In the Courts

Water Cases

Optimus Steel, LLC v. U.S. Army Corps of Engineers, 1:20-CV-00374, 2020 WL 5881828 (E.D. Tex. Oct. 4, 2020).

The dispute in this case concerned a permit issued by the U.S. Army Corps of Engineers (“Corps”) for the construction of JSSP’s Southern Star Pipeline (“Pipeline”), a proposed fourteen-mile gas pipeline between Beaumont and Port Neches. After failed negotiations between JSSP and Optimus Steel (“Optimus”), JSSP filed a condemnation suit and was awarded an easement over Optimus’s property. The pipeline would cross Optimus’s property for approximately 0.86 miles, which constitutes roughly fifteen percent of the Pipeline’s total length.

JSSP’s construction activities required a Corps-issued permit to discharge dredged or fill material into navigable waters of the United States under the Clean Water Act (“CWA”). In its evaluation of the permit application, the Corps assessed whether the project would jeopardize the existence of an endangered species or destroy or modify a designated critical habitat under the Endangered Species Act (“ESA”), and conducted an Environmental Assessment (“EA”) as required by the National Environmental Protection Act (“NEPA”) to determine if the project would significantly affect the quality of the human environment.

After completing its EA, the Corps issued a Finding of No Significant Impact (“FONSI”) and, with respect to the ESA, a “no effect” determination. Accordingly, it issued JSSP a Nationwide Permit 12 (“NWP-12”), a generalized CWA permit that authorizes the discharge of dredged or fill material during construction.
Optimus sued the Corps and JSSP in the United States District Court for the Eastern District of Texas seeking a preliminary injunction to stop the construction of the Pipeline, alleging that the Pipeline’s construction violated the CWA, ESA, and NEPA. To determine whether a preliminary injunction was warranted, the Court applied the Winter test, which requires the party seeking a preliminary injunction to prove: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any damage that the injunction might cause the defendant; and (4) that the injunction will not disservice the public interest.

Applying the first factor, the Court first dismissed the ESA and NEPA claims due to Optimus’s lack of standing. The Court found that Optimus’s loss would be purely economic and, therefore, did not fall within the “zone of interest” of either Act, which both only cover environmental injuries.

However, the Court found that it did have standing under the CWA. Optimus asserted that the Corp’s issuance of NWP-12 violated the “one-half acre rule,” which provides that the Corps may issue a NWP-12 only if the utility line construction does not result in the loss of greater than one half acre of waters for each “single and complete project.” Specifically, Optimus alleged that the “conversion” of wetlands from “one type to another” constituted wetland loss for purposes of a NWP-12. The Court dismissed this argument, finding that the wetland loss in the aggregate was 0.25 acres and, therefore, Optimus was unlikely to succeed on the merits.

Optimus also asserted that the Corps’ definition of “single and complete project” for purposes of a NWP-12 violated the CWA. The Court held that Optimus was unlikely to succeed on the merits because the Corps’ interpretation is reasonable and did not conflict with Congress’s environmental objectives.

The Court then held that, because the Corps already issued a FONSI and “no effect” regarding the Pipeline’s environmental impact, there was not a substantial threat of irreparable harm. Further, because Optimus received monetary compensation for the Pipeline easement, it did not suffer irreparable economic harm either. Finally, the Court found that the balance of harm and public interest weighed in favor of JSSP because (1) an injunction would enjoin the construction of a 160 million dollar pipeline that was substantially complete; and (2) the Pipeline supports the public’s interest in regulatory efficiency and the promotion of “private investments in the Nation’s energy infrastructure.” Since Optimus did not meet any of the four Winter factors, the Court denied its motion for a preliminary injunction.

MSC Gleannloch LLC v. Harris Cty. Water Control and Improvement Dist. No. 119, 14-19-00157-CV, 2020 WL 6278477 (Tex. App.—Houston [14th Dist.] Oct. 27, 2020).

