy Clerk
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F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
FEB 6 2004
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
PITTSBURG COUNTY RURAL
WATER DISTRICT NO. 7, an agency
and legally constituted authority of the
State of Oklahoma,
Plaintiff-Appellant,
v.
CITY OF McALESTER, a
municipality, and THE McALESTER
PUBLIC WORKS AUTHORITY, a No. 02-7080
public trust,
Defendants-Appellees.
and
KENNETH W. SHERRILL, LINDA F.
SHERRILL, CITY OF McALESTER,
BAR-19, BLESSING CORP., d/b/a
EDISON PLASTICS, MIG, INC.,
SOUTHWEST OKLAHOMA BOX
COMPANY, TRI-CAT, INC.,
SIMMONS POULTRY FARMS, INC.,
DENNIS DeFRANGE, TERRY
KINYON, PITTSBURG COUNTY
REGIONAL EXPOSITION
AUTHORITY, THE BOARD OF
COUNTY COMMISSIONERS OF
THE COUNTY OF PITTSBURG,
H.G. GILLIAM, CHAIRMAN BILL
WEBBER, OBEN
WEEKS, and THUNDERCREEK
GOLF COURSE TRUST
AUTHORITY,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
D.C. NO. CIV-97-185-P
Michael D. Davis (Steven M. Harris with him on the briefs), Doyle, Harris, Davis
& Haughey, Tulsa, Oklahoma, for Plaintiff-Appellant.
James C. Milton (Linda C. Martin, Doerner, Saunders, Daniel & Anderson,
L.L.P., Tulsa, Oklahoma, and Wesley Brown, Brown & Brown, McAlester,
Oklahoma, with him on the brief), Doerner, Saunders, Daniel & Anderson, L.L.P.,
Tulsa, Oklahoma for Defendants-Appellees.
Before HENRY, HOLLOWAY, and MURPHY, Circuit Judges.
HENRY, Circuit Judge.
The Pittsburg County Rural Water District Number 7 (Pitt-7) is a rural
county water association in Oklahoma. The City of McAlester (McAlester) is a
municipality in Oklahoma. Both Pitt-7 and McAlester are subdivisions of the
State of Oklahoma, and both are water providers. Pitt-7 sued McAlester and a
number of other entities under: (1) 42 U.S.C. § 1983, based on the claim that the
defendants violated Pitt-7’s exclusive right under 7 U.S.C. § 1926 to provide
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water to customers within the protected area; (2) federal antitrust law; and (3)
state antitrust law. The district court, faced with a difficult set of issues, granted
summary judgment for the defendants on certain § 1926 claims, dismissed certain
other § 1926 claims, and dismissed Pitt-7’s federal and state antitrust claims. For
the reasons detailed below, we affirm in part, reverse in part, and remand.
I. BACKGROUND
A. 7 U.S.C. § 1926
In 1961, Congress amended 7 U.S.C. § 1926(a) to authorize the United
States Farmer’s Home Administration (FMHA) to make loans to nonprofit water
service associations for “the conservation, development, use, and control of
water.” 1 Congress enacted 7 U.S.C. § 1926(b), in turn, to govern the terms of
federal loans made to those associations. Section 1926(b) provides that, for an
association indebted by a loan to the federal government under the statute, “[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
1
FMHA loans are now administered by the United States Department of
Agriculture. See Pub. L. No. 103-354 (1994)). For the sake of simplicity, we
refer to the creditor entity as the FMHA throughout the opinion.
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of any private franchise for similar service within such area during the term of
such loan.” 7 U.S.C. § 1926(b).
B. The Board of County Commissioners of Pittsburg County, Pitt-7, the
Loan from the FMHA, and McAlester
In 1963, Oklahoma lawmakers responded to Congress’s 1961 amendment of
7 U.S.C. § 1926 by enacting a statute that “authorizes rural water districts to
borrow money from the federal government to accomplish the purposes for which
they are established.” Sequoyah County Rural Water Dist. No. 7 v. Town of
Muldrow, 191 F.3d 1192, 1194 (10th Cir. 1999) (citing Okla. Stat. Ann. tit. 82, §
1324.10(A)(4)). In 1966, the Board of County Commissioners of Pittsburg
County, Oklahoma (importantly, as will be seen later, an entity distinct from Pitt-
7), incorporated Pitt-7 to “develop[ ] and provid[e] an adequate rural water supply
. . . to serve and meet the needs of rural residents within the territory of the
district.” Okla. Stat. Ann tit. 82, § 1324.3.
In 1967, Pitt-7 first took advantage of the availability of the federal loans
by borrowing $300,000 from the FMHA. Pitt-7 remained continuously indebted
to the FMHA until February 24, 1989, when Pitt-7 repurchased its outstanding
debt to the FMHA. On June 15, 1994, Pitt-7 once again entered into a loan
agreement with the FMHA, borrowing $162,500. See Aplt’s App. at 1005
(Mortgage, dated June 15, 1994).
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From its inception, Pitt-7’s territory included both land within McAlester’s
territorial limits and land near, but outside of, McAlester’s territorial limits. For
nearly three decades through June 30, 1999, Pitt-7 serviced these portions of its
area with water purchased from McAlester. During the 1980s and 1990s, the
relationship between Pitt-7 and McAlester became increasingly strained,
apparently due to Pitt-7’s demands that McAlester stop selling water in areas over
which Pitt-7 held an exclusive service right under § 1926, McAlester’s refusal to
comply, and McAlester’s threats to terminate water sales to Pitt-7.
C. The Complaint, the Petition for Deannexation, and the Termination of
Water Sales by McAlester to Pitt-7
On March 25, 1997, Pitt-7 filed this action in federal district court, alleging
violations of 7 U.S.C. § 1926(b) as enforced through 42 U.S.C. § 1983, federal
antitrust law, and various Oklahoma state laws, including antitrust. McAlester
responded in two ways.
First, on May 12, 1997, more than six weeks after Pitt-7 had filed this
action, McAlester, several other local government entities, and landowners within
Pitt-7’s territory petitioned the defendant-appellee Pittsburg County Board of
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County Commissioners to deannex a portion of Pitt-7’s territory. 2 The deannexed
properties included those properties previously designated for service by Pitt-7
that are disputed in this case: Industrial Park, the Pittsburg County Regional
Exposition Center, the Thundercreek Golf Course, the Sherrill property, and the
Fender residence. The petitions documented complaints by McAlester and by
landowners within Pitt-7’s territory concerning customer service, capacity, and
pricing. Pitt-7 moved before the Board to strike the petitions on the grounds that
federal law – specifically § 1926 – preempted the requested deannexation.
Second, in June 1998, the McAlester City Council passed a motion
instructing that Pitt-7 “be given written notice by the City Manager that effective
June 30, 1999, the City Council would no longer enter into a contract for the
purpose of selling water to them.” Aplt’s App. at 437 (Minutes of McAlester City
Council Session, dated June 23, 1998). As of June 30, 1999, McAlester
terminated water sales to Pitt-7.
2
Oklahoma law provides a mechanism for county commissioners to release
designated lands from a water district. Under 82 Okla. Stat. tit. 1991, § 1324.21,
“fifty-one percent . . . of the affected landowners may petition the county
commissioners to release those lands from the district.” Upon review of that
petition, if the Board of County Commissioners determines that “the granting of
the petition is to the best interests of the affected landowners and the affected
district,” id., then the designated lands are released, or “deannexed” from the
water district’s territory.
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D. The Deannexation Order and the Resulting Decisions by the
Oklahoma District Court and the Oklahoma Court of Civil Appeals
In June 1997, after a hearing at which counsel for Pitt-7 and for the
petitioners each argued its side of the question, the Board voted to enter a
Deannexation Order, stating that “it is in the best interests of the landowner, and
in the best interest of [Pitt-7], that such lands be released from [Pitt-7].” Aples’
Supp. App. at 355 (Certificate Releasing Lands from Rural Water Dist. No. 7,
Pittsburg County, Oklahoma, dated Jun. 27, 1997). The Deannexation Order did
not address the legality of the deannexation under federal law.
Under Oklahoma law, “an appeal lies from an order of the Board of County
Commissioners to the District Court whenever their orders or decisions are of a
judicial or quasi judicial nature.” Chandler Materials Co. v. Bd. of County
Comm’rs of Tulsa County, 254 P.2d 767, 770 (Okla. 1953). Pitt-7 appealed the
deannexation to the Oklahoma District Court in Pittsburg County, which exercised
jurisdiction over the appeal and then dismissed the appeal as not properly
perfected on the ground that Pitt-7’s service upon the Pittsburg County Board of
County Commissioners was “not sufficient” under Oklahoma law. Aples’ Supp.
App. at 459 (Order of the Oklahoma District Court for Pittsburg County, dated
Sept. 15, 1997).
