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Date: 11-20-2017

Case Style:

City of Eudora, Kansas v. Rural Water District No. 4, Douglas County, Kansas

District of Kansas Federal Courthouse - Kansas City, Kansas

Case Number: 16-3319

Judge: Briscoe

Court: United States Court of Appeals for the Tenth Circuit on appeal from the District of Kansas (Shawnee County)

Plaintiff's Attorney: Curtis Tideman and Mark Samsel

Defendant's Attorney: Steve Harris, Mike Davis, Max Harris and John Nitcher

Description: Defendant Rural Water District No. 4, Douglas County, Kansas (“Douglas-4”)
appeals the district court’s order granting summary judgment in favor of Plaintiff
City of Eudora, Kansas (“Eudora”) in this declaratory judgment action. This is the
third appeal arising out of a dispute between Douglas-4 and Eudora over which entity
can provide water service to certain areas near Eudora, Kansas (the “Service Area”).
See Rural Water Dist. No. 4, Douglas Cty. v. City of Eudora (Eudora II), 720 F.3d
1269 (10th Cir. 2013); Rural Water Dist. No. 4, Douglas Cty. v. City of Eudora
(Eudora I), 659 F.3d 969 (10th Cir. 2011). We exercise jurisdiction pursuant to 28
U.S.C. § 1291 and affirm.
In 2002, Douglas-4 was the water service provider for the Service Area, but
was running low on water. Douglas-4 decided to purchase water from an adjacent
rural water district, “Johnson-6.” The project required laying new pipes and building
additional pumping stations at an estimated cost of $1.25 million. To finance the
project, Douglas-4 received initial approval for a $1.25 million loan from the Kansas
Department of Health and Environment (KDHE) with a fixed rate and twenty-year
That same year, Eudora annexed the Service Area. The annexation positioned
Eudora to potentially assume Douglas-4’s water customers pursuant to Kan. Stat.
Ann. (K.S.A.) § 12-527 (1987), a Kansas statute that permits municipalities to
replace a rural water district as the water service provider.1
Understanding that it was facing a potential loss of customers, Douglas-4’s
governing board reduced its KDHE loan to $1 million and sought the remaining
$250,000 from a private, USDA-guaranteed loan. Douglas-4 believed that such a
loan would come with federal protection under 7 U.S.C. § 1926(b), which prevented
municipalities from assuming water customers while a USDA-guaranteed loan was in
repayment. Douglas-4 eventually secured a USDA-guaranteed loan for $250,000
from First State Bank & Trust and proceeded with the Johnson-6 project. Both the
KDHE loan and the USDA-guaranteed loan had twenty-year repayment terms,
beginning in 2004 and ending in 2024.
Between 2004 and 2007, Douglas-4 and Eudora entered into negotiations in an
attempt to resolve the disputed Service Area, but the discussions were not successful.
In September 2007, Eudora moved to enforce its rights under K.S.A. § 12-527 to
replace Douglas-4 as the water service provider for the Service Area.
Eudora I
On September 27, 2007, Douglas-4 filed suit in the United States District
Court for the District of Kansas to prevent Eudora from taking its water customers in
1 K.S.A. § 12-527, the statute cited repeatedly in the parties’ briefs, was
repealed in 2010 and replaced by K.S.A. § 12-540 et seq. See Kan. Sess. Laws ch.
15, House Bill No. 2283 (Mar. 24, 2010). As we previously observed in Eudora I,
the enactment of K.S.A. § 12-540 et seq. was not substantive; it only clarified
ambiguities in K.S.A. § 12-527. 659 F.3d at 984 n.8. The parties do not suggest
otherwise. Regardless, because we do not reach the merits of Douglas-4’s argument,
we also need not decide what prospective effect, if any, K.S.A. § 12-540 et seq. has.
the Service Area. Douglas-4 argued that 7 U.S.C. § 1926(b) provided protection to
rural water districts like Douglas-4, and K.S.A. § 82a-619(g) gave Douglas-4 the
authority to accept such protection.
At the time, § 82a-619(g) had two clauses. The first clause allowed Douglas-4
to “cooperate with and enter into agreements with the secretary of the United States