This utility dispute concerned a water supply and waste disposal service agreement between MSC Gleannloch and Harris County Water Control and Improvement District No. 119 (“District”). In 2008, Gleanloch Storage LLC entered into an agreement with the District that had a five-year term and included a provision that stipulated the contract would be binding on successors and assigns. However, the agreement also provided that it could not be assigned. In 2012, both parties renewed the contract but incorporated a twenty-year term and struck the “shall not be assigned” language.

In 2018, Gleanloch Storage sold the Property to MSC Gleannloch (“MSC”) and assigned MSC all of its rights under the 2012 agreement. Later that year, the District notified MSC that it would terminate water supply and waste disposal services unless it entered into a new agreement with different terms.

Accordingly, MSC filed a breach of contract action against the District and sought a temporary injunction enjoining the District from terminating its water and wastewater services. After the trial court denied MSC’s application for a temporary injunction without an evidentiary hearing, both parties entered into an agreement that reflected their intent to abide by the 2012 agreement. Nonetheless, because it believed the District was still violating other rights within the 2012 agreement, MSC filed an interlocutory appeal asserting that the trial court abused its discretion by denying the temporary injunction without an evidentiary hearing.

Appellate courts generally cannot consider evidence that was not before the trial court; however, since the issue on appeal was whether the controversy was moot, the appellate court considered the most recent agreement. Because the agreement stipulated that the District would continue to provide services to MSC, the Court found that it eliminated any live controversy and, therefore, “rendered moot the very thing [MSC] urged the trial court to enjoin.” Accordingly, it dismissed MSC’s claim.

Mosaic Baybrook One, L.P. v. Simien, 01-18-01049-CV, 2020 WL 5637499 (Tex. App.—Houston [1st Dist.] Sept. 22, 2020).

This dispute involves the certification of a class action in a controversy regarding a landowner’s water and sewer service rates. Paul Simien leased an apartment managed by Mosaic Residential, Inc. (“Mosaic”). Mosaic regularly incorporated fees associated with law enforcement, fire protection, and emergency medical services into the “water/sewer base fee” it charged its tenants. Accordingly, Simien sued Mosaic for damages and attorney’s fees alleging that Mosaic violated Public Utility Commission (“PUC”) rules by bundling unrelated charges into the water/sewer base fee.

Pursuant to 16 Tex. Admin. Code section 24.281(a), “[c]harges billed to tenants for…allocated utility service may only include bills for water or wastewater from the retail public utility.” Further, at the time of the suit, Tex. Water Code section 13.505 provided that, if an apartment owner or manager knowingly violates a PUC rule regarding utility costs, the tenant “may recover three times the amount of any overcharge, a civil penalty equal to one month’s rent, reasonable attorney’s fees, and court costs from the owner or condominium manager.”

Several months after Simien filed suit, the legislature amended section 13.505 by conferring exclusive jurisdiction over section 13.505 claims to the PUC and removing all penalty provisions other than the recoverable court costs. While Mosaic asserted that the amendment applied retroactively and stripped the trial court of jurisdiction, the trial court granted Simien’s summary-judgment motion that Mosaic violated the Texas Water Code and PUC rules as a matter of law. Further, it granted Simien’s motion for class certification.

In response, Mosaic filed an interlocutory appeal asserting that the trial court abused its discretion by certifying the class. Specifically, Mosaic alleged that (1) the trial court erroneously granted a partial summary judgment that Mosaic violated PUC rules; (2) the amendments to section 13.505 retroactively apply; (3) the trial court failed to address the elements of Mosaic’s defense to Simien’s section 13.505 claim; and (4) the trial court erroneously concluded that Simien was an adequate class representative.

The Court of Appeals did not address Mosaic’s first two claims because they related to orders for which interlocutory appeals are not permitted. However, the Court did have the authority to review the trial court’s decision to certify the class. Regarding Mosaic’s third claim, the Court found that the trial court addressed Mosaic’s defenses in the partial summary judgment ruling and, therefore, the record reflected that the trial court considered the defenses in deciding whether to certify the class. Finally, the Court dismissed Mosaic’s assertion that Simien was not an adequate class representative due to previous false testimony. For these reasons, it affirmed the trial court’s class-certification order.