Pitt-7 then appealed the Oklahoma District Court’s ruling to the Oklahoma
Court of Civil Appeals (OCCA). The OCCA initially stated that “the
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deannexation decision at issue here . . . clearly determines land use and is a
legislative function. It therefore follows that the trial court was without
jurisdiction to hear Pitt-7’s appeal.” Aples’ Supp. App. at 252 (Memorandum
Opinion No. 90,114, dated May 19, 1998).
Though the prevailing party, McAlester filed a Petition for Rehearing in the
OCCA. The OCCA granted the petition, vacated its initial opinion, and held that
the Oklahoma district court did properly exercise jurisdiction over Pitt-7’s appeal,
reasoning that “[a]s a neutral tribunal whose decision affects the legal relation of
particular lands vis-a-vis a corporate body, the board of county commissioners
acts in a judicial or quasi-judicial capacity.” Id. at 209 (Opinion on Rh’g, dated
Sept. 8, 1998). The OCCA further held – with no discussion – that “the decision
of the Board of County Commissioners releasing lands from the water district . . .
is final and binding on [Pitt-7] even if based on an erroneous application of
federal law” and that “[i]t is not subject to collateral attack or an equitable
challenge, such as declaratory relief.” Id. at 210. The OCCA therefore affirmed
the trial court’s dismissal. Id. Pitt-7’s subsequent petition to the Oklahoma
Supreme Court for a writ of certiorari was denied.
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E. The First Amended Complaint, the Various Motions Filed in the
District Court, and the District Court’s Orders
Meanwhile, Pitt-7’s federal district court action remained pending. In May
1997, Pitt-7 filed a motion in the federal district court for partial summary
judgment. In June 1997, while the proceeding before the Board was pending,
Pitt-7 filed a First Amended Complaint in federal district court, adding as
defendants the groups that had petitioned for deannexation and the Board of
County Commissioners and also challenging the prospective deannexation. See
Aplt’s App. at 71-89 (First Amended Complaint, dated June 2, 1997).
Subsequently, McAlester and the other defendants filed a series of motions for
partial summary judgment and motions to dismiss.
Between November 1997 and September 1998, the federal district court
issued a series of dispositive orders adjudicating the motions in favor of the
defendants, ultimately either dismissing or granting summary judgment against
Pitt-7 on all of Pitt-7’s claims. See Aplt’s App. at 143 (Judgment of the United
States District Court, filed Oct. 15, 1998). Two of the district court’s holdings in
these orders are relevant to this appeal.
First, the district court examined the impact of Pitt-7’s repurchase
of its debt in 1989 and determined that any protections afforded Pitt-7 under §
1926(b) were extinguished along with its indebtedness to FMHA. Because Pitt-7
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became indebted to FMHA again in 1994, the district court decided that the only
viable claims at issue arose from actions taken by McAlester after June 15, 1994.
Second, the district court assessed whether Pitt-7 had made service
“available” under § 1926. The district court found that Pitt-7 had “water lines in
proximity to the properties,” Aplt’s App. at 139 (District Court Order, dated Sept.
30, 1998), but that Pitt-7 “must also demonstrate that the lines in place are of
sufficient capacity to handle the water needs of the customers to be served at the
present time.” Id. “With each property referenced,” found the district court, “Pitt-
7 will require the customer to pay for an extension to its existing water lines in
order to provide service.” Id. Based on these findings, the district court
determined that Pitt-7 “has not made service available to the disputed areas and is,
therefore, not entitled to § 1926(b) protection.” Id. at 140.
F. This Court’s May 22, 2000 Order & Judgment
On Pitt-7’s appeal of the district court’s orders, a unanimous panel of this
court reversed. See Pittsburg County Rural Water Dist. No. 7 v. City of
McAlester, No. 98-7148, 2000 WL 525942 (10th Cir. May 2, 2000). In an Order
& Judgment, we held that the fact that Pitt-7’s debt was satisfied in 1989 did not
extinguish otherwise valid claims for violations of Pitt-7’s § 1926 rights during
the period of indebtedness. We stated that to hold otherwise “‘would defeat the
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purpose of [§ 1926(b]) because a water association which repurchased . . . its debt
but which otherwise met the statutory requirements would have no recourse for
encroachments that occurred or began while it was indebted to the government.’”
Id. at **3 (quoting Sequoyah, 191 F.3d at 1200) (brackets and ellipses in
original). We also held that the district court employed the test for determining
whether Pitt-7 had made service “available” in “an inappropriately restrictive
manner” because the district court did not consider service that could have been
made available in a reasonably short time. Id. at **4. The Order and Judgment
declined to reach an array of issues, including the question of whether Pitt-7’s §
1926 rights over the deannexed territory survived the deannexation, and remanded
the case “for further proceedings consistent with this Order and Judgment.” Id.
On remand, the case was reassigned by the United States District Court for the
Eastern District of Oklahoma to a different district court judge (from Burrage, J.
to Payne, J.).
G. The Second Amended Complaint
In January 2001, Pitt-7 filed a Second Amended Complaint. The Second
Amended Complaint summarized the proceedings before the Pittsburg County
Board of County Commissioners, the state court, the federal district court, and
this court, and added the now finalized deannexation to the items complained of
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in the suit. The Second Amended Complaint alleged causes of action for
violation of: (1) 42 U.S.C. § 1983 under 7 U.S.C. § 1926; (2) federal antitrust
laws; and (3) state antitrust laws. As for remedies, the Second Amended
Complaint sought a declaratory judgment on the City’s right to sell water in Pitt-
7’s territory, a declaratory judgment clarifying the various interested parties’
rights and legal relations, multiple injunctions relating to the land areas
deannexed, an injunction requiring McAlester to provide water to Pitt-7, and a
declaratory judgment stating that the deannexation was unlawful.
H. The District Court’s Order on Remand
On June 7, 2002, the district court issued an order rejecting all of Pitt-7’s
claims. That order granted summary judgment for McAlester and the other
defendants on Pitt-7’s § 1983 claims based on the alleged violation of 7 U.S.C. §
1926 and dismissed Pitt-7’s claim for injunctive relief under § 1926, federal
antitrust, and Oklahoma antitrust law. For purposes of understanding the district
court’s order, the water customers consist of three groups:
Group 1: those customers McAlester first served during the first period
of indebtedness, July 3, 1967 to February 24, 1989;
Group 2: those first served between February 24, 1989 and June 15,
1994, when Pitt-7 was not in debt to the federal government;
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Group 3: those first served after the June 15, 1994 federal loan, when
Pitt-7 incurred its latest debt to the federal government.
Regarding Group 1 customers, the district court concluded that Pitt-7’s §
1926 claims involving those customers were time-barred. The district court
reasoned that a two-year statute of limitations applied and that since the “instant
case was filed March 25, 1997 . . . all alleged encroachments occurring prior to
March 25, 1995 are barred by the statute of limitations.” Id. at 1101-02 (Dist. Ct.
Order, filed June 7, 2002, at 5.). As discussed below, we affirm this conclusion.
Regarding the other customers, the district court found that all properties
on which McAlester was serving water as of the beginning of the period (all but
one of the properties at issue) “do not fall within [Pitt-7’s]§ 1926(b) protected
territory.” Id. at 1101 (Dist. Ct. Order at 5). The district court reasoned that
“[w]hen a municipality is serving water to a property prior to a rural water
district’s F[M]HA loan date, the rural water district has no right to serve water to
that property, and thus [is entitled to] no 1926(b) protection.” Id. at 1101. In
addition, the district court held that “[a]pplication of Section 1926(b) protection
to customers that were served by the City prior to the June 1994 loan date would
constitute an unconstitutional taking.” Id.
As for the § 1926 claims based on sales to customers in the deannexed area,
the district court rejected those claims by Pitt-7 on three independent grounds:
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(1) that the Rooker-Feldman doctrine bars the district court from exercising
jurisdiction over the claim; (2) that “exercise of subject-matter jurisdiction to
review the Board’s deannexation order is also barred by res judicata, collateral
estoppel, claim and issue preclusion, and the Full Faith and Credit Act,” id. at
1104 n.5; and (3) that “state law adjustment of the boundaries of a rural water
district does not fall within the categories of actions that are prohibited by Section
1926(b).” Id. at 1105. As detailed below, we affirm in part and reverse in part
the district court’s holdings concerning claims arising from sales to Group 3
customers.
II. DISCUSSION
Overview
Our review of the district court’s ruling proceeds in six parts, (A)-(F). Part
(A) holds that the district court erred in concluding that it lacked jurisdiction
under the Rooker-Feldman doctrine. Part (B) analyzes the application of issue
preclusion, claim preclusion, and full faith and credit to this case, and holds that
the district court erred to the extent it held that each of those doctrines barred
Pitt-7’s suit. In Part (C), we hold that the district court did not violate the law of
the case. Part (D) holds that the district court erred in part in applying the
applicable statute of limitations. In Part (E), we discuss 7 U.S.C. § 1926 in some
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detail and hold that the district court erred in its application of that statute.
