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City of Gravette v. Centerton Waterworks and Sewer Commission

Court of Appeals of Arkansas, Division III

November 13, 2019

CITY OF GRAVETTE APPELLANT
v.
CENTERTON WATERWORKS AND SEWER COMMISSION AND CITY OF CENTERTON APPELLEES

          APPEAL FROM THE BENTON COUNTY CIRCUIT COURT [NO. 04CV-17-1852] HONORABLE DOUG SCHRANTZ, JUDGE

          Cullen & Co., PLLC, by: Tim Cullen, for appellant.

          Harrington, Miller, Kieklak, Eichmann & Brown, P.A., by: Morgan S. Doughty, Thomas N. Kieklak, and R. Justin Eichmann, for appellees.

          MIKE MURPHY, JUDGE

         Appellant City of Gravette appeals from the October 1, 2018 Benton County Circuit Court's order granting appellees City of Centerton and Centerton Waterworks and Sewer Commission's motion for summary judgment. On appeal, the City of Gravette argues that the circuit court erred as a matter of law in holding that federal law prevents it from acquiring Centerton water facilities within the annexed area. We affirm.

         In April 2005, the City of Centerton and Centerton Waterworks and Sewer Commission (Centerton)[1] entered into a water-system-acquisition agreement with the Benton County Rural Development Authority. As a result, Centerton began providing water services to an area located within the City of Gravette (Gravette). By entering into the agreement, Centerton assumed liability for an outstanding rural-development loan that Benton County had through the United States Department of Agriculture (USDA). In June 2005, Centerton borrowed additional funds directly from the USDA to finance the water system. Centerton's debt to the USDA is secured by Centerton's water- and sewer-department revenues, which consist of the rates that the water customers pay.

         On June 26, 2017, Gravette notified Centerton that it intended to acquire Centerton's water-service properties, facilities, and customers within the city limits of Gravette pursuant to Arkansas Code Annotated section 14-208-102 (Supp. 2017). This statute provides in pertinent part that

(a)(1)(A) Unless otherwise agreed between a municipality that owns or operates a water service and a rural water service, the inclusion by annexation of any part of the assigned service area of a rural water service within the boundaries of any Arkansas municipality shall not in any respect impair or affect the rights of the rural water service to continue operations and extend water service throughout any part of its assigned service area unless a municipality that owns or operates a water service elects to purchase from the rural water service all customers, distribution properties, and facilities located within the municipality reasonably utilized or reasonably necessary to serve customers of the rural water service within the annexed areas under this chapter, excluding water sources, treatment plants, and storage serving customers outside the annexed areas.
. . . .
(d) This chapter shall not limit applicable federal law, including without limitation 7 U.S.C. § 1926(b).

         Per the statute, Gravette's notice to Centerton included a request to engage in good-faith negotiations about the acquisition. Centerton responded that it did not desire to enter into negotiations. It acknowledged the Arkansas statute but claimed that it was inapplicable because Centerton's water system was indebted to the USDA entitling it to 7 U.S.C. § 1926(b) protection. This statute protects rural water associations' service areas from certain incursions by nearby cities when they are indebted to the federal government. Specifically, it provides

(b) Curtailment or limitation of service prohibited
The service provided or made available through any such association shall not be curtailed or limited by inclusion of the area served by such association within the boundaries of any municipal corporation or other public body, or by the granting of any private franchise for similar service within such area during the term of such loan; nor shall the happening of any such event be the basis of requiring such association to secure any franchise, license, or permit as ...

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