CCN Release Agreements Outside of PUC’s Exclusive Jurisdiction

CCN holders may recover their breach-of-contract damages in district court notwithstanding the PUC’s Streamlined Expedited Release Process

A Travis County district court ruled that a CCN holder may sue a landowner in district court to enforce a contract in which the landowner agreed to pay the CCN holder compensation before petitioning for CCN decertification.  Previously, CCN holders were led to believe that even if they entered into such contracts with landowners, they were limited to the damages permitted under the PUC’s appraisal process for CCN releases.

CCN holders have historically entered into CCN release agreements with landowners under which the landowner agrees to pay a certain amount to the CCN holder if and when the landowner seeks to be removed from the CCN and obtain water service elsewhere (a “Release Agreement”).  In 2019, the Texas Legislature introduced the Streamlined Expedited Release Process (the “SER Process”), which allows landowners to unilaterally petition to remove their property from a CCN under certain circumstances.  Tex. Water Code § 13.2541. 

The SER Process provides that if the landowner’s property is removed from the CCN, the CCN holder may be compensated through an appraisal process.  However, landowners have weaponized the SER Process to avoid paying the amount agreed to under their Release Agreements, arguing instead that the SER Process’s appraisal mechanism is the only way CCN holders may be compensated when land is removed from its CCN.  Often, and unfortunately for CCN holders, the PUC awards far less in the appraisal process than what the CCN holder is entitled to under its Release Agreement.

Recently, Lloyd Gosselink’s litigation group argued that the district court—not the PUC—has jurisdiction to award damages to a CCN holder when a landowner refused to pay the agreed amount under the Release Agreement.  In that case, the CCN holder and landowner agreed that should the landowner wish to be removed from the CCN, it must pay the CCN holder a certain amount for each acre removed from the CCN before anyone initiated removal proceedings with the PUC. 

Several years later, the landowner petitioned for release under the SER Process and refused to pay the agreed amount under the Release Agreement to the CCN holder.  Instead of engaging in the appraisal process, the CCN holder chose to pursue its breach of contract claim in district court.

After the CCN holder filed its lawsuit, the landowner challenged the district court’s jurisdiction, arguing that the PUC has exclusive jurisdiction over the amount paid in compensation to the CCN holder for land removed.  Lloyd Gosselink, on behalf of the CCN holder, argued that the PUC itself has repeatedly stated that it does not have jurisdiction to adjudicate common-law claims, including for breach of contract.  Lloyd Gosselink also argued that the Release Agreement was entered into specifically to avoid the PUC’s jurisdiction, and the SER Process cannot impair the Release Agreement or apply retroactively pursuant to the Texas and U.S. Constitutions.

The district court agreed with Lloyd Gosselink and denied the landowner’s challenge, meaning the CCN holder may pursue its full contract damages against the landowner, including a claim for attorney’s fees. 

The case is Creedmoor Maha Water Supply Corporation v. HFH Investments LP (f/k/a Turnersville Development, Ltd.), Cause No. D-1-GN-24-001190, in the 201^st Judicial District Court in Travis County, Texas.  If you have questions about your Release Agreement in the context of the SER Process, please contact James Parker (jparker@lglawfirm.com; 512-322-5878) and Sydney Sadler (ssadler@lglawfirm.com; 512-322-5856).