department of agriculture or the secretary’s duly authorized representative necessary
to carry out the purposes of its organization,” and the second clause allowed
Douglas-4 “to accept financial or other aid which the secretary of the United States
department of agriculture is empowered to give pursuant to 16 U.S.C.A., secs. 590r,
590s, 590x-1, 590x-a and 590x-3, and amendments thereto.” K.S.A. § 82a-619(g)
After a ten-day trial, the district court directed the jury to determine “whether
the loan guaranteed by [the] Federal Government was necessary.” Eudora I, 659
F.3d at 977 (quoting the record) (alteration in original). The jury returned a special
verdict in favor of Douglas-4, concluding the loan guaranteed by the federal
government was necessary, and Eudora appealed.
In Eudora I, we distinguished the private bank’s loan from the federal
government’s guarantee of that loan, and held that:
[E]ven if the parties would agree that the loan was necessary to
carry out the purposes of Douglas-4’s organization, Douglas-4
must also prove that its cooperation with the USDA—i.e., the
guarantee—was also necessary. The jury was not asked to
consider this question. This error alone entitles Eudora to a new
trial on this one issue.
Id. at 978. Although this holding was premised on the first clause of § 82a-619(g),
we also noted that the second clause of § 82a-619(g) refers to financial aid provided
under “enumerated statutes, first enacted in 1937, [that] were repealed by the
Consolidated Farmers Home Administration Act of 1961 and are of no use to
Douglas-4.” Id. at 977 n.5; see § 82a-619(g) (1997 & Supp. 2002) (listing “16
U.S.C.A., secs. 590r, 590s, 590x-1, 590x-a and 590x-3, and amendments thereto”).
Eudora II
On remand, the district court had new cross-motions for summary judgment
under advisement when the Kansas legislature amended § 82a-619(g) to replace the
repealed federal statutes with “7 U.S.C. § 1921 et seq.,” which includes § 1926(b).
Eudora II, 720 F.3d at 1274–75. Douglas-4 argued that the amendment was
retroactive and applied to its USDA-guaranteed loan. In effect, this would have
allowed Douglas-4 to avoid the “necessary” language in the first clause of § 82a-
619(g), and instead rely on the newly amended second clause that omitted any
“necessary” requirement. The district court rejected this argument, holding the
amendment was not retroactive, and Douglas-4 appealed.
We agreed with the district court. Applying Kansas law, we held that the
amendment was “substantive,” precluding retroactivity. Id. at 1277. Thus, Douglas-
4 was still “constrained by the requirement that the USDA guarantee be ‘necessary to
carry out the purposes of its organization.’” Id. (quoting § 82a-619(g)). And
although the district court did not certify the merits of the “necessary” question to us,
we reached that question as well. Because “no reasonable jury could find in favor of
Douglas-4 on the ‘necessary’ question,” we held that “Eudora therefore deserves
summary judgment.” Id. at 1281.
On July 1, 2013, we issued our opinion in Eudora II. We denied rehearing and
rehearing en banc, and on August 5, 2013, issued our mandate.2 On August 16, 2013,
Douglas-4 filed a “Motion to Delay Entry of Order of Final Judgment,” requesting
that the district court “refrain from entering a final order in this case until after
September 10, 2013,” because its “Board meets again on September 10, 2013.” Aplt.
App. at 364–66. The district court rejected Douglas-4’s request, and on September 5,
2013, entered an Order of Final Judgment on Remand.
The Reaffirmation
Unbeknownst to Eudora, the district court, or this court, Douglas-4 was
concurrently pursuing a separate strategy to obtain § 1926(b) protection for its
USDA-guaranteed loan. On July 9, 2013, two months before the district court’s final
order, Douglas-4’s governing board held a meeting where it unanimously approved
the following resolution:
In light of the change to K.S.A. 82a-619(g) passed in 2012 by the