Finally, Part (F) analyzes the district court’s dismissal of Pitt-7’s claims for
injunctive relief under § 1926, federal antitrust laws, and state antitrust laws to
compel McAlester to sell water to Pitt-7 and holds that the dismissal was not
error.
A. Jurisdiction and Rooker-Feldman
The district court held that due to the proceedings in the Oklahoma courts,
Pitt-7 is precluded by the Rooker-Feldman doctrine “from challenging the validity
of the final state administrative rulings that removed the [denannexed area] from
[Pitt-7’s] territory.” Aplt’s App. at 1104. “The Rooker-Feldman doctrine is a
jurisdictional prohibition.” Kenmen Eng’g v. City of Union , 314 F.3d 468, 479
(10th Cir. 2002) (emphasis in original). We note that this court has previously
exercised jurisdiction in this case. Further, our earlier decision acknowledged,
and was decided subsequent to, the county and state court proceedings that were
the basis of the district court’s Rooker-Feldman jurisdictional holding on remand
and are the basis of McAlester’s jurisdictional arguments on appeal. Nonetheless,
we have an ongoing duty to ensure that our jurisdiction is proper; the right to
challenge jurisdiction is not subject to waiver. We review the district court’s
holding regarding subject matter jurisdiction de novo. See id. at 473.
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Subject matter jurisdiction generally does not vanish once it properly
attaches. See Freeport-McMoRan, Inc. v. K N Energy, Inc. , 498 U.S. 426, 428
(1991) (“We have consistently held that if jurisdiction exists at the time an action
is commenced, such jurisdiction may not be divested by subsequent events.”).
There are exceptions to this general rule, although none apply to this case. For
example, mootness will end jurisdiction where a controversy no longer exists.
See Spencer v. Kemna , 523 U.S. 1, 7 (1998). But mootness has not divested the
federal courts of jurisdiction in this case; the controversy is alive and well. And,
as we now discuss in detail, the proceedings before the Pittsburg Board of County
Commissioners concerning deannexation and the subsequent Oklahoma state court
decisions did not divest the federal district court of jurisdiction under the Rooker-
Feldman doctrine.
In this case, when Pitt-7 filed its initial Complaint in March 1997, the
federal district court possessed valid federal question jurisdiction over the federal
law claims arising under 42 U.S.C. § 1983, 7 U.S.C. § 1926, and federal antitrust
laws. See Chicago v. Int’l Coll. of Surgeons , 522 U.S. 156, 174 (1997)
(reaffirming that a case arises under federal law when “‘federal law creates the
cause of action or . . . the plaintiff’s right to relief necessarily depends on
resolution of a substantial question of federal law’”) (quoting Franchise Tax Bd.
of State of Cal. v. Constr. Laborers Vacation Trust for S. Cal. , 463 U.S. 1, 13
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(1986)). The federal district court also had supplemental jurisdiction over the
pendent state law antitrust claims to the extent the federal claims survived legal
challenge and the district court exercised its discretion to exercise supplemental
jurisdiction. See Chicago , 522 U.S. at 177 (stating that because the district court
had original jurisdiction over the plaintiff’s claims arising under federal law, the
district court “thus could exercise supplemental jurisdiction over the
accompanying state law claims so long as those claims constitute ‘other claims
that . . . form part of the same case or controversy.’”) (quoting 28 U.S.C. §
1367(a)). The jurisdictional question we must resolve is whether, under the
Rooker-Feldman doctrine, the proceedings in the Pittsburg Board of County
Commissioners and the Oklahoma state courts subsequent to the commencement
of the federal action operated to divest the federal district court of jurisdiction
over this action.
By federal statute, “[f]inal judgments or decrees rendered by the highest
court of a State in which a decision could be had, may be reviewed by the
Supreme Court by writ of certiorari.” 28 U.S.C. § 1257(a). The negative
inference from this statutory authorization is that “federal review of state court
judgments can be obtained only in the United States Supreme Court.” Kenmen ,
314 F.3d at 473 (internal quotation marks omitted). Thus, “ Rooker-Feldman
precludes a party losing in state court from seeking what in substance would be
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appellate review of a state judgment in a United States district court, based on the
losing party’s claim that the state court judgment itself violates the loser’s federal
rights.” Id. (internal brackets, ellipses and internal quotation marks omitted).
The Supreme Court has applied the Rooker-Feldman jurisdictional bar to
two categories of claims, those (1) actually decided by a state court, see Rooker v.
Fid. Trust Co. , 263 U.S. 413, 415 (1923); or (2) “inextricably intertwined” with a
state court judgment, see Dist. of Columbia Ct. of App. v. Feldman , 460 U.S. 462,
482 n.16 (1983) . Plainly, the merits of Pitt-7’s claims for relief based on alleged
violations of federal water rights law under 7 U.S.C. § 1926 and federal and
antitrust law were not actually decided by the Oklahoma district court, which
performed no merits analysis and dismissed Pitt-7’s appeal due to defective
service of process. Whether Pitt-7’s federal court claims are “inextricably
intertwined” with the Oklahoma state court’s judgment is the question that we
must resolve.
To apply the “intextricably intertwined” standard, we ask “‘whether the
injury alleged by the federal plaintiff resulted from the state court judgment itself
or is distinct from that judgment.’” Kenman , 314 F.3d at 476 (quoting Garry v.
Geils , 82 F.3d 1362, 1365 (7th Cir. 1996)). “In other words, we approach the
question by asking whether the state-court judgment caused, actually and
proximately, the injury for which the federal-court plaintiff seeks redress.”
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Kenman , 314 F.3d at 476 (emphasis omitted). If it did, Rooker-Feldman deprives
the federal court of jurisdiction; if it did not, Rooker-Feldman provides no bar.
Applying that standard, Pitt-7’s claims do not result from the state court
judgments dismissing, and then affirming that dismissal of, Pitt-7’s appeal of the
Board of County Commissioners’ deannexation for failure to perfect the appeal
with proper service. Rather, Pitt-7’s claims of alleged injury arise from (1) sales
by McAlester to customers that were within Pitt-7’s territorial boundary as of the
June 1994 loan from the federal government, when Pitt-7 argues that the
protections of 7 U.S.C. § 1926 attached; (2) the specter of McAlester refusing to
sell water to Pitt-7 in alleged violation of § 1926 and federal and state antitrust
laws; and (3) the act of deannexation by the Board of County Commissioners in
alleged violation of Pitt-7’s § 1926 rights. The remedies Pitt-7 seeks – damages,
an injunction, and a declaratory judgment – are not dependent on an overturning
in form or substance the state district court’s dismissal of Pitt-7’s appeal of the
deannexation order or the OCCA’s affirmance of that decision.
The timing of the deannexation proceedings corroborates this notion: with
the exception of the deannexation, which had not yet occurred at the time of the
filing of the Complaint and First Amended Complaint, the actions of the
defendants that formed the basis of both iterations of the complaint had all been
completed prior to the deannexation proceedings. The core of Pitt-7’s claim, even
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as pleaded in the Second Amended Complaint, which was filed subsequent to the
deannexation, is that McAlester has for years been selling water to certain
customers that Pitt-7 claims it has the exclusive right to service under 7 U.S.C. §
1926, an argument the merits of which we address later in this opinion. We thus
hold that the Oklahoma state court proceedings provide no bar to Pitt-7’s claims
under Rooker-Feldman . Accord Kenmen , 314 F.3d at 477 (holding that the claim
was barred in part because the plaintiffs sought “monetary damages attributable to
losses they sustained as a result of being forced – by state court order – to
remove magnesium from their Union City storage facility”). 3
B. Preclusion
In addition to finding Pitt-7’s claims barred by the Rooker-Feldman
doctrine, the district court held that its “exercise of subject-matter jurisdiction” is
also barred by (1) issue preclusion, (2) claim preclusion and (3) the Full Faith and
3
See also Charles Wright and Arthur Miller, 18 B Fed. Prac. & Proc. §
4469.1 (2003) (“A decision not on the merits also does not oust federal
jurisdiction to decide on the merits.”); Whiteford v. Reed , 155 F.3d 671, 674 (3d.
Cir. 1998) (“[T]his court has consistently held that where a state action does not
reach the merits of a plaintiff’s claims, then Rooker-Feldman does not deprive the
federal court of jurisdiction.”).