City of Magnolia v. Magnolia Bible Church, 03-19-00631-CV, 2020 WL 7414730 (Tex. App. Dec. 18, 2020).

This dispute involves a city ordinance that established new water rates and surcharges on non-profit entities and a corresponding Expedited Declaratory Judgment Act (“EDJA”) lawsuit. In March 2018, the City of Magnolia adopted an ordinance that established a new category of water user, titled “Institutional/Non-Profit/Tax-Exempt accounts.” Under the ordinance, churches, schools, parks, and certain governmental facilities were placed in the newly established category and were responsible for a fifty percent surcharge to the in-city water rate and other fees.

In response, Magnolia Bible Church, Magnolia’s First Baptist Church, and Believers Fellowship (collectively, “Churches”) notified the City that they would bring legal action if the ordinance was not reversed. Accordingly, in November 2018, the City filed suit in Travis County District Court under the EDJA for declaratory judgment regarding the legality of the ordinance. As required by the EDJA, the City published notice of its suit in the Austin American Statesman and the Houston Chronicle. After the City amended its EDJA petition in January 2019 and republished notice of the suit, the Attorney General found that the ordinance was legal and valid. In neither instance did the City directly notify the Churches.

In response to the ordinance, the Churches sued the City under the Uniform Declaratory Judgments Act (“UDJA”) seeking declaratory judgment that the ordinance was void. After the City notified the Churches of the final judgment in the EDJA suit, the Churches filed a motion for a new trial alleging that the City’s mode of notification violated their due process rights. The district court held that, because the City failed to provide the Churches with individual notice, the EDJA suit deprived them of due process, and granted the Churches’ motion for a new trial. After the City filed an interlocutory appeal asserting that a new trial was not warranted, a divided Court of Appeals affirmed the district court’s ruling with three separate opinions including one dissent.

Justice Triana stated that the only issue on appeal was the district court’s jurisdiction. She rejected the City’s assertion that, because the intent of the EDJA was to expedite declaratory judgments, the Act preempted Tex. R. Civ. P. Rule 329 with respect to the time allowed for the filing of a motion for a new trial. Finding that EDJA did not conflict with Rule 329, she held that the district court had jurisdiction and did not address any other issues.

Justice Rose recognized that notice by publication ordinarily satisfies due process in an EDJA suit; however, due to the “particular and unique circumstances of [the] case,” he held that notice by publication was insufficient. After first observing that a public entity ordinarily invokes the EDJA for a declaration concerning its right to impose a tax through an ordinance that affects the public generally, he found this case distinguishable due to his characterization of the Churches’ claims as “private rights” and the City’s knowledge of those claims. Justice Rose did not attempt to explain how this was different from any other case that involves an affected individual who speaks in opposition to a tax proposal prior to its adoption. He based his decision in part that the Churches sent the City several letters notifying it of their interest in litigating the validity of the ordinance. For these reasons, he found that the Churches’ due process rights were violated and affirmed the district court’s ruling.

Litigation Cases

Supreme Court specifies APA’s arbitrary-and-capricious standard requires that agency action be “reasonable and reasonably explained.”

In Federal Communications Commission v. Prometheus Radio Project, broadcasters and advocacy groups filed (now consolidated) petitions for review of a decision by the Federal Communications Commission to repeal its newspaper/broadcast and radio/television cross-ownership rules and modify its local television ownership rule. No. 19-1231, 2021 WL 1215716 (U.S. Apr. 1, 2021). In a 2017 Order, the FCC concluded that three of its ownership rules no longer served the public interest. The FCC therefore repealed two of those rules and modified the third.