Kansas Legislature, and the recent decision of the Tenth Circuit
announced on July 1, 2013, the Board of Directors for [Douglas-
4] do hereby re-adopt, ratify, re-affirm and re-authorize all
documents, contracts, motions, resolutions, representations,
certifications, cooperation given and/or granted, and the receipt
of all financial aid in the form of a guarantee or other aid from
the [USDA], relative to the loan transaction made and entered
into by and between [Douglas-4] and the First State Bank &
2 Douglas-4 filed a petition for certiorari on October 18, 2013, which the
Supreme Court denied on January 21, 2014. See Rural Water Dist. No. 4, Douglas
Cty. v. City of Eudora, 134 S. Ct. 1002, 1002 (2014).
Trust, to finance a part of the improvement of and addition to [the
Johnson-6 project], and, further, to direct [its attorney] to notify
the USDA and First State Bank & Trust that [Douglas-4] desires
and requests that the USDA and First State Bank & Trust readopt,
ratify, re-affirm, and reauthorize all documents, contracts,
motions, resolutions, representations, certifications, cooperation
given and/or granted, and the receipt of all financial aid in the
form of a guarantee or other aid from the [USDA], relative to the
loan transaction made and entered into by and between [Douglas-
4] and First State Bank & Trust, to finance [the Johnson-6
Id. at 412–13.
On July 30, 2013, the USDA sent the following correspondence to First State
Bank & Trust:
As of the date of this letter, USDA, Rural Development reaffirms
its loan guarantee as executed via loan note guarantee dated June
15, 2004. A copy of the loan guarantee is attached for your
Id. at 414. And on June 18, 2014, First State Bank & Trust responded, stating that it
too “reaffirms, re-authorizes and ratifies” the loan guarantee. Id. at 419.
The Present Litigation
Eudora and Douglas-4 representatives held a meeting on April 3, 2014, where
Eudora expressed its desire to provide water services to customers in the Service
Area. Douglas-4’s governing board responded by letter on April 29, 2014. In the
letter, Douglas-4 revealed that Douglas-4 and the USDA had reaffirmed their
guarantee, and claimed that the reaffirmation entitled Douglas-4 to federal protection
under § 1926(b) through the 2012 amendment to K.S.A. § 82a-619(g). Eudora
responded on July 3, 2014, seeking to clarify Douglas-4’s newly reasserted legal
basis for its federal protection, and Douglas-4 replied on July 14, 2014, repeating that
the reaffirmation brought the loan guarantee under the 2012 amendment,
notwithstanding Eudora II.
On August 13, 2014, Eudora filed the present declaratory judgment action,
seeking a declaration that Eudora can initiate the procedures in K.S.A. § 12-527 to
provide water service to the Service Area without fear that Eudora would be violating
Douglas-4’s rights under § 1926(b). The parties filed cross-motions for summary
On September 29, 2016, the district court issued a Memorandum and Order
and, on October 3, 2016, an accompanying final Judgment. Id. at 1483-532. The
district court denied Eudora’s res judicata argument, but granted summary judgment
in Eudora’s favor after reaching the merits and finding that Douglas-4 did not “accept
financial or other aid,” K.S.A. § 82a-619(g), because: (1) Douglas-4 “reaffirmed” the
guarantee, but never “accepted” anything from the USDA; and (2) the reaffirmation
was, at most, “cooperation” under § 82a-619(g)’s first clause, rather than “financial
or other aid” in the second clause, and Douglas-4 still failed the “necessary”
requirement of the first clause, as decided in Eudora II. Aplt. App. at 1514–18.
Douglas-4 now appeals, arguing (1) Eudora’s action is barred by res judicata,
(2) Eudora’s action is barred by the rule against claim-splitting, and (3) Douglas-4’s
reaffirmation of the USDA-guaranteed loan satisfies K.S.A. § 82a-619(g), entitling
Douglas-4 to federal protection under 7 U.S.C. § 1926(b).
We “review a district court’s grant of summary judgment de novo, applying