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Credit Act. Aplt’s App. at 1104 n.5. As we now discuss, the district court erred
in its application of these three preclusion doctrines. 4
1. Issue Preclusion
We apply Oklahoma state law to determine the preclusive effect, if any, of
the Pittsburg County and Oklahoma proceedings on this federal court action. See
McFarland v. Childers, id. at 1185 (10th Cir. 2000). “Under Oklahoma law, ‘once
a court has decided an issue of fact or law necessary to its judgment, the same
parties or their privies may not relitigate the issue in a suit brought upon a
different claim.’” Id. at 1185 (quoting Fent v. Okla. Natural Gas Co., 898 P.2d
126, 133 (Okla. 1994)). Here, none of the issues disputed in this federal case
were actually decided by the Oklahoma state courts or necessary to their
judgments; the state court rulings were essentially limited to determining the
propriety of service by Pitt-7 in attempting to perfect its appeal of the
deannexation. Thus, under issue preclusion doctrine, the Oklahoma state courts’
rulings do not bar Pitt-7’s claims in this action.
4
We note also that unlike Rooker-Feldman, none of these doctrines goes to
“jurisdiction” as the district court phrased it. Rather, preclusion doctrines provide
affirmative defenses once a court exercises jurisdiction over a civil action, and
they are subject to waiver where not timely raised. See, e.g., Horwitz v. State Bd.
of Med. Exam’rs of State of Colo., 822 F.2d 1508, 1512 (10th Cir. 1987).
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Regarding whether issue preclusion flowed directly from the Pittsburg
County Board of Commissioners’ deannexation order, we note initially that the
Board was sitting as a quasi-judicial body. Regardless, though, of the resolution
of that question, the Board’s order does not preclude Pitt-7’s claims in this case
because it did not resolve the merits of any of the § 1926, federal or state antitrust
claims at issue in this action. The Board merely found that the statutory standard
for deannexation—that “the granting of the petition is to the best interests of the
affected landowners and the district,” Okla. Stat. Ann, tit. 82, § 1324.21 – was
satisfied, and the Board thus granted the deannexation petition. See Aples’ Supp.
App. at 355 (Certificate Releasing Lands, issued Jun. 27, 1997). In contrast, the
questions before us concern primarily the legality under federal law of sales by
McAlester before and after the deannexation to customers within Pitt-7’s
territorial border as it stood on June 15, 1994, the date Pitt-7 entered into an
FMHA loan. Accordingly, issue preclusion flows from neither the proceedings
before the Board nor the proceedings before the Oklahoma courts to bar Pitt-7’s
claims in this case.
2. Claim Preclusion
We next analyze whether, under Oklahoma law, the doctrine of claim
preclusion bars Pitt-7’s claims in this case. We consider the alleged preclusion of
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both the deannexation order and the subsequent state court appeal dismissed for
lack of jurisdiction. Under Oklahoma law (which does not differ importantly
from federal law in its treatment of claim preclusion), “a final judgment on the
merits of an action precludes the parties or their privies from relitigating issues
that were or could have been raised in that action.” Panama Processes, S.A. v.
Cities Serv. Co., 796 P.2d 276, 283 n.27 (Okla. 1990) (emphasis in original). The
question then is whether the claims raised by Pitt-7 in this action could have been
raised and adjudicated on the merits in the proceedings before the Pittsburg Board
of County Commissioners and the subsequent appeal of the deannexation Order to
the state courts. We conclude that they could not have been.
The administrative proceeding at issue here – the deannexation proceeding
– was one of quite limited substantive and remedial scope. Although a party
may, as Pitt-7 did, file a petition in such a proceeding opposing deannexation on
the ground that deannexation would violate federal law, the applicable standard in
such a proceeding is not one established by federal law. Rather, the issue is
whether Oklahoma’s statutory standard for deannexation is met. Unlike
Oklahoma district courts, the Board is not a court of general jurisdiction. Rather,
the Board is a state-created agency with a narrow and specific jurisdiction when it
comes to water districts, determining whether “the granting of the petition is to
the best interests of the affected landowners and the district.” Okla. Stat. Ann.,
-23-
tit. 82, § 1324.21. That determination is a fact-based, political, and policy-based
calculus; it is not on its face one requiring, beyond that one judgment, application
of federal or state law.
Thus, in the state administrative proceeding, Pitt-7 could not have “raised”
– in the sense of lodging a complaint of law and seeking a legal or equitable
remedy – the § 1926, federal antitrust, or Oklahoma antitrust claims at issue in the
current suit. Under these circumstances, ordinary claim preclusion principles
would not prevent the later assertion of a § 1983 claim (or any other beyond the
competence of the Board of County Commissioners) following the Board’s
determination, even for a claim based on the same set of transactions that led to
the deannexation proceeding. See Dority v. Green Country Castings Corp., 727
P.2d 1355, 1360 (stating that “[t]he Restatement (Second) of Judgments [§ 83(3)
(1982)] withholds res judicata effect from an agency’s adjudicative decision if
pursuit of a related claim in another tribunal would not disturb ‘the scheme of
remedies affordable by the administrative tribunal’”); Restatement (Second) of
Judgments § 26(1)(c) (1982) (noting that claim preclusion is inapplicable where a
plaintiff is “unable to rely on a certain theory of the case or to seek a certain
remedy or form of relief in the first action because of the limitations on the
subject matter jurisdiction of the [administrative tribunal]”).
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Moreover, the Supreme Court has recognized that “Congress realized that
in enacting § 1983 it was altering the balance of judicial power between the state
and federal courts,” and that “in doing so, Congress was adding to the jurisdiction
of the federal courts, not subtracting from that of the state courts.” Allen v.
McCurry, 449 U.S. 90, 99 (1980) (internal citation and internal quotation marks
omitted). Section 1983 was enacted “to afford a federal right in the federal
courts.” Monroe v. Pape, 365 U.S. 167, 180 (1961), overruled on other grounds,
Monell v. New York City Dept. of Soc. Servs., 436 U.S. 658 (1978). “There is no
support in § 1983’s legislative history for a conclusion that, contrary to traditional
claim preclusion principles, an adjudication in a state administrative tribunal of
limited jurisdiction should preclude a later § 1983 action in federal court.”
Dionne v. Mayor and City Council of Baltimore, 40 F.3d 677, 684 (4th Cir.
1994); see also Haring v. Prosise, 462 U.S. 306, 322 n.11 (1983) (“[W]e fail to
understand how [judicial economy] interests justify the adoption of a rule that
would bar the assertion of [federal law] claims which have never been
litigated.”); Frazier v. King, 873 F.2d 820, 824 (5th Cir. 1989) (concluding that a
rule of claim preclusion “would encourage plaintiffs to bypass administrative
proceedings in order to preserve their claims under § 1983”). Indeed, due to
Congress’s desire to provide a federal forum for the vindication of federal rights,
-25-
§ 1983 contains no exhaustion requirement. Patsy v. Bd. of Regents of State of
Fla., 457 U.S. 496, 516 (1982).
It was therefore wholly proper for Pitt-7 to initiate this federal court action
in March 1997 to attempt to vindicate its federal § 1926 and antitrust and pendent
state antitrust claims in a federal forum without any predicate state proceedings.
Pitt-7 could have filed a § 1983 action in state court alleging the § 1926 and
antitrust claims at issue in this case. See, e.g., Hondo, Inc. v. Sterling, 21 F.3d
775, 780 (7th Cir. 1994) (noting that the plaintiffs in that case “could have
brought a § 1983 claim in state court”). However, as was its right under § 1983,
Pitt-7 chose a federal forum to vindicate its federal rights.
Accordingly, we conclude that the district court erred in applying claim
preclusion from the Oklahoma proceedings to this case. We turn now to review
the district court’s full faith and credit holding.
3. Full Faith and Credit
A judgment of a state court must be accorded “the same full faith and credit
in every court within the United States . . . as [it has] by law or usage in the
courts of such State.’” Saavedra v. City of Albuquerque, 73 F.3d 1525, 1534 n.2
(10th Cir. 1996) (quoting 28 U.S.C. § 1738). As noted above, regarding “the
decision of the Board of County Commissioners releasing lands from the water
-26-
district,” the OCCA held that “[t]hat decision is final and binding on the water
district even if based on erroneous application of federal law. It is not subject to
collateral attack or an equitable challenge, such as declaratory relief.” Aples’
Supp. App. at 210. Thus, the district court was (and is on remand) bound under
the full faith and credit statute not to overturn the Board’s deannexation.
However, contrary to the district court’s holding, the full faith and credit
statute does not bar the various claims and remedies sought by Pitt-7 other than
striking the deannexation order: neither the Board nor the Oklahoma courts made
any holdings on the § 1926 and antitrust claims brought in the instant suit by Pitt-
7, nor did any of their judgments foreclose any of the additional remedies sought
by Pitt-7. Nor, as we discuss below in our analysis of the merits of Pitt-7’s §
1926 claims, did the deannexation order lessen Pitt-7’s § 1926 rights. Thus, the
district court erred to the extent it held that the claims filed by Pitt-7 were barred
by full faith and credit.
