Chesapeake Ranch Water Company v.  the Board of Commissioners of Calvert County

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 CHESAPEAKE RANCH WATER
COMPANY,
Plaintiff-Appellant,
v. No. 04-1205 
THE BOARD OF COMMISSIONERS OF
CALVERT COUNTY,
Defendant-Appellee. 
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Alexander Williams, Jr., District Judge.
(CA-03-2527-8-AW)
Argued: November 30, 2004
Decided: March 16, 2005
Before WILKINS, Chief Judge, SHEDD, Circuit Judge,
and Norman K. MOON, United States District Judge
for the Western District of Virginia,
sitting by designation.
Affirmed by published opinion. Chief Judge Wilkins wrote the opin-
ion, in which Judge Shedd and Judge Moon joined.
COUNSEL
ARGUED: William Roger Truitt, PIPER RUDNICK, L.L.P., Balti-
more, Maryland, for Appellant. Jefferson Vaughan Wright, MILES &

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STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellee. ON
BRIEF: John E. Griffith, Jr., Dorothy M. Guy, PIPER RUDNICK,
L.L.P., Baltimore, Maryland, for Appellant. E. Hutchinson Robbins,
Jr., Todd M. Reinecker, MILES & STOCKBRIDGE, P.C., Baltimore,
Maryland, for Appellee.
OPINION
WILKINS, Chief Judge:
The Chesapeake Ranch Water Company (Chesapeake) appeals an
order of the district court granting summary judgment in favor of the
Board of Commissioners of Calvert County, Maryland (the County)
in this action seeking protection under a provision of the Consolidated
Farm and Rural Development Act of 1961 (CFRDA), see 7 U.S.C.A.
§ 1926(b) (West 1999). Chesapeake argues that § 1926(b) prohibits
the County from providing water service to two new commercial
developments presently under construction adjacent to Chesapeake’s
service area. Finding no merit to Chesapeake’s arguments, we affirm.
I.
A recitation of the facts appears in the opinion of the district court.
See Chesapeake Ranch Water Co. v. Bd. of Comm’rs of Calvert
County, 301 F. Supp. 2d 424, 425-26 (D. Md. 2004). We recount
them briefly here.
Chesapeake is a nonprofit water association formed in 1960 to pro-
vide drinking water and fire protection services to citizens in Calvert
County. In 1961, the County, which under Maryland law has plenary
authority over water and sewer matters within its borders, see Md.
Ann. Code art. 25, §§ 3(c), 3D(b) (Supp. 2004), granted Chesapeake
authority to provide water service to a subdivision known as Chesa-
peake Ranch Estates. On three subsequent occasions during 1998 and
1999, the County expanded Chesapeake’s franchise area to include
lots in Lusby Town Square, a subdivision adjacent to Chesapeake
Ranch Estates.
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In response to substantial growth in Calvert County, a number of
new developments are being constructed in the county. At issue here
are two new developments, the Lusby Town Center and the Patuxent
Business Park, which are under construction adjacent to, but not
within, Chesapeake’s existing franchise area. In 2001, Chesapeake
presented a formal offer to the County to provide water service to the
new developments. The County rejected the offer. Instead, the County
resolved to and has begun the process of extending the County-owned
Solomons water facility to provide service to the new developments.
The Solomons facility is located approximately two miles from the
developments.
Alleging that the County’s proposed extension of the Solomons
facility violates both § 1926(b) and Maryland state law, Chesapeake
filed this action seeking broad injunctive relief to prevent the County
from continuing with its plan to provide service to the new develop-
ments. The district court granted summary judgment in favor of the
County on the federal claim, ruling that § 1926(b) afforded Chesa-
peake no basis for relief against the County. The court then declined
to exercise supplemental jurisdiction over the remaining state law
claims, see 28 U.S.C.A. § 1367(c)(3) (West 1993), dismissing those
claims without prejudice.1
II.
The CFRDA is part of the Agricultural Act of 1961, which Con-
gress enacted for the purposes, among others, of improving and pro-
tecting farm prices and promoting agricultural development. See S.
Rep. No. 87-566, at 1 (1961), reprinted in 1961 U.S.C.C.A.N. 2243,
2243. Section 1926 of the CFRDA "specifically authorizes federal
loans to nonprofit water service associations to promote the ‘conser-
vation, development, use, and control of water’ to assist farmers,
ranchers, farm tenants, and other rural residents." Bell Arthur Water
Corp. v. Greenville Util. Comm’n, 173 F.3d 517, 519 (4th Cir. 1999)
(quoting 7 U.S.C.A. § 1926(a)(1)). "By including water service to
‘other rural residents’ as part of an agricultural program, Congress
intended (1) to reduce peruser cost resulting from the larger base of
1Chesapeake does not challenge on appeal the dismissal of its state law
claims.
