Green Valley Special Utility District v. City of Cibolo

Case: 16-51282 Document: 00514100024 Page: 1 Date Filed: 08/02/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 16-51282
Fifth Circuit
FILED
August 2, 2017
Lyle W. Cayce
Clerk
GREEN VALLEY SPECIAL UTILITY DISTRICT,
Plaintiff–Appellant,
versus
CITY OF CIBOLO, TEXAS,
Defendant–Appellee.
Appeal from the United States District Court
for the Western District of Texas
Before HIGGINBOTHAM, SMITH, and HAYNES, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Green Valley Special Utility District (“Green Valley”) seeks an injunc-
tion, claiming that 7 U.S.C. § 1926(b) prohibits the City of Cibolo from en-
croaching on its sewer service. Because the district court’s interpretation is
inconsistent with the statute’s plain language, we reverse and remand its dis-
missal of the complaint.
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No. 16-51282
I.
The Public Utility Commission of Texas (“PUC”) issues certificates of
convenience and necessity (“CCNs”), which give holders the exclusive right to
provide water or sewer service within particular service areas. 1 Green Valley
is a special utility district 2 with a service area encompassing parts of Guada-
lupe, Comal, and Bexar Counties. Green Valley holds two CCNs: one for water
service and one for sewer service. In 2003, Green Valley obtained a $584,000
loan from the United States to fund its water service. That loan, which
remains outstanding, is secured by Green Valley’s water utility revenues.
The city is a municipality located in Guadalupe and Bexar Counties. In
March 2016, it applied for a CCN to provide sewer service to all of Cibolo,
including portions within Green Valley’s service area. Granting the applica-
tion would require the PUC to strip Green Valley of the right to provide sewer
service to those areas of Cibolo currently within Green Valley’s service area.
The application is for sewer service only; if granted, it would not disturb Green
Valley’s water service.
Section 1926 is the statute governing the U.S. Department of Agricul-
ture’s water and sewer utility loan program. Green Valley claims that the
application violates § 1926(b), which prohibits municipalities from encroaching
on services provided by utilities with outstanding loans:
The service provided or made available through any such association
shall not be curtailed or limited by inclusion of the area served by such
association within the boundaries of any municipal corporation or other
public body, or by the granting of any private franchise for similar ser-
vice within such area during the term of such loan; nor shall the hap-
pening of any such event be the basis of requiring such association to
1 See TEX. WATER CODE § 13.242(a) (setting forth the general requirement that utili-
ties obtain CCNs before providing water or sewer service).
2 See id. § 65.011 (providing for the creation of special utility districts).
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secure any franchise, license, or permit as a condition to continuing to
serve the area served by the association at the time of the occurrence of
such event.
§ 1926(b).
In May 2016, Green Valley sued for injunctive and declaratory relief,
alleging that § 1926(b) protects both its sewer and water service from munici-
pal encroachment. The city moved to dismiss under Federal Rule of Civil
Procedure 12(b)(6), claiming that § 1926(b)’s protection extends only to services
secured by an association’s federal loan—in this case, only Green Valley’s
water service. The district court dismissed though rejecting the city’s inter-
pretation of the statute. It found that Ҥ 1926(b) protects only the service for
which the loan was made—the funded service—regardless of what secures the
loan.” The court gave Green Valley an opportunity to amend its complaint to
specify which of its services are funded by federal loan proceeds.
In August 2016, Green Valley filed an amended complaint in which it
explained that the federal loan funded only its water service and elaborated on
its earlier theories for why § 1926(b) should be interpreted to prohibit munici-
palities from encroaching on any services made available by federally indebted
utilities. The city filed a second motion to dismiss, which the court granted.
II.
This is a tight question of statutory interpretation. Section 1926(b) pro-
hibits the curtailment or limitation of “[t]he service provided or made available
through any such association.” § 1926(b). Where a CCN imposes a duty on a
utility to provide a service, that utility has “provided or made available” that
service under § 1926(b), 3 and both sides agree that Green Valley qualifies as
3 N. Alamo Water Supply Corp. v. City of San Juan, 90 F.3d 910, 915–16 (5th Cir.
1996) (per curiam).
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an “association.” The dispute is over the meaning of “service,” which the stat-
ute does not define. Green Valley claims that § 1926(b)’s protection extends to
any service made available by a federally indebted utility. The district court
decided, to the contrary, that § 1926(b) applies only to services that are funded
by federal loans. We have never considered a case with these facts, though we
have held that § 1926(b) “should be liberally interpreted to protect [federally]
indebted rural water associations from municipal encroachment.” 4 The only
circuit that has considered this issue found that § 1926(b) applies only to “the
type of service financed by the qualifying federal loan.” 5
“When interpreting statutes, we begin with the plain language used by
the drafters.” 6 The plain language of § 1926(b) is dispositive.
The statute refers to “[t]he service provided or made available through
any such association.” The parties urge us to read “service” in one of the fol-
lowing three ways: (1) as a noun that refers to a combined water-and-sewer
service; (2) as a noun that refers to a specific service—either a water service or
a sewer service—made available by a federally indebted utility; or (3) as a noun
that refers to a specific service made available by a federally indebted utility
and financed through the federal loan program. Green Valley favors the first
two readings; the city, the district court, and the Eighth Circuit adopt the third.
The trouble with the third reading is that the statute does not include any
language limiting “service” to those services that have received federal
4 Id. at 915.
5 See Pub. Water Supply Dist. No. 3 v. City of Lebanon, 605 F.3d 511, 520 (8th Cir.
2010). The court did not clarify what it meant by “financed,” explaining that “we need not
decide whether it is the type of service which provides the collateral for the loan or the type
of service for which the loan was made that is entitled to protection.” See id. at 520 n.9.