C. Law of the Case
Pitt-7 argues that the district court’s rulings on both the statute of
limitations of the § 1926 claim and the merits of the § 1926 claim violated the law
of the case. “The ‘law of the case’ doctrine requires every court to follow the
decisions of courts that are higher in the judicial hierarchy.” Guidry v. Sheet
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Metal Workers Int’l Ass’n, Local No. 9, 10 F.3d 700, 705 (10th Cir. 1993)
(emphasis supplied). “The doctrine applies to issues previously decided, either
explicitly or by necessary implication.” Id. “When further proceedings follow a
general remand, the lower court is free to decide anything not foreclosed by the
mandate issued by the higher court.” Id. The law of the case doctrine is “not an
inexorable command but a rule to be applied with good sense.” Mason v. Texaco,
Inc. 948 F.2d 1546, 1553 (10th Cir. 1991) (internal quotation marks omitted). It
is “a rule of practice, based upon sound policy that when an issue is once litigated
and decided, that should be the end of the matter.” Id. (quoting United States v.
Smelting Ref. & Mining Co., 339 U.S. 186, 198 (1950)).
Applying those standards, we hold that law of the case did not bar the
district court’s rulings on remand. Most significantly, nothing in the district
court’s ruling violated this court’s previous Order & Judgment. Further, to the
extent that the district court’s ruling contradicted the previous district court
rulings in this case, two factors counsel that we decline to apply the law of the
case bar. First, the remand to the district court was general, stating only that the
remand was “for further proceedings consistent with this opinion.” Pitt-7, 2000
WL 525992, at **5; see also Mason, 948 F.2d at 1552 (“[W]hen the further
proceedings are specified in the mandate the district court is limited to holding[s]
such as are directed. When the remand is general, however, the district court is
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free to decide anything not foreclosed by the mandate.”). Second, “the purposes
of 7 U.S.C. § 1926(b) are to encourage rural water development and to safeguard
the interest of the United States in having its loans repaid – both purposes aimed
at promoting the public interest.” Jennings Water, Inc. v. City of North Vernon,
Indiana, 682 F. Supp. 421, 426 (S.D. Ind. 1988), aff’d, 895 F.2d 311 (7th Cir.
1989).
We are therefore reluctant to exercise our discretion under the law of the
case doctrine to avoid the merits in a § 1926 case. Cf. id. (“[A]s a matter of law
estoppel cannot be involved to subvert the application of a statute enacted in the
public interest.”). Accordingly, based on our discretion and sound policy
considerations, we hold that none of the district court’s rulings violated the law of
the case.
D. Statute of Limitations
Because the district court’s statute of limitations rulings present questions
requiring the interpretation of federal statutory law, our review is de novo. See
Seneca-Cayuga Tribe of Oklahoma v. Nat’l Indian Gaming Comm., 327 F.3d
1019, 1030 (10th Cir. 2003). Regarding the statute of limitations, Pitt-7 argues
that the district court’s holding that Pitt-7’s § 1926 claims were time-barred
-29-
conflicts with our decision in Sequoyah County Rural Water Dist. No. 7 v. Town
of Muldrow, 191 F.3d 1192 (10th Cir. 1999).
Pitt-7’s challenge to the district court’s statute of limitations ruling is
correct in part. As we now discuss, the district court’s ruling that the claims
based on the Group 1 customers (those first served by McAlester from July 3,
1967 to February 24, 1989) are time-barred was not inconsistent with Sequoyah;
however, the ruling that § 1926 claims based on sales to other customers are
time-barred was error under Sequoyah.
Regarding the claims for sales to Group 1 customers, Sequoyah did not
reach either the issue of whether the claims were filed within the applicable
statute of limitations or whether application of § 1926 would constitute an
unconstitutional taking, the key bases for the district court’s ruling on the § 1926
claims concerning Group 1 customers. We have noted that Ҥ 1983 claims are
best characterized as personal injury actions,” and that therefore “the forum
state’s personal injury statute of limitations should be applied to all § 1983
claims.” Blake v. Dickason, 997 F.2d 749, 750 (10th Cir. 1993) (internal
quotation marks omitted). The district court found, and the parties do not dispute,
that a two-year statute of limitations applies to the § 1983 action, since that is the
limitations period under Oklahoma law for a personal injury cause of action. See
Aplt’s App. at 1100 n.3; Okla. Stat. Ann. tit. 12, § 95. The original complaint in
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this case was filed on March 25, 1997. Thus, unless there is an applicable
exception, all claims that accrued prior to March 25, 1995, are time-barred.
As noted above, it is settled under our previous Order & Judgment in this
case that Pitt-7 was “not indebted to [the FMHA] from February 24, 1989, the
date of the repurchase, to June 15, 1994, the date of the most recent loan, and
[therefore] cannot claim § 1926 protection for this time period.” Pittsburg
County, 2000 WL 525942, at **3. This necessarily means that no violations
could have occurred during the period between February 24, 1989, the date the
first loan was extinguished, and June 15, 1994, the date Pitt-7 next assumed
obligations under the second loan agreement with the FMHA. Thus, the prior
alleged violations could not have been “continuing” between 1989 and 1994;
claims based solely on the pre-January 24, 1989 loan period became time-barred
in 1991. This case is thus distinguishable from the case primarily relied on by
Pitt-7, Rural Water System # 1 v. City of Sioux Center, Iowa, 967 F.Supp. 1483,
1508 (N.D. Iowa 1997)(“Actions that are alleged to be part of this series or
pattern of wrongful acts have continued to occur until well within the limitations
period.”), aff’d, 202 F.3d 1035 (8th Cir. 2000). The district court thus did not err
in dismissing those claims based on alleged pre-March 25, 1995 violations.
In contrast, the district court’s ruling on claims based on sales to other
customers was problematic. The district court held that “[w]hen a municipality is
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serving water to a property prior to a water district’s F[M]HA loan date, the rural
water district has no right to serve water to that property, and thus, no 1926(b)
protection.” Aplt’s App. at 1101. However, faced with claims identical in
structure to the continuing violation claims at issue here (i.e., claims that the
municipality violated § 1926 by continuing to provide service during the protected
period), Sequoyah authorized a cause of action by a water district that became
indebted on an FMHA loan against a municipality where two conditions are
satisfied. To prevail under Sequoyah, a water district must demonstrate for the
property in question that during the protected period, it (1) was in debt to the
federal government through a loan administered by the FMHA and (2) made
service available. Sequoyah, 191 F.3d at 1201-05 (analyzing § 1926(b)).
Sequoyah held that there existed disputed issues of material fact on the second
prong of § 1926 and remanded the case. The fact that a municipality had
provided service to those properties prior to the FMHA loan was no bar in
Sequoyah to claims arising out of a city’s service during the period of
indebtedness.
Nothing in our prior Order and Judgment in this case was to the contrary.
The district court’s ruling conflicts with Sequoyah and was therefore error.
Contrary to the district court’s ruling, all § 1926 claims based on service by
McAlester to customers within the limitations period were not otherwise barred
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by the fact that McAlester was serving those customers prior to the 1994 loan.
We turn now to assess the merits of the district court’s § 1926 rulings.
E. Did the district court err on the merits in granting summary judgment
on the § 1926 claims?
We review the district court’s grant of summary judgment de novo,
applying the same legal standard used by the district court. Kaul v. Stephan , 83
F.3d 1208, 1212 (10th Cir. 1996). Summary judgment is appropriate “if the
pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of
law.” Fed. R. Civ. P. 56(c). In applying this standard, we draw all justifiable
inferences in favor of Pitt-7 as the non-moving party. Anderson v. Liberty Lobby,
Inc. , 477 U.S. 242, 255 (1986). We review de novo the district court’s
determination that Pitt-7’s § 1926(b) rights were terminated by the deannexation
because it involves an interpretation of federal statutory law. Seneca , 327 F.3d at
1030. We analyze Pitt-7’s § 1926 claim in two steps. First, we analyze the rights
Pitt-7 possessed under § 1926 prior to the deannexation and conclude that the
district court must make findings on remand as to whether Pitt-7 has satisfied the
requisite elements. Second, we explain why, if Pitt-7 indeed has such § 1926
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rights, those rights are enforceable against McAlester for post-deannexation sales
to customers in the deannexed area.
1. Pitt-7’s § 1926 rights from June 15, 1994 up to the Time of the
Deannexation
We analyze whether Pitt-7 qualified for § 1926 rights by applying the
standards we articulated in Sequoyah . That decision stated that “to receive the
protection against competition provided by § 1926(b)[,] a water association must
(1) have a continuing indebtedness to the F[M]HA and (2) have provided or made
available service to the disputed area.” Id. at 1197. The analysis on the first
prong is fairly clear: from June 15, 1994 to the present, Pitt-7, undisputedly a
water district, has been indebted to the federal government under a loan governed
by the terms of § 1926.
