The United States Sixth Circuit Court of Appeals recently expanded the protection which rural water district are afforded under 7 U.S.C. § 1926(b). On November 30, 2011, the Court affirmed United States District Judge Michael Watson’s decision holding that the Ross County Water Company (“RCWC”) – a non-profit, member-owned, water company incorporated pursuant to Section 1702 of the Ohio Revised Code – was entitled to protection under § 1926(b). Consequently, the Court enjoined the City of Chillicothe from encroaching on RCWC’s service territory. Click here to view the full text opinion.
Notably, the Court dismissed the notion that because RCWC did not have “state defined boundaries” it was not entitled to § 1926(b) protection. The Court found that the grant by the Ross County Commissioners of a blanket easement to permit installation of water lines in public rights-of-way defined its territory. Additionally, the Court pointed to a 1971 agreement signed by the mayor of Chillicothe and RCWC acknowledging RCWC’s territory, even though the city claimed the agreement was never approved by city council.
Perhaps most significant, the Court specifically distinguished Le-Ax Water Dist. v. City of Athens noting that its decision in that case was based on “unique facts” which were not applicable in Ross County. Chillicothe argued from the very start of litigation that Le-Ax was controlling and provided the standard for any and all cases under 1926(b). Counsel for Chillicothe (also counsel for the city of Athens in Le-Ax), contended that the city was entitled to construct waterlines wherever it chose within a three-mile radius around its corporate boundaries. It also argued that because RCWC did not have customers connected to its lines, those lines could not be counted as “pipes in the ground.” Both the trial court and the appellate court found the arguments meritless.
The Court emphasised that RCWC was regulated by the Ohio EPA and had obtained a blanket easement from the county years decades ago. It also recognized the business planning and legal basis underscoring RCWC’s decision to borrow tens of millions of dollars from the federal government to construct its system. This point, while seemingly small, should not be overlooked. In future cases involving non-profit associations, entirely different factors may combine to create a legal right to serve. Certainly recognition by both state and local governmental entities was significant in Ross County and should be sought out by non-profit associations considering the issue of § 1926(b) protection.
Ultimately, the Court examinted the roots of § 1926(b) analysis, citing both Lexington and Grafton, and relegated Le-Ax and its sword-shield analogy to the obscurity of cases with state defined boundaries. The requirement of pipes in the ground and service readily available remain principal determining factors. Water associations that do not have state defined boundaries as an element of existence still should take care to establish protected service territory. And for those water districts specifically created by statute, Le-Ax will continue to apply. The only recourse is to continually update and reestablish new service areas as provided by those same statutes. For non-statutory entities without state defined boundaries, Ross County gives a refreshing perspective, correctly and firmly giving broad meaning and interpretation to protecting service areas – future service areas included –from municipal encroachment.
Ross County Water Water Company was represented in both the trial court and the appellate court by Dennis M. O’Toole and Matthew A. Dooley.