In conducting its public-interest analysis, the FCC considered the effects of the rules on competition, localism, viewpoint diversity, and minority and female ownership of broadcast media outlets. The FCC concluded that the three rules were no longer necessary, and that changing the rules was not likely to harm minority and female ownership. Petitioners alleged that the FCC’s decision was arbitrary and capricious under the Administrative Procedure Act.

The Third Circuit vacated the Order. The appeals court did not dispute the FCC’s conclusion that those three ownership rules no longer promoted the agency’s public interest goals of competition, localism, and viewpoint diversity but held that the record did not support the FCC’s conclusion that the rule changes would “have minimal effect” on minority and female ownership. The FCC appealed and was granted certiorari by the Supreme Court.

Importantly, this case sets out a new standard for APA review under the arbitrary-and-capricious standard, which is likely to be adopted by state courts including Texas. Under the arbitrary-and-capricious standard, a court ensures that the agency has acted within a zone of reasonableness and, in particular, has reasonably considered the relevant issues and reasonably explained the decision. On certiorari, the Court articulated that the FCC’s Order was “reasonable and reasonably explained” as to meet the APA’s deferential arbitrary-and-capricious standard; holding that APA’s arbitrary-and-capricious standard requires that agency action be reasonable and reasonably explained. After review of the efforts undertaken by the FCC and data analyzed prior to adopting the Order, the Court held that FCC’s predictive judgment was not arbitrary and capricious, reversing the judgment of the Court of Appeals.

Local Government Contract Claims Act waiver found despite no money due or owed by City.

In City of McKinney v. KLA Int’l Sports Mgmt., LLC the City of McKinney (“City”) entered into an agreement with KLA International Sports, LLC (“KLA”) to develop and improve youth soccer fields. 05-20-00659-CV, 2021 WL 389096 at *1 (Tex. App.—Dallas Feb. 4, 2021). Under the agreement, KLA agreed to replace, rehabilitate, and maintain three of the City’s fields in exchange for a license that entitled KLA to prioritize “recreational” use of the fields. The agreement required KLA’s work to be complete within 180 days after construction commenced.

In 2020, the City issued KLA a notice of default, alleging timeliness and construction deficiencies, and eventually directed KLA to stop construction and vacate the fields. KLA sued the City for breach of contract seeking injunctive relief, damages, attorney’s fees, and specific performance. In response, the City asserted it was entitled to governmental immunity. The trial court denied the City’s plea to the jurisdiction on immunity grounds. The City then appealed.

Because the Texas Tort Claims Act provides that functions related to “recreational facilities” are “governmental functions,” the Court of Appeals determined that the City engaged in a governmental function when it issued KLA a license in exchange for the maintenance of the City owned soccer fields. Thus, the City did not engage in a proprietary function and was immune from suit absent a statutory waiver.

However, the Texas Local Government Contract Claims Act waives immunity for suits claiming a breach of a written contract that states the essential terms of the agreement to provide the governmental entity goods or services. The City argued that because no money was due or owed under the contract and KLA only agreed to improve the fields, the contract was not a contract to provide goods or services and the waiver did not apply. The Court rejected this argument and found that KLA rendered services by improving, rehabilitating, and maintaining the soccer fields, and thus the chapter 271 waiver applied—affirming the trial court’s order denying the City’s plea to the jurisdiction.

Nonuse of floodgate sees City prevail on negligence, immunity grounds.

In City of Brownsville v. Rattray, 13-19-00556-CV, 2020 WL 6118473, (Tex. App.—Corpus Christi Oct. 15, 2020, pet. filed), homeowners in the Quail Hollow subdivision (“homeowners”) sued the city of Brownsville (“City”) for flood damages resulting from the alleged misuse of the City’s stormwater system consisting of a series of drainage ditches, resacas, and other bodies of water, which are controlled by multiple motor-driven gates and pumps. 13-19-00556-CV, 2020 WL 6118473 at *1 (Tex. App.—Corpus Christi Oct. 15, 2020). On August 31, 2015, to prevent water flow towards Quail Hollow after heavy rainfall, the City closed one of its stormwater gates. As a result of the rainfall event, the homeowners experienced flooding and alleged it was the result of water accumulated because the gate was closed. In its plea to the jurisdiction, the City argued, among other things, that it was immune from suit because the “misuse of motor-driven equipment” immunity waiver provided by Texas Civil Practice and Remedies Code section 101.021(1) did not apply. The trial court denied the City’s plea to the jurisdiction and the City appealed.

Under the Texas Tort Claims Act, a governmental unit who negligently causes property damage, personal injuries, or death while acting in the scope of its employment is not entitled to immunity if (1) the damage resulted from the operation or use of motor-driven equipment; and (2) if the employee would be liable under Texas law.

On appeal the court held that because the City closed the gate to prevent flooding and there was no flooding at the time of the closure, the City did not act negligently. Further, the homeowners’ claims centered largely on the nonuse of the gate and pumps, alleging had the gate been opened they would have not been flooded. Therefore, the court further held that because the specific act of negligence was the failure to use motor-driven equipment, the waiver did not apply and the City was entitled to governmental immunity.

Finally, the court found that the City’s nonuse of the equipment did not actually cause the homeowners’ injuries, but merely “created a condition” that made flooding possible. Because the “waiver of immunity is a limited one,” the court narrowly construed the causation requirement and found that the storm ultimately caused the homeowners’ damages. For these reasons, the court reversed the trial court’s denial of the City’s plea to the jurisdiction.

Air and Waste Cases

New Jersey v. EPA, No. 08-1065 (D.C. Cir. Mar. 5, 2021).

On March 5, 2021, the U.S. Court of Appeals for the D.C. Circuit rejected New Jersey’s challenge to EPA’s 2007 New Source Review (NSR) rule on emissions record-keeping. NSR requires large facilities to undergo a permitting process for new construction if such construction could result in significant emission increases. New Jersey claimed that the rule was too lenient, allowing for data manipulation, because the 2007 rule required that facilities only keep extensive records if the projected emissions before and after new construction met a specific threshold—50 percent. New Jersey argued that this allowed companies to circumvent NSR permitting requirements because the companies would be able to decide, themselves, whether they breached the 50 percent threshold.

Ultimately, the D.C. Circuit Court was not persuaded by New Jersey’s arguments and found that EPA offered a rational basis for setting a minimum emissions threshold for reporting requirements, which was, therefore, not arbitrary or capricious under the Clean Air Act. Accordingly, the court struck down New Jersey’s challenge.

American Lung Health Association and American Public Health Association v. EPA, No. 19-1140 (D.C. Cir. Jan. 19, 2021).

On January 19, 2021, the U.S. Court of Appeals for the District of Columbia Circuit struck down the EPA’s Affordable Clean Energy (ACE) rule, which was issued in 2019 in order to replace the Obama Administration’s Clean Power Plan. The ACE rule was designed to relax carbon reduction requirements for power plants by allowing the states to choose standards of performance for power plants. However, the D.C. Circuit Court ultimately found that the rule “hinged on a fundamental misconstruction of Section 7411(d) of the Clean Air Act” because the statute calls for both federal and state cooperation in regulating existing sources. The court’s decision to strike down the ACE rule now shifts the onus back on EPA to issue a new rule under the Biden Administration. While EPA works on a new rule to regulate power plants, the agency has requested that the court freeze the mandate vacating the ACE rule so the rule can stay intact until EPA issues a replacement rule.

“In the Courts” is prepared by Cole Ruiz, an Associate in the Firm’s Water Practice Group; Lindsay Killeen, an Associate in the Firm’s Litigation Practice Group; and Sam Ballard, an Associate in the Firm’s Air and Waste Practice Group. If you would like additional information or have questions related to these cases or other matters, please contact Cole at 512.322.5887 or cruiz@lglawfirm.com, Lindsay at 512.322.5891 or lkilleen@lglawfirm.com, or Sam at 512.322.5825 or sballard@lglawfirm.com.