On the second prong – whether Pitt-7 has provided or made service
available – we are hamstrung in our analysis by the district court’s failure to
follow our instructions on remand. Our prior Order & Judgment in this case
stated that “[w]e . . . reverse and remand because the district court applied the
wrong standard to determine whether the District made service available to the
disputed customers.” 2000 WL 525942, at **4. The Order & Judgment noted
that “the district court seems to have limited its examination to [Pitt-7’s] ability to
provide service today, when a water association meets the pipes-in-the-ground
-34-
test by demonstrating 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. (internal quotation marks omitted) (emphasis in original). “At the
very least,” we stated, “the district court must address the reasonableness of the
time estimates on remand.” Id.
Unfortunately, the district court on remand did not “address the
reasonableness of the time estimates,” nor did the district court make any findings
on whether Pitt-7 has made service available. Rather, the district court rested its
conclusion that Pitt-7’s § 1926 claims fail on its holding that the actions of
McAlester are not those proscribed by § 1926. In doing so, the district court did
not resolve the critical threshold question of whether Pitt-7 has made service
available, the second prong of the § 1926 eligibility test. This omission was
error, and on remand, we reiterate the instructions from our Order and Judgment
that the district court make findings on this second prong of the § 1926 test.
Specifically, the district court is instructed to, for the dates within the limitations
period, analyze for each disputed property whether Pitt-7 made service
“available.”
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2. Assuming Pitt-7 is Entitled to § 1926 Protections, May Pitt-7
Assert § 1926 Rights Against McAlester for Post-Deannexation
Sales to Customers in the Deannexed Area?
We turn now to analyze whether, assuming that Pitt-7 was entitled to §1926
protection, the district court correctly held that Pitt-7’s § 1926 claim failed
because “state law adjustment of the boundaries of a rural water district does not
fall within the categories of actions that are prohibited by Section 1926(b).”
Aplt’s App. at 1105. McAlester argues that the district court’s ruling should be
upheld because § 1926 does not apply to the acts of the defendants in this case,
and that if § 1926 is read to apply to the acts of the defendants in this case, that
application would violate the Constitution’s spending clause, constitute an
unconstitutional taking, and eviscerate states’ regulatory protections against
exorbitant pricing by rural water associations. We address each contention in
turn.
a. Assuming Pitt-7 Is Entitled to Section 1926 Rights, Does
Section 1926 Apply to McAlester’s Conduct?
We first discuss the scope of § 1926 and then apply the statute to
McAlester’s conduct.
i. The Scope of Section 1926
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Section 1926(b) provides that, for an association indebted to the FMHA,
“[t]he service provided or made available . . . 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). In support of the district court’s ruling, McAlester contends
that under a literal reading of § 1926, its actions do not violate § 1926 because
“[t]o run afoul of Section 1926(b), a municipality must actively compete for the
disputed water customer, by moving into the disputed territory through inclusion
of the territory within its corporate boundaries.” Aples’ Br. at 44. Because
McAlester did not do so, it maintains that it therefore could not have violated §
1926. Challenging the district court’s ruling, Pitt-7 argues that such a literalistic
reading of § 1926 is impermissibly narrow under our decisions.
We are persuaded by Pitt-7’s argument. We have recognized that
“Congress enacted 7 U.S.C. § 1926(b) as part of a federal statutory scheme to
extend loans and grants to certain associations providing . . . water service or
management . . . or essential community facilities to farmers, ranchers, and other
rural residents.” Glenpool Util. Servs. Auth. v. Creek County Rural Water Dist.
No. 2, 861 F.2d 1211, 1214 (10th Cir. 1988). We have noted that “[d]oubts about
whether a water association is entitled to protection from competition under §
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1926(b) should be resolved in favor of the F[M]HA-indebted party seeking
protection for its territory.” Sequoyah , 191 F.3d at 1197. See also North Alamo
Water Supply Corp. v. City of San Juan, Tex. , 90 F.3d 910, 915 (5th Cir. 1996)
(“The service area of a federally indebted water association is sacrosanct. Every
federal court to have interpreted § 1926(b) has concluded that the statute should
be liberally interpreted to protect F[M]HA- indebted rural water associations from
municipal encroachments.”).
Federal courts’ broad construction of § 1926(b) reflects the two key goals
underlying its enactment. The first was “to provide greater security for the
federal loans made under the program.” Sequoyah , 191 F.3d at 1196. By
“protecting the territory served by such an association facility against competitive
facilities, which might otherwise be developed with the expansion of the
boundaries of municipal and other public bodies into an area served by the rural
system,” id. , § 1926 protects the financial interests of the United States, which is
a secured creditor of the water association, from reduction of the water
association’s revenue base. The second interest is the promotion of rural water
development “by expanding the number of potential users of such systems,
thereby decreasing the per-user cost.” North Alamo , 90 F.3d at 915. 5
5
The Senate Report of the bill that enacted § 1926 stated:
(continued...)
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We have noted that § 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 .” Glenpool , 861 F.2d at
1214. In light of this congressional mandate, where the federal § 1926
protections have attached, § 1926 preempts local or “state law [that] can be used
to justify a municipality’s encroachment upon disputed area in which an indebted
association is legally providing service under state law.” Rural Water Sys. No. 1 ,
967 F. Supp. at 1529, cited with approval in Sequoyah , 191 F.3d at 1202, 1202
n.8, 1203, and 1204 n.10.
5
(...continued)
This section would broaden the utility of this authority [of the
Department of Agriculture to aid rural entities] somewhat by authorizing
loans to associations serving farmers, ranchers, farm tenants, and other
rural residents. This provision authorizes the very effective program of
financing the installation and development of domestic water supplies
and pipelines serving farmers and others in rural communities. By
including service to other rural residents, the cost per user is decreased
and the loans are more secure in addition to the community benefits of
a safe and adequate supply of running household water. A new provision
has been added to assist in protecting the territory served by such an
association against competitive facilities, which might otherwise be
developed with the expansion of the boundaries of municipal and other
public bodies into an area served by the rural system.
S. Rep. No. 566, 87th Cong., 1st Sess., reprinted in 1961 U.S.C.C.A.N. 2243,
2309 (emphasis supplied).
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To the extent that a local or state action encroaches upon the services
provided by a protected water association, the local or state act is invalid. See
Title Ins. Co. of Minn. v. I.R.S., 963 F.2d 297, 300 (10th Cir. 1992) (noting that
“under the Supremacy Clause of the United States Constitution, Article VI,
Clause 2, federal law preempts and invalidates state law which interferes with or
is contrary to federal law.”); Blue Circle Cement, Inc. v. Bd. of County Comm’rs
of County of Rogers , 27 F.3d 1499, 1504 n.4 (10th Cir. 1994) (“‘[F]or the
purposes of the Supremacy Clause, the constitutionality of local ordinances is
analyzed in the same way as that of statewide laws.’”) (quoting Hillsborough
County v. Automated Med. Lab., Inc. , 471 U.S. 707, 713 (1985)). There is thus
preemption of any local or state law that purports to take away from an indebted
rural water association any territory for which the association is entitled to invoke
the protection of § 1926(b).
ii. Applying § 1926 to McAlester’s Conduct
If the district court determines on remand that Pitt-7 meets the two-part test
for § 1926 protection regarding the deannexed area, the question becomes
whether McAlester’s sales to customers in the deannexed area purport to take
away from Pitt-7’s § 1926 protected sales territory. It is clear that they do. The
deannexation, ordered after McAlester and others petitioned the County Board of
-40-
Commissioners, was aptly titled “Certificate Releasing Lands from Rural Water
District No. 7, Pittsburg County, Oklahoma;” it literally ordered, regarding the
designated portions of Pitt-7’s territory, that “such lands be released from [Pitt-
7].” Aples’ Supp. App. at 354-55. McAlester’s alleged sales in § 1926-protected
territory, subsequent petitioning for the deannexation of a portion of Pitt-7’s
territory, and commencement of sales to customers in the deannexed area would
violate “the 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 .” Glenpool , 861 F.2d at 1214. To read § 1926
otherwise would be inconsistent with the understanding of the statute that we
have previously adopted. When § 1926 protection attaches for a water district’s
service to a property within the water district’s territory under the two-part test
from Sequoyah, the water district has exclusive water service rights over that
property until the water district’s loan to the FMHA is paid off or the water
district fails to make service “available” to the property in question. We thus
hold that if Pitt-7 was entitled to § 1926 protection, the deannexation order is no
-41-
bar to McAlester’s liability and that McAlester’s conduct falls within the conduct
proscribed by § 1926. 6
b. Spending Clause
The district court did not address the Constitution’s Spending Clause.
McAlester, however, argues that if § 1926 is read to apply in this case, that
application would exceed the scope of the federal Spending Clause power.
