In the Courts

Water Cases

State of Texas, et al v. United States Environmental Protection Agency, et al, No. 3:15-CV-00162, 2019 WL 2272464 (S.D. Tex. May 28, 2019).

The Court granted motions for summary judgment filed by the plaintiff states of Texas, Louisiana, and Mississippi and by over a dozen prominent national trade association plaintiffs, holding that the joint rulemaking undertaken by the U.S. Environmental Protection Agency (“EPA”) and U.S. Army Corps of Engineers (“USACE”) in 2015 to redefine “waters of the United States” (“WOTUS”) under the Clean Water Act (“CWA”) violated the Administrative Procedure Act (“APA”) by providing inadequate opportunity for public comment. The Court enjoined the final WOTUS rule and remanded it to the EPA and USACE. Because the Court ruled based on APA violations, it did not address substantive challenges to the final WOTUS rule that were also raised by Plaintiffs. Under the APA, federal agencies are required to publish notice of proposed rulemakings in the Federal Register and allow interested persons an opportunity to comment prior to agency promulgation of a final rule. The proposed WOTUS rule carried with it a three-month public comment period during which the public was able to comment on, among all other aspects of the proposed rule, its jurisdictional grouping scheme. However, following closure of the public comment period, EPA and USACE issued a revised, final version of a technical report regarding connectivity that was unaccompanied by a public comment opportunity and that subsequently provided the basis for an aspect of the final WOTUS rule that departed from the proposed rule—the proposed rule defined “adjacent waters” using ecologic and hydrologic criteria, whereas the final rule defined “adjacent waters” using numerical, distance-based criteria. The failure of EPA and USACE to re-open the public comment period following finalization of the report meant that the proposed rule was never open for public comment after the underlying technical report became publicly available in its final form. Further, the final WOTUS rule was the first time that EPA and USACE gave notice that they intended to define adjacency by precise, numerical, distance-based criteria. The Court found that the final WOTUS rule violated the notice-and-comment requirements of the APA, because: (1) the final rule’s definition of “adjacent waters” was sufficiently different in kind and degree from that of the proposed rule that it could not be considered a “logical outgrowth” of the rule proposed or be reasonably anticipated by the public; and (2) the final rule denied interested parties an opportunity to comment on the scientific studies that served as the technical basis for the rule.

County of Maui, Hawaii v. Hawai’i Wildlife Fund, et al., No. 18-260 (2019).

The April 2019 issue of The Lone Star Current reported that the U.S. Supreme Court granted certiorari to address the question of whether a discharge of pollutants to groundwater that is hydrologically connected to surface waters can constitute a regulated discharge within the meaning of CWA section 402 and is subject to the National Pollutant Discharge Elimination (“NPDES”) permit program. Following the filing of an amicus curiae brief by the Solicitor General on January 3, 2019, which encouraged the Court to take up the case, the Court has received briefs on the merits from the Petitioner County of Maui as well as 18 amicus briefs from numerous trade associations, federal and state lawmakers, think tanks, private companies, and others. Briefing will continue throughout the summer, although the case has yet to be placed on the Court’s calendar for oral argument. However, news reports indicate that the Maui City Council is considering a resolution to settle the lawsuit before the Supreme Court hears the case. In April, the EPA issued an interpretive statement to clarify its interpretation that releases of pollutants to groundwater are categorically excluded from the CWA’s permitting requirements because Congress explicitly left regulation of discharges to groundwater to the states and to EPA under other statutory authorities (for greater detail about the EPA’s interpretive statement, please see the Agency Highlights section of The Lone Star Current). Issuance of this interpretive statement caused some concern among local Maui leaders that have since pushed County of Maui officials to withdraw the appeal out of concern that an unfavorable ruling could constrict the currently-expansive reach of the CWA in the Ninth Circuit and could damage the County’s reputation. While the Maui County Council has deferred the issue, it has indicated that it expects to take it up again. Meanwhile, the briefing schedule continues apace through the summer, with the Respondent’s brief on the merits due July 12.

Crystal Clear Special Utility District v. Walker, No. 1:17-CV-254-LY (W.D.Tex. March 27, 2019).

On March 27, 2019, the Western District of Texas found that federal law preempted provisions of the Texas Water Code (“TWC”) used by landowners to release their land from a special utility district’s water certificate of convenience and necessity (“CCN”) service area. Crystal Clear Special Utility District (“Crystal Clear”), a federally-indebted utility provider, filed a 42 U.S.C. § 1983 claim against the Commissioners of the Public Utility Commission (“PUC”) and the landowner seeking CCN decertification, Las Colinas San Marcos Phase I, LLC (“Las Colinas”). Crystal Clear claimed its federal statutory rights were violated when the PUC granted Las Colinas’s application for decertification under TWC § 13.254(a-5) despite federal law 7 U.S.C. § 1926(b), which protects federally-indebted utilities in certain situations. Under TWC § 13.254(a-5), a landowner is entitled to a “streamlined expedited release” from a retail public utility’s CCN if the landowner, among other qualifications, is not receiving water or sewer service from the utility. Under TWC § 13.254(a-6), the PUC must grant an (a-5) petition within 60 days and cannot deny a petition based on the fact the CCN holder is a borrower under a federal loan program. However, under federal law, 7 U.S.C. § 1926(b), a federally-indebted utility, “shall not be curtailed or limited by… the granting of any private franchise for similar service within such an area during the term of such loan.” Here, the court found that § 1926(b) preempts TWC §§ 13.254(a-5) and (a-6). In the court’s Final Judgment, it found that the PUC’s order granting Las Colinas’s (a-5) release from Crystal Clear’s CCN was in violation of 7 U.S.C. § 1926(b), and therefore the PUC’s order was declared void. In addition, the court voided § 13.254(a-5) and also voided the portion of § 13.254(a-6) that reads, “[t]he utility commission may not deny a petition received under Subsection (a-5) based on the fact that a certificate holder is a borrower under a federal loan program,” because these sections are preempted by federal law, 7 U.S.C. § 1926. The PUC filed a motion to amend judgment on April 24, 2019, arguing for the first time in the case that binding Fifth Circuit precedent established that political subdivisions may not file 42 U.S.C. § 1983 claims. In City of Safe Harbor v. Birchfield, the Firth Circuit held that a political subdivision was not a proper party for § 1983 claims under the Civil Rights Act. However, the Court denied the PUC’s motion for being untimely because it is not the proper vehicle for rehashing evidence, legal theories, or arguments that should have been raised before the entry of the court’s order. This is an often-litigated issue, and further cases on CCN releases and the applicability of USDA § 1926(b) loans will certainly follow.