6 United States v. Uvalle-Patricio, 478 F.3d 699, 703 (5th Cir. 2007) (quoting United
States v. Williams, 400 F.3d 277, 281 n.2 (5th Cir. 2005)).
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financing. The statute refers just to “[t]he service.” See § 1926(b).
Under either of the first two readings, Green Valley wins. If “service”
encompasses what Green Valley describes as its “integrated” water-and-sewer
service, then § 1926(b) protects its sewer service from municipal encroach-
ment. 7 If “service” refers to a specific service made available by a federally
indebted utility, it must encompass Green Valley’s sewer service, which is a
“service provided or made available” by a federally indebted utility.
The city claims that Congress’s use of the definite article “the” before
“service,” combined with the use of the singular form of the noun, implies that
the statute is referring to a specific service—the service “provided or made
available by the federal debt.” 8 We disagree.
The presence of a definite article can affect a statute’s meaning. 9 But,
for two reasons, Congress’s use of “the” in § 1926(b) is not decisive. First, it is
consistent with “service” referring to an integrated water-and-sewer service.
Second, if “service” refers to a specific service, it must be possible to read it as
referring to more than one service. Otherwise, if an association received fed-
eral loans for both its water and sewer service, only one of them would be able
to receive § 1926(b)’s protection. If “service” refers to a specific service but can
be used iteratively, then both Green Valley’s water and sewer service can be
examples of “[t]he service made available through any such association.” Thus,
the use of “the” in § 1926(b) is consistent with all three readings of “service.”
7 Green Valley notes that its water and sewer services share employees, a board of
directors, a general manager, and an operating account.
8The city’s claims track the Eighth Circuit’s reasoning in Public Water Supply,
605 F.3d at 519–21.
9 See, e.g., Brooks v. Zabka, 168 Colo. 265, 269 (1969) (“It is a rule of law well estab-
lished that the definite article ‘the’ particularizes the subject which it precedes. It is a word
of limitation as opposed to the indefinite or generalizing force of ‘a’ or ‘an.’”).
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Congress used both “service” and “services” throughout § 1926. The city
claims that if Congress wanted to safeguard all services made available by a
federally indebted utility, it would have used “services,” not “service,” in
§ 1926(b). But though “each part or section of a statute should be construed in
connection with every other part or section to produce a harmonious whole,” 10
it is not evident what conclusions we can draw from Congress’s various uses of
“service” and “services” in § 1926. The statute uses “service” seven times out-
side § 1926(b): three times as part of a proper noun, 11 twice as a verb (“service
the loan”), 12 once as an apparently countable noun, 13 and once as an apparently
uncountable noun. 14 The statute refers to “services” four times, but none of
those references is obviously describing water or sewer services: The word is
used twice to refer to broadband services, 15 once to refer to “small-scale exten-
sion services” for water and sewer projects, 16 and once to refer to “services . . .
of local governments and local economic development organizations.” 17 None
of this sheds much light on the meaning of “service” in § 1926(b).
The city points out that § 1926(b) prohibits “the granting of any private
franchise for similar service within such area during the term of such loan.”
§ 1926(b) (emphasis added). It urges the court to read that prohibition in
10 Uvalle-Patricio, 478 F.3d at 703 (quoting Williams, 400 F.3d at 281 n.2).
11See 7 U.S.C. § 1926(a)(9) (“Public Health Service Act”); id. § 1926(a)(13) (“Soil Con-
servation Service”); id. § 1926(a)(22)(A)(ii) (“Rural Utilities Service”).
12 See id. § 1926(a)(24)(B)(i); id. § 1926(a)(24)(B)(ii).
13 See id. § 1926(a)(20)(E) (“local broadband service”).
14 See id. § 1926(a)(4)(B) (defining “project” to “include facilities providing central ser-
vice or facilities serving individual properties, or both.”).
15See id. § 1926(a)(20)(E) (referring to “common carrier facilities and services” and
“affordable broadband services”).
16 See id. § 1926(a)(2)(B)(i)(II).
17 See id. § 1926(a)(23)(A).
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tandem with the prohibition on municipal encroachment on federally indebted
utilities’ service areas. The city claims that “similar service” should be under-
stood to refer to a similar variety of a specific service—that is, a water service
is similar to another water service, and a sewer service is similar to another
sewer service—and claims that the “similar service” requirement must apply
to municipalities as well as to private entities. But that logic assumes that
“service” refers to the federally financed service. If “service” refers to any ser-
vice made available by a federally indebted utility, then “similar service” refers
to any services that are similar to those provided by the utility.
Section 1926(b) has two purposes: “(1) to encourage rural water develop-
ment by expanding the number of potential users of such systems, thereby
decreasing the per-user cost, and (2) to safeguard the viability and financial
security of such associations . . . by protecting them from the expansion of
nearby cities and towns.” 18 Green Valley’s interpretation is consistent with
those purposes. A utility that is protected from municipal encroachment will
be able to achieve greater economies of scale, thereby decreasing its per-user
costs, and will be less vulnerable to financial disruptions than would a utility
that is not protected from municipal encroachment.
It is possible that Congress intended to limit § 1926(b)’s protection to
services directly financed by a federal loan. Such a policy would provide feder-
ally indebted utilities with substantial benefits while, at the same time, allow-
ing other service providers to compete with federally indebted utilities in the
provision of non-federally financed services. But § 1926(b)’s plain language
does not limit the statute’s protection to services that have received federal
financing.
18 N. Alamo, 90 F.3d at 915.
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III.
We decline the city’s invitation to read adjectives into § 1926(b). The
judgment of dismissal is REVERSED and REMANDED. 19
19 Because both of the readings of “service” that Green Valley favors are consistent
with the plain language of the statute, we do not decide which one to adopt.
8