the same legal standard as the district court.” Parker Excavating, Inc. v. Lafarge W.,
Inc., 863 F.3d 1213, 1220 (10th Cir. 2017) (citation omitted). “The court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). “In applying this standard, we view the evidence and the reasonable
inferences to be drawn from the evidence in the light most favorable to the
nonmoving party.” Parker, 863 F.3d at 1220 (citation omitted).
Before the district court, both parties argued that res judicata barred the other
party’s claims, each relying on the final judgment that adjudicated the parties’ claims
in Eudora II. Aplt. App. at 727–34, 765–69. The district court rejected both parties’
res judicata arguments, and went on to grant summary judgment in Eudora’s favor on
the merits, holding that Douglas-4’s reaffirmation of the USDA-guaranteed loan does
not entitle Douglas-4 to § 1926(b) protection. Although Eudora has not reasserted its
res judicata argument on appeal, “we can affirm on any ground supported by the
record, so long as the appellant has ‘had a fair opportunity to address that ground.’”
Alpine Bank v. Hubbell, 555 F.3d 1097, 1108 (10th Cir. 2009) (quoting Maldonado v.
City of Altus, 433 F.3d 1294, 1302-03 (10th Cir. 2006)) (determining there was a fair
opportunity when the appellant addressed that ground in response to the summary
judgment motion at the district court).
“The preclusive effect of a judgment is defined by claim preclusion and issue
preclusion, which are collectively referred to as ‘res judicata.’” Taylor v. Sturgell,
553 U.S. 880, 892 (2008). As relevant here, “[c]laim preclusion generally refers to
the effect of a prior judgment in foreclosing successive litigation of the very same
claim, whether or not relitigation of the claim raises the same issues as the earlier
suit.” New Hampshire v. Maine, 532 U.S. 742, 748 (2001). The district court’s
“application of res judicata to the facts . . . is a pure question of law subject to de
novo review.” Plotner v. AT&T Corp., 224 F.3d 1161, 1168 (10th Cir. 2000).
Claim preclusion requires: “(1) a final judgment on the merits in an earlier
action; (2) identity of the parties in the two suits; and (3) identity of the cause of
action in both suits.” MACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th Cir. 2005).
Here, the first two elements are easily met: Eudora II addressed a final judgment on
the merits, and that action involved Eudora and Douglas-4—the same parties in this
action. Aplt. App. at 375-76. Douglas-4 admits as much. Aplt. App. at 1249
(“Eudora is correct that the parties here are the same as in [Eudora II], and that a
final judgment on the merits was entered.”). As a result, the only disputed element is
whether there is “identity of the cause of action in both suits,” MACTEC, 427 F.3d
at 831.
“To determine what constitutes a ‘cause of action’ for preclusion purposes,
this court has adopted the ‘transactional approach’ found in the Restatement (Second)
of Judgments § 24.” Id. at 832. This approach, as adopted by this court, states:
[A] final judgment extinguishes all rights of the plaintiff to
remedies against the defendant with respect to all or any part of
the transaction, or series of connected transactions, out of which
the action arose. What constitutes a “transaction” or a “series” is
to be determined pragmatically considering whether the facts are
related in time, space, origin, or motivation, and whether they
form a convenient trial unit.
King v. Union Oil of Cal., 117 F.3d 443, 445 (10th Cir. 1997) (quoting Lowell Staats
Mining Co., Inc. v. Philadelphia Elec. Co., 878 F.2d 1271, 1274 (10th Cir. 1989))
(alteration in original). In this analysis, a “contract is generally considered to be a
‘transaction’ for claim preclusion purposes.” MACTEC, 427 F.3d at 832.
In this case, Douglas-4 argues that four events, together, prevent preclusion of
its claim of § 1926(b) protection: (1) the Kansas legislature amended the second
clause of K.S.A. § 82a-619(g) in 2012, creating an avenue for § 1926(b) protection