We disagree. The Spending Clause provides that “[t]he Congress shall
have Power To . . . provide for the common Defence and general Welfare of the
United States.” U.S. Const. art. I, § 8, cl. 1. Section 1926 has been repeatedly
upheld as a valid exercise of Congress’s authority under the Spending Clause.
See, e.g. , Glenpool, 861 F.2d at 1215-16 & 1215 n.1 (explaining that the
conditions imposed by § 1926 on Oklahoma municipalities that enter into loan
agreements with the FMHA fit comfortably within Congress’s spending clause
6
Thus, the § 1926 protections, to the extent Pitt-7 qualified for such
protections, were established as of June 15, 1994, and not altered by the
deannexation. Federal, not state law, controls the geographic scope of the § 1926
protections, which attach as of the entry into the loan agreement and remain as
long as the conditions for § 1926 protection discussed above – FMHA
indebtednesss and service “made available” – are met. We therefore need not
address the parties’ dispute concerning whether under Oklahoma law, water
districts may only sell water within the district’s borders.
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powers because “Oklahoma, through its authorized entity . . . bound itself and all
its subdivisions, including [cities], to the conditions it had accepted”).
Application of § 1926 to the facts of this case is similarly consistent with
the limits of the Spending Clause. “Congress’ spending power enables it to
further broad policy objectives by conditioning receipt of federal moneys upon
compliance by the recipient with federal statutory and administrative directives.”
Kansas v. United States , 214 F.3d 1196, 1198 (10th Cir. 2000) (quoting Fullilove
v. Klutznick , 448 U.S. 448, 474 (1980)). There are “four general restrictions on
Congress’ exercise of power under the Spending Clause.” Kansas , 214 F.2d at
1199. “First, Congress’s object must be in pursuit of the general welfare.” Id.
(internal quotation marks omitted). “Second, if Congress desires to place
conditions on the states’ receipt of federal funds, it must do so unambiguously so
that states know the consequences of their decision to participate.” Id. “Third,
the conditions must be related to the federal interest in the particular program.
The required degree of this relationship is one of reasonableness or minimum
rationality.” Id. (internal citation and quotation marks omitted). “Fourth, there
can be no independent constitutional bar to the conditions.” Id. “[T]he fourth
restriction stands for the more general proposition that Congress may not induce
the states to engage in activities that would themselves be unconstitutional.” Id.
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The only one of these factors seriously contested by McAlester is the
second factor: whether Congress has placed conditions on the receipt of federal
funds in loans to rural water districts “unambiguously.” McAlester argues that if
we apply § 1926 in this case, “the State of Oklahoma would have never had an
opportunity to choose not to accept the funds that were borrowed by [Pitt-7] in
1994 . . . Congress will have failed to state the conditions imposed by Section
1926(b) with sufficient clarity.” Aples’ Br. at 48.
We disagree. The Oklahoma legislature formed the water districts so that
the state, through the water districts, could avail itself of the loans made available
through § 1926, i.e. “to borrow money from the federal government to accomplish
the purposes for which they are established.” Sequoyah, 191 F.3d at 1194. Given
§ 1926’s text and the judicial decisions referenced above uniformly announcing
and applying a rule of liberal construction to effectuate the statute’s purposes, the
State of Oklahoma and its subdivisions were on sufficient notice that through
their choice to borrow money from the federal government, they agreed to abide
by § 1926(b)’s proscriptions, including those against shrinking the protected rural
water association’s service area. We thus reject McAlester’s attempt to save the
district court’s judgment by reference to limits under the Spending Clause.
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c. Takings Clause
Next, McAlester argues that the district court was correct in concluding
that “application of § 1926(b) protection to customers that were served by
McAlester prior to the June 15, 1994 loan date would constitute an
unconstitutional taking.” Aples’ Br. at 50. 7 We disagree. Application of 7
U.S.C. § 1926 to Group 1 or Group 2 customers decisively does not constitute a
taking; indeed, the federal government’s loan of several hundred thousand dollars
to Pitt-7 as a subdivision of the State of Oklahoma is the near-opposite of a
taking.
The Takings Clause of the Fifth Amendment provides: “[N]or shall private
property be taken for public use, without just compensation.” U.S. Const. amend.
V. “The aim of the Clause is to prevent the government from forcing some
people alone to bear public burdens which, in all fairness and justice, should be
borne by the public as a whole.” Eastern Enters. v. Apfel, 524 U.S. 498, 522
(1998) (internal quotation marks omitted). When a regulation adjusts the benefits
and burdens of certain economic action to promote the common good, such
regulation may in certain circumstances effect a taking. See id. at 522-23.
7
McAlester does not advance this argument regarding Group 3 customers,
presumably because, since the § 1926 protections would have attached prior to the
Group 3 customer sales, there were no customer relationships of McAlester’s to
“take.”
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A party challenging governmental action as an unconstitutional taking
“bears a substantial burden.” Id. at 523. “In light of that understanding,” the
Supreme Court has stated, “the process for evaluating a regulation’s
constitutionality involves an examination of the justice and fairness of the
governmental action.” Id. (internal quotation marks omitted). To aid lower
courts engaging in such an examination, the Supreme Court has “identified
several factors . . . that have particular significance: the economic impact of the
regulation, its interference with reasonable investment backed expectations, and
the character of the governmental action.” Id. (internal quotation marks omitted).
Applying these three factors compels our holding that no taking is effected
in this case by application of § 1926. First, as for economic impact, the
regulation in question flowed from an agreement in which the federal government
loaned Pitt-7, a political subdivision of the State of Oklahoma, more than
$160,000 to aid the water district’s development, at an attractive fixed interest
rate of five percent.
As for reasonable investment-backed expectations, under § 1926 and the
judicial decisions construing that statute, the State of Oklahoma was on
sufficiently clear notice that interference with the boundaries of a rural water
association during the period that they were protected by § 1926 rights was
precluded by law. To the extent McAlester invested in infrastructure on the
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assumption that § 1926 was no bar to sales in the deannexed portion, that
assumption was not reasonable.
Finally, the character of the imposition of federal law on the state entities
in particular confirms the reasonableness of requiring McAlester as a subdivision
of the State of Oklahoma to comport with the conditions of § 1926. The
requirements of § 1926 flow, not from legislative or executive fiat, but from the
entry by a water district – a state subdivision – into an agreement to borrow
money from the federal government. The State of Oklahoma was “ultimately free
to reject both the conditions and the funding, no matter how hard that choice may
be.” Kansas, 214 F.3d at 1203. “[O]ffers of conditioned benefits,” such as those
available to capital-starved rural water associations through preferable loan terms
from the federal government, “‘expand rather than contract the options of the
beneficiary class, and so present beneficiaries with a free choice.’” Id. (quoting
Kathleen M. Sullivan, Unconstitutional Conditions, 102 Harv. L. Rev. 1413, 1428
(1989)). In addition, the State of Oklahoma could end the restrictions imposed by
§ 1926 by paying off Pitt-7’s loan and thus ending the period of indebtedness
critical to § 1926 protection. We note also that the constraints imposed by § 1926
do not preclude McAlester from selling water. Presumably, McAlester’s facilities
remain a source of significant revenue: we see no reason why McAlester may not
sell water wholesale to Pitt-7 or to nearby suppliers, or retail to customers in non-
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§ 1926-protected areas in the vicinity. For all of these reasons, we conclude that
the district court erred in ruling that application of § 1926 to those customers first
served by McAlester (Groups 1 and 2) would constitute a taking.
d. Regulation of Rural Water Districts
The district court read § 1926 not to apply to this case because, in its view,
to apply § 1926 to the facts of this case “would limit [the] County
Commissioner’s ability to release and separate areas from a water district even
when it was in the best interests of the landowners and the water district to do
so.” Aplt’s App. at 1104-05. Similarly, McAlester advances the policy argument
that if we decline to recognize the right of a local government to deannex portions
of a rural water association protected by § 1926, no regulatory bar will remain to
constrain §1926-protected rural water districts from charging excessively high
prices. Although the prospect of such a scenario would give us reason to pause,
we do not find McAlester’s parade of horribles an accurate depiction of the
regulatory framework in place before, or after, our decision today.
McAlester relies on the argument in a dissenting opinion to our circuit’s
holding in Rural Water Dist. No. 1, Ellsworth County, Kan. v. City of
Wilson,Kan. , 243 F.3d 1263 (10th Cir. 2001). The dissent in that case reasoned
that rural water customers dissatisfied with high-cost water provided by the
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federally sanctioned monopoly water association could file under the Kansas
analogue to Oklahoma’s deannexation statute for “release of lands from the water
districts service area.” Id. at 1276 (Briscoe, J., concurring in part and dissenting
in part).
However, rural water associations protected by § 1926 are subject to price
restraints under the threat of losing their § 1926 protection. They are not free at
their whim to price monopolistically. As we have stated, “even [if] a rural water
district 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, the cost of
those services may be so excessive that it has not made those services available
under § 1926(b).” Id. at 1271 (majority) (internal citations and quotation marks
omitted) (emphasis supplied). “[I]f the city can show that [the rural water
district’s] rates or assessments were unreasonable, excessive, and confiscatory,”
we stated, “then the water district has not made services available under §
1926(b),” and therefore is not entitled to § 1926 protection. Id.
We reaffirm this approach today. This manner of factoring in cost, in
addition to being binding circuit law, is a sensible rule as a policy matter. We
mitigate the tendency of monopolists to price exorbitantly by conditioning the
right to earn the governmentally sanctioned monopolist status on the water
association’s employing prices that, even if high, are not prohibitive. The
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doctrine’s aim is to help avoid the unattractive scenario of water remaining
unavailable as a practical matter due to excessively high monopolistic pricing
without legal recourse for consumers and with no additional market entry by a
supplier in sight. We need not define what it means for a price to be “so
excessive that it has not made the services available,” for the purpose of § 1926
analysis, id. at 1271; that is for the district court to determine on remand, perhaps
with the benefit of expert witness testimony on the subject.
We thus reject the argument advanced by McAlester and embraced by the
district court that, regardless of the terms of § 1926 agreed to by the State of
Oklahoma through the entry into the loan agreement, we must out of deference to
state regulatory prerogative refuse to apply § 1926. Such a view reflects
“misplaced federalism concerns.” United States v. Welch , 327 F.3d 1081, 1093
(10th Cir. 2003).
To recap our § 1926 substantive analysis, we hold, notwithstanding
McAlester’s arguments under the Spending Clause, the Takings Clause, and
regulatory policy concerns, that the rights under 7 U.S.C. § 1926, to the extent
they had vested, were not extinguished by the deannexation and are enforceable
against McAlester’s conduct. The district court erred in holding to the contrary.
Accordingly, we also reverse the district court’s corollary ruling that Pitt-7
lacked standing to lodge claims relating to the Sherrill property, an issue we
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review de novo. Ward v. Utah , 321 F.3d 1263, 1266 (10th Cir. 2003). Given our
analysis on the § 1926 claim, Pitt-7 has shown the necessary imminent threat of
injury of its § 1926 rights to establish the requisite injury in fact for standing:
Sherrill is an entity within the deannexed territory that has requested water
service and has asserted that it has the right to deannex and receive water service
from an entity other than Pitt-7.
We turn now to review the district court’s dismissal of Pitt-7’s claims for
injunctive relief.
F. Did the District Court Err in Dismissing Pitt-7’s Claim for Injunctive
Relief to Prohibit McAlester from terminating water sales to Pitt-7?
Pitt-7 sought prospective injunctive relief against McAlester from
terminating water sales to Pitt-7 on the grounds that such termination would
violate § 1926(b), state antitrust laws, and federal antitrust laws. The district
court dismissed Pitt-7’s claims for injunctive relief. We review the district
court’s dismissal de novo. Sutton v. Utah State Sch. for Deaf & Blind , 173 F.3d
1226, 1236 (10th Cir. 1999). As we discuss below, the district court did not err in
dismissing the claims for injunctive relief.
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1. § 1926(b)
The district court held that “[t]ermination of wholesale water sales to [Pitt-
7] is not prohibited” by § 1926. Aplt’s App. at 1109. On appeal, Pitt-7 argues
that the purpose of § 1926 is to maintain the ability of the water district to serve
its customers with prices kept relatively low through economies of scale and to
ensure the security of the federal government’s loan. Pitt-7 maintains that
McAlester’s refusal to sell undermines that purpose, for “[t]o read a loophole into
the absolute prohibition . . . and allow a city to do via condemnation what it is
forbidden by other means, would render nugatory the clear purpose of 1926(b).”
Aplt’s Br. at 54 (internal quotation marks omitted).
Although Pitt-7’s argument is not without force, it is too far afield from §
1926’s text or the decisional law applying § 1926 for us to embrace it. First,
there is nothing in the statute’s text concerning a water supplier’s refusing to deal
with a § 1926-protected water association. Second, even under the broad reading
of § 1926 given by federal courts discussed above, the inquiry in § 1926 claims
has focused on whether the defendant attempted an encroachment through
interference with boundaries or by purporting to compete with the §1926-
protected water district within the protected territory. Refusal to sell water is
clearly not interference with boundaries. Further, although such refusal might be
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characterized as anti-competitive behavior, it is encroachment through
competition, not anti -competitive acts, that § 1926 bans.
Moreover, remedies are available to challenge unlawful refusals by a
supplier to sell a product. To the extent, if any, that Pitt-7 has a claim concerning
McAlester’s refusal to sell water, that claim sounds in antitrust. See, e.g. , I ABA
Section of Antitrust Law, Antitrust Law Developments (5th ed. 2002), at 161
(“Vertical refusals to deal generally arise where a manufacturer refuses to do
business with a distributor in the first instance or terminates an existing
distributor. . . . Vertical refusals to deal have been challenged as unreasonable
trade restraints under . . . the Sherman Act.”). We therefore turn to Pitt-7’s
federal and state antitrust claims.
2. Antitrust Claims
Pitt-7 alleges violation of federal and Oklahoma antitrust laws on the
theory that McAlester’s refusal to sell water to Pitt-7 violates the essential
facilities doctrine. The district court dismissed all of Pitt-7’s claims for federal
and Oklahoma law antitrust violations. The district court found that (1)
McAlester was subject to state action immunity from suit on either the federal or
state antitrust claim; and, in the alternative, that (2) the antitrust claims failed on
the merits because Pitt-7 could not establish the elements necessary to sustain an
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essential facilities claim. We decline to address the state action immunity rulings
because, as discussed below, Pitt-7’s essential facilities claims fail on the merits.
We can comfortably address the merits of Pitt-7’s federal and state antitrust
claims in tandem under federal antitrust law standards. See Okla Stat. Ann. tit.
79, § 212 (stating that “[t]he provisions of this act shall be interpreted in a
manner consistent with Federal Antitrust Law 15 U.S.C., Section 1 et seq. and the
case law applicable thereto”) (footnote omitted). Under the essential facilities (or
“bottleneck”) doctrine, “a business or group of businesses which controls a scarce
facility has an obligation to give competitors reasonable access to it.” Aspen
Highlands Skiing Corp. v. Aspen Skiing Corp. , 738 F.2d 1509, 1519 (10th Cir.
1984), aff’d , 472 U.S. 585 (1985). There are “four elements necessary to
establish liability under the essential facilities doctrine: (1) control of the
essential facility by a monopolist; (2) a competitor’s inability to duplicate the
facility; (3) denial of the use of the facility to a competitor; and (4) the feasibility
of providing the facility.” Id. at 1520. The district court held that Pitt-7 had
failed to establish either the first or second element, and therefore dismissed the
claim.
Regarding the first prong, the district court held that Pitt-7 “cannot
establish that [McAlester] is a monopolist for purposes of the essential facility
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doctrine.” Aplt’s App. at 1108. Three facts persuade us to agree. First, Pitt-7
has represented in filings to the federal government that it has “a suitable
available alternative water supply” to McAlester. 8
Second, Pitt-7 has conceded
that there exist other water treatment plants besides McAlester’s in Pittsburg
county and its environs. Aplt’s App. at 939 (Dep. of William Hegdale, former
Pitt-7 Board member, dated May 21, 1999). Third, Pitt-7 has stated that it could
duplicate the facility operated by McAlester by constructing its own collection
and treatment facility by as early as April 2004. See id. at 850.
Because we conclude that the first prong was not satisfied, we need not
address the other required elements of the essential facilities test. We conclude
that the district court correctly dismissed Pitt-7’s antitrust claims.
III. CONCLUSION
We hold that the district court (1) erred in concluding that it lacked
jurisdiction under the Rooker-Feldman doctrine; (2) erred in applying issue
preclusion, claim preclusion, and full faith and credit; (3) did not err under the
law of the case; (4) erred in part in applying the statute of limitations; (5) erred in
8
Aplt’s App. at 819 (Brief in Support of Motion of Defendants City of
McAlester and the McAlester Public Works Authority for Partial Summary
Judgment (Statement of Undisputed Facts), filed March 30, 2001); id. at 849
(Plaintiff’s Response to McAlester’s Motion for Partial Summary Judgment
(Response to McAlester’s Statement of Undisputed Facts), filed April 13, 2001).
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its application of § 1926; and (6) did not err in dismissing Pitt-7’s claims for
injunctive relief under 7 U.S.C. § 1926, federal antitrust laws, and state antitrust
laws. We therefore AFFIRM IN PART, REVERSE IN PART, AND REMAND
TO THE DISTRICT COURT FOR FURTHER PROCEEDINGS CONSISTENT
WITH THIS OPINION.
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