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users, (2) to provide greater security for the federal loans made under
the program, and (3) to provide a safe and adequate supply of water."
Id. at 519-20.
Congress sought to protect federally indebted, nonprofit water
associations from "competitive facilities, which might otherwise [be]
developed with the expansion of the boundaries of municipal and
other public bodies into an area served by the rural system." S. Rep.
No. 87-566, at 67, 1961 U.S.C.C.A.N. at 2309. Accordingly, Con-
gress enacted § 1926(b), which provides:
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 happen-
ing of any such event be the basis of requiring such associa-
tion to 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.
7 U.S.C.A. § 1926(b). To qualify for protection under § 1926(b), the
water association must establish that (1) it is an "association" within
the meaning of the CFRDA, (2) it has a qualifying federal loan out-
standing, and (3) it has provided water service or made it available to
the disputed area. See Le-Ax Water Dist. v. City of Athens, Ohio, 346
F.3d 701, 705 (6th Cir. 2003).
The protection afforded by § 1926(b) is limited to the area in which
the association provides or makes available water service and to the
time period during which its federal loan is outstanding. See Bell
Arthur, 173 F.3d at 520. Additionally, § 1926(b) protects against only
certain forms of competitive behavior, including "curtailment or limi-
tation of the associations’ service areas through annexation or through
the imposition of conditions for service such as the requirement of a
franchise, license, or permit." Id.
Chesapeake argues that summary judgment in favor of the County
was inappropriate for three reasons: (1) the County’s plan to provide
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service to the new developments would limit or curtail Chesapeake’s
service by invading a location to which Chesapeake has made service
available; (2) the County’s plan to tap into the aquifer from which
Chesapeake presently draws its water supply would limit or curtail
Chesapeake’s ability to serve its existing franchise area; and (3) dis-
puted issues of material fact existed as to the scope of Chesapeake’s
franchise area. We address each of these arguments in turn.
A.
Chesapeake first argues that § 1926(b) affords it the exclusive priv-
ilege of providing water service to the new developments. As a
threshold matter, we note that neither party disputes that Chesapeake
is a qualifying "association" under the statute. Nor do the parties
question that Chesapeake has a qualifying federal loan outstanding.
Therefore, this issue turns on whether Chesapeake has provided or
made available water service to the new developments.
The district court ruled that because the new developments were
not within the geographic boundaries of the franchise area formally
granted to Chesapeake by the County, § 1926(b) did not afford Chesa-
peake the exclusive privilege of serving the new developments. The
court reasoned that Chesapeake could not use the protections of
§ 1926(b) "offensively" to expand the geographic boundaries of its
franchise area; the statute could only be used "defensively" to protect
the territory already within its franchise area. See Chesapeake Ranch
Water, 301 F. Supp. 2d at 427-29. Chesapeake contends that the dis-
trict court interpreted § 1926(b) too narrowly. Because the locations
of the new developments were adjacent to Chesapeake’s existing
franchise area, and because Chesapeake was physically capable of
providing water service to the new developments, Chesapeake con-
tends that it had already made available water service to the develop-
ments, and thus it was entitled to protection under § 1926(b) from
competition by the County. We disagree.
The test for whether a water association has provided or made
available water service for purposes of § 1926(b) varies among the
courts of appeals. Some courts have held that a water association has
provided or made available service if it can demonstrate (1) the physi-
cal capability to provide service to the area within a reasonable time,
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and (2) the legal right under state law to serve the area. See Rural
Water Sys. #1 v. City of Sioux Ctr., 202 F.3d 1035, 1037 (8th Cir.
2000); cf. Sequoyah County Rural Water Dist. No. 7 v. Town of Mul-
drow, 191 F.3d 1192, 1203 (10th Cir. 1999) (focusing primarily on
whether water association "has proximate and adequate ‘pipes in the
ground’ with which it has served or can serve the disputed customers
within a reasonable time"). Other courts permit an association to
prove that it has provided or made available service by demonstrating
that it has a duty (not merely a right) under state law to provide ser-
vice to the disputed area. See North Alamo Water Supply Corp. v. City
of San Juan, Tex., 90 F.3d 910, 915-16 (5th Cir. 1996) (per curiam);
cf. Glenpool Util. Servs. Auth. v. Creek County Rural Water Dist. No.
2, 861 F.2d 1211, 1214 (10th Cir. 1988) (holding that water associa-
tion had made available water service "by virtue of its line adjacent
to the property and its responsibilities to applicants within its terri-
tory" (emphasis added)).2 The test articulated by the Sixth Circuit in
Le-Ax is the most stringent, requiring a water association to demon-
strate that (1) it is physically capable of serving the area,3 (2) it has
the legal right under state law to do so, and (3) the disputed area is
already within the geographic boundaries of the association’s fran-
chise area. See Le-Ax, 346 F.3d at 707.
We are persuaded that the three-part test articulated by the Sixth
Circuit in Le-Ax best effectuates Congress’ intent in passing
§ 1926(b). As in all cases of statutory interpretation, our inquiry
2In Bell Arthur, 173 F.3d at 526, a panel of this court suggested that
Lexington-South Elkhorn Water Dist. v. City of Wilmore, 93 F.3d 230,
235-37 (6th Cir. 1996), and Glenpool stood for the proposition that a
legal duty under state law was required in all cases in order to invoke the
protections of § 1926(b). This suggestion, however, was not necessary to
the holding in Bell Arthur, and subsequent cases have made clear that
while a legal duty is one way to demonstrate that water service has been
made available, it is not a prerequisite to invoking § 1926(b) in every
case. See Le-Ax, 346 F.3d at 706 n.1 ("We have only required (like the
Tenth Circuit) a state-law right (not duty) to serve the area to invoke
§ 1926.").
3Bell Arthur makes clear that this circuit already requires at least a
showing of physical capability to provide service within a reasonable
time of request. See Bell Arthur, 173 F.3d at 526.
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begins with the text of the statute. See Barnhart v. Sigmon Coal Co.,
534 U.S. 438, 450 (2002). "[I]n analyzing the meaning of a statute,
we must first determine whether the language at issue has a plain and
unambiguous meaning." Holland v. Big River Minerals Corp., 181
F.3d 597, 603 (4th Cir. 1999) (internal quotation marks omitted). Sec-
tion 1926(b) states that water service "provided or made available" by
any qualifying water association "shall not be curtailed or limited" by
certain municipal action. 7 U.S.C.A. § 1926(b). Because § 1926 does
not include an express definition of "provided or made available," we
look to the ordinary or natural meaning of the terms. See FDIC v.
Meyer, 510 U.S. 471, 476 (1994). To "provide" ordinarily means "to
make available," to "furnish," to "supply," or to "equip." Webster’s
Encyclopedic Unabridged Dictionary of the English Language 1556
(2001). To "make available" ordinarily means to "render" "suitable or
ready for use." Id. at 142, 1161 (defining "make" and "available" in
relevant parts). As noted above, Chesapeake presses upon us a broad
interpretation of "made available" that would include any area that
Chesapeake is physically capable of serving.
Mindful that "courts should venture beyond the plain meaning of
the statute only in those rare instances in which there is a clearly
expressed legislative intent to the contrary, in which a literal applica-
tion of the statute would thwart its obvious purpose, or in which a lit-
eral application of the statute would produce an absurd result,"
Holland, 181 F.3d at 603 n.2 (citations omitted), we believe that
Chesapeake’s interpretation of § 1926(b) would contravene the inten-
tion of Congress in passing the statute and would lead to an absurd
result. The legislative history of § 1926(b) indicates that Congress
intended for the statute "to assist in protecting the territory served by
such an association facility against competitive facilities, which might
otherwise be developed with the expansion of the boundaries of
municipal and other public bodies into an area served by the rural sys-
tem." S. Rep. No. 87-566, at 67, 1961 U.S.C.C.A.N. at 2309. This
explanation "casts the statute’s purpose in a defensive light," suggest-
ing "that the goal of the statute is only to protect territory already
served by a rural water association from municipal expansion into the
rural water association’s area." Le-Ax, 346 F.3d at 708.
Moreover, "nothing is better settled than that statutes should
receive a sensible construction, such as will effectuate the legislative
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intention, and, if possible, so as to avoid an unjust or an absurd con-
clusion." In re Chapman, 166 U.S. 661, 667 (1897). Therefore, we
will not construe § 1926(b) in a manner that leads to absurd results.
See Nixon v. Mo. Mun. League, 124 S. Ct. 1555, 1564 (2004); United
States v. Davis, 53 F.3d 638, 642 (4th Cir. 1995). To give Chesapeake
the exclusive right to provide service to adjacent areas based solely
on its physical capability of providing such service would give Chesa-
peake the ability to expand its exclusive franchise area unilaterally
and limitlessly. Under the rule Chesapeake presses upon us, once a
water association is granted authority to serve some area—no matter
how small—it could then expand its monopoly indefinitely by simply
developing the physical capability to serve locations beyond its origi-
nal franchise area. As put by the County, such a rule would "allow
Chesapeake to become the ‘kudzu vine’ of utility companies growing
at the will or whim of Chesapeake throughout the County simply
through the installation of water lines to the edges of its ever expand-
ing service area." Br. of Appellee at 19. As the Le-Ax court recog-
nized, "[t]his vision of § 1926(b) is expansive indeed." Le-Ax, 346
F.3d at 709. We doubt that Congress intended such a result.
Rather, we believe that the test articulated by the Sixth Circuit, by
requiring a water association invoking § 1926(b) to demonstrate that
the disputed area is within the geographic boundaries of the associa-
tion’s existing franchise area, see id. at 707, best effectuates Con-
gress’ intent in passing § 1926(b). We therefore adopt the Le-Ax test
as our own. For purposes of § 1926(b), to prove that it has provided
or made available service, a water association must demonstrate that
(1) it is physically capable of serving the area in dispute, (2) it has the
legal right under state law to do so, and (3) the disputed area is within
the geographic boundaries of the association’s existing franchise area.
As the new developments were not within the geographic boundaries
of Chesapeake’s existing franchise area, we affirm the decision of the
district court granting summary judgment in favor of the County on
this issue.4
4We acknowledge but do not decide a related issue: whether the Coun-
ty’s plan to provide service to the new developments qualifies as an
infringing action under § 1926(b). As noted above, § 1926(b) prohibits
only certain forms of competitive behavior. Because the new develop-
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B.
Next, Chesapeake argues that it is entitled to injunctive relief to
prevent the County from tapping into and depleting the aquifer from
which Chesapeake draws its water to service its existing customers.
By depleting the aquifer, Chesapeake contends, the County would
curtail or limit the service provided by Chesapeake in violation of
§ 1926(b). Indeed, the County has applied for permission from the
state to drill new wells within 2,500 feet of Chesapeake’s existing
wells. Nevertheless, the district court rejected Chesapeake’s argu-
ment, finding the possibility of harm from depletion of the aquifer too
speculative as a matter of law to sustain relief under § 1926(b). Ches-
apeake argues that the district court ignored the affidavit of an expert
submitted by Chesapeake in opposition to summary judgment. The
expert, a hydrogeologist with 23 years’ experience, averred that the
County’s proposed wells "will cause significant interference to one or
more of Chesapeake’s existing wells . . . ." J.A. 215. This expert opin-
ion, argues Chesapeake, provided a sufficient dispute of material fact
to withstand summary judgment. The County embraces the district
court characterization of the harm as "speculative." It points out that
it has merely applied to the state for permission to drill the wells; it
has not yet made a final decision where (or even whether) to drill
them.
Even assuming that the County would tap into the aquifer and
thereby impair Chesapeake’s ability to serve its existing customers,
we conclude that § 1926(b) provides no relief against the County. As
noted above, § 1926(b) prohibits only certain forms of competitive
behavior, including "curtailment or limitation of the associations’ ser-
vice areas through annexation or through the imposition of conditions
ments were already within the County’s borders, the County has not
annexed the land on which the new developments sit and would have no
reason to do so. Cf. Le-Ax, 346 F.3d at 703 (noting in the context of a
§ 1926(b) claim that the disputed area was outside both parties’ borders).
Nor has the County imposed conditions upon Chesapeake for the privi-
lege of providing service to the new developments. As neither party has
addressed this issue in its briefs, and as our disposition of this case does
not turn on this issue, we decline to resolve it.
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for service such as the requirement of a franchise, license, or permit."
Bell Arthur, 173 F.3d at 520 (emphasis added). Simply tapping into
an aquifer, even in a way that impairs a qualifying water association’s
ability to provide service, is not an infringing action under the statute.
We therefore affirm the decision of the district court granting sum-
mary judgment in favor of the County on this issue.
C.
Finally, Chesapeake argues that the district court ignored a dis-
puted issue of material fact involving the precise scope of Chesa-
peake’s existing franchise area, i.e., whether the new developments
were already within the geographic boundaries of its franchise area.
Chesapeake points to arguably vague language in the original docu-
ment from the County defining the boundaries of its franchise area.
Chesapeake also notes that it provides service to several customers
located outside of the Chesapeake Ranch Estates.
Chesapeake raised this argument for the first time while opposing
summary judgment before the district court. The district court dis-
missed the argument as an attempt to "create a dispute of material
fact by now attempting to re-interpret language in a contract entered
into over 40 years ago." Chesapeake Ranch Water, 301 F. Supp. 2d
at 429. The decision of the district court on this issue was correct. On
three occasions after the 1960 grant, Chesapeake applied for, and the
County granted, expansions of the original franchise area. In each of
these agreements between Chesapeake and the County, the under-
standing of the parties as to the scope of the original franchise area
was clear. Each of the agreements referred to the scope of the original
franchise area as encompassing "the Chesapeake Ranch Estates Sub-
division." J.A. 98, 99, 101. That Chesapeake occasionally provided
service to customers outside of its franchise area did not, by itself,
expand the scope of the franchise area. Only the County has authority
to expand the scope of an association’s franchise area. See Md. Ann.
Code art. 25, § 3D(b). We therefore affirm the decision of the district
court on this issue.
III.
For the reasons stated above, we affirm the decision of the district
court granting summary judgment in favor of the County.
AFFIRMED
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