Takings and Governmental Immunity Cases

Texas Supreme Court declines to find waiver of immunity for monetary damages in a suit by the State against a political subdivision.

Chambers-Liberty Ctys. Nav. Dist. v. State, 17-0365, 2019 WL 2063575 (Tex. May 10, 2019).

In Chambers-Liberty Ctys. Nav. Dist. v. State, the Texas Supreme Court reversed in part the judgment of the Court of Appeals allowing the State to pursue a claim against a political subdivision for money damages under the Texas Parks and Wildlife Code (“TPWC”). Petitioners, Chambers–Liberty Counties Navigation District (the “District”), represented by Lloyd Gosselink, leased submerged land to Sustainable Texas Oyster Resource Management, L.L.C. (“STORM”), for oyster production. The State of Texas sued the District and STORM, seeking to invalidate the lease on ultra vires grounds and sought monetary relief under portions of the TPWC that authorizes the State to sue and recover damages from “a person who kills, catches, takes, possesses, or injures any fish, shellfish, reptile, amphibian, bird, or animal in violation of this code.” The State argued, and the Court of Appeals held, that—although the District is generally immune from suit even when the State is the plaintiff—the sections of the TPWC combine to waive the District’s immunity and authorize the State to pursue money damages. The Supreme Court disagreed, citing to the Code Construction Act in concluding that “a statute shall not be construed as a waiver of sovereign immunity unless the waiver is effected by clear and unambiguous language…and that the use of ‘person’ as defined to include governmental entities does not indicate legislative intent to waive sovereign immunity unless the context of the statute indicates no other reasonable construction.” The Court held that the TPWC provisions had other reasonable constructions and therefore did not waive governmental immunity, barring the State’s money-damage claims against the District. The Court also rejected the State’s argument that because its claim was statutory “restitution” it should be distinguished from the general bright line rule of immunity barring monetary claims against the government. Hence, even though the District could not lease its land for the purpose of oystering, the State could not sue it for monetary recovery (however styled). This case raises further questions about whether the State will be able to recover restitution, penalties, or other monetary recovery from governmental entities going forward absent a clear and unambiguous waiver of immunity.

Knick v. Twp. of Scott, Penn., No. 17-647, 2019 WL 2552486 (U.S. June 21, 2019).

On June 21, 2019 the United States Supreme Court reversed its long-standing precedent that property owners must seek just compensation under state law in state court before bringing a federal takings claim, overruling Williamson Cty. Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 105 S. Ct. 3108, 87 L. Ed. 2d 126 (1985). Petitioner Rose Mary Knick owned land containing a small family graveyard. Knick received notice that she was in violation of the law after a local township passed an ordinance requiring all cemeteries be kept open and accessible to the general public during daylight hours. Knick brought a state court claim alleging a taking of her property. Her state law claims were dismissed for failing to show irreparable harm after the Township withdrew the notice of violation. She did not file a state-law compensation claim. Knick then filed a claim in federal court alleging the ordinance violated the Takings Clause of the Fifth Amendment; the district court dismissed her claims and the Third Circuit affirmed, citing Williamson County. Reversing Williamson County, the Supreme Court reasoned that a government violates the Takings Clause when it takes property without compensation and therefore a property owner may bring a federal takings claim at that time. The Court emphasized that under the Fifth Amendment, a property owner acquires a right to compensation immediately upon the uncompensated taking because the taking itself violates the Fifth Amendment, rather than the conclusion in Williamson County that the Fifth Amendment gives rise to a state law procedure that will result in compensation. The Court emphasized that the Williamson County precedent was “unworkable” and based on “shaky foundations” and “conflicts with much of the Court’s takings jurisprudence.” As a result of this case, local governments should anticipate more takings claims will end up in federal, rather than state, court.

Hughes v. Tom Green Cty., 17-0409, 2019 WL 1119904 (Tex. Mar. 8, 2019), reh’g denied (May 31, 2019).

This is seemingly the first case to combine two unique contours of immunity law. In Lawson the Texas Supreme Court held that if a government entity agrees to settle a suit for a claim from which they are not immune, it cannot then claim immunity from suit for a breach of that settlement agreement. In Reata, the Texas Supreme Court held that governmