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 ...