that did not have a “necessary” requirement; (2) Eudora II voided the 2004 USDA
guarantee;3 (3) Douglas-4 and the USDA reaffirmed the loan’s guarantee after the
amendment, entitling Douglas-4 to § 1926(b) protection under the new law’s second
clause; and (4) Eudora has attempted to enforce its K.S.A. § 12-527 rights after the
reaffirmation, qualifying as new conduct that would violate Douglas-4’s newfound
§ 1926(b) protection. Aplt. App. at 1249–56.
3 Our holding in Eudora II directed the district court to “enter summary
judgment in Eudora’s favor on the question of whether Douglas-4’s USDA guarantee
was ‘necessary to carry out the purposes of its organization’ and otherwise proceed in
a manner consistent with [that] opinion.” 720 F.3d at 1281 (quoting § 82a-619(g)).
The district court then ordered: “In as much as all of [Douglas-4]’s claims were
based upon the enforcement of rights it claimed under § 1926(b), all of [Douglas-4]’s
claims are hereby dismissed with prejudice.” Aplt. App. at 375-76. Notably, neither
we nor the district court reached the question of whether the USDA guarantee was
void in its entirety—only that it did not entitle Douglas-4 to § 1926(b) protection.
Douglas-4’s arguments can only succeed if the reaffirmation of the loan’s
guarantee creates a separate “transaction” for claim preclusion purposes. We hold
that it does not.
Given that Douglas-4 and the USDA reaffirmed the guarantee at issue in
Eudora II, the reaffirmation is clearly “part of the transaction, or series of connected
transactions, out of which [Eudora II] arose,” King, 117 F.3d at 445 (quoting Lowell,
878 F.2d at 1274). In fact, the reaffirmation involves no new terms whatsoever. See
Aplt. App. at 412–13 (Douglas-4 resolution reaffirming the guarantee without adding
any new terms); id. at 414 (USDA letter stating that it “reaffirms its loan guarantee
as executed via loan guarantee dated June 15, 2004” (emphasis added)). Nor did it
involve any new transaction. Id. at 1517 (finding that, “by the time the Guarantee
was made by the USDA, the First State Loan had already been closed, the funds had
already been disbursed, and the underlying Johnson-6 project had already been
substantially completed”). Viewed “pragmatically,” King, 117 F.3d at 445 (quoting
Lowell, 878 F.2d at 1274), the reaffirmation is the very same contract that was at
issue in Eudora II, and “[a] contract is generally considered to be a ‘transaction’ for
claim preclusion purposes,” MACTEC, 427 F.3d at 832. Moreover, Douglas-4 failed
to raise its reaffirmation argument before the district court entered final judgment on
remand in Eudora II. See Aplt. App. at 1252–53; id. at 1510 n.94. Douglas-4
reaffirmed the guarantee on July 9, 2013, id. at 412–13, the USDA reaffirmed the
guarantee on July 30, 2013, id. at 414, and the district court entered final judgment
on September 5, 2013, id. at 376. Douglas-4 had an opportunity to pursue this
argument before the district court, but remained silent.
Under these facts, the reaffirmation was a legal nullity. Douglas-4 cannot
circumvent res judicata by simply reaffirming a previously adjudicated contract.
The other issues Douglas-4 raises on appeal are similarly without merit.
Neither res judicata nor the doctrine against claim-splitting bar Eudora’s declaratory
judgment action. We held in Eudora’s favor in Eudora II, and now Eudora, after
learning of Douglas-4’s reaffirmation activities, seeks a declaration that Douglas-4’s
USDA-guaranteed loan still lacks § 1926(b) protection. This claim could not have
been brought in a previous action. In addition, the doctrine against claim-splitting is
irrelevant here, as it applies against a party who “is involved in another pending suit
regarding the same subject matter against the same defendants.” Katz v. Gerardi,
655 F.3d 1212, 1219 (10th Cir. 2011) (emphasis added).

Outcome: For the reasons stated, we affirm.

Plaintiff's Experts:

Defendant's Experts:


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