The Tenth Circuit reaffirmed that the rural water district must establish that it made service available before the allegedly encroaching association began providing service and that it must demonstrate that it has adequate facilities within or adjacent to the area to provide service to the area within a reasonable time after a request for service is made. But the rural water district is not required to prove that its charges for providing service are reasonable. Instead, the allegedly encroaching association (i.e., the municipality) must prove that the rural water district's costs of services are unreasonable, excessive, and confiscatory in order to escape Section 1926(b) protection on this basis.
Most notably, however, the Tenth Circuit took a significant step back from its prior holdings that fire protection is irrelevant in Section 1926(b) cases. The Court determined that fire protection services may be considered on the issue of whether the rural water district's charges for providing water service are unreasonable, excessive, and confiscatory. "Of course, at no time does a water district's decision to provide or forgo fire-protection services affect its ability to establish that it has sufficient 'pipes in the ground' to make service available, and it is up to the party challenging the water district's s. 1926(b) protection to prove that the water district's costs are unreasonable, excessive, and confiscatory. Moreover, costs must be examined individually for each property. Thus, the relationship between fire-protection services and costs is highly context-specific."
Other significant holdings include:
- The "doubts resolved" presumption in Section 1926(b) litigation "does not mean ... that all doubts and evidentiary uncertainties must be resolved in favor of the indebted water district or that the City must meet a 'clear and convincing' standard on every issue for which it carries the burden of proof. Rather, we simply note that '[e]very federal court to have interpreted s. 1926(b) has concluded that the statute should be liberally interpreted.'"
- Under Kansas law, a rural water district must prove that its federal loan (or guaranty) "must be necessary to carry out the purposes of its organization." The rural water district's decision to seek out a federal guaranty "must therefore be justified by more than the incidental monopoly protections afforded by s. 1926(b) ...." In other words, at least under Kansas law, the rural water district cannot obtain the benefit of Section 1926(b) protection if it entered into a USDA loan or guaranty agreement solely for the purpose of obtaining such protection.
- Based on Kansas law, the rural water district cannot claim Section 1926(b) protection for a customer located outside its state-law geographic territory because, "[v]iewing the Kansas statutory scheme in its entirety," the district lacks the authority to provide services outside its state-law geographic territory.
- A city's annexation of territory, by itself, does not cause curtailment under Section 1926(b).
- A city's threat to deannex a rural water district's protected territory could violate Section 1926(b) "by dissuading potential customers from seeking water service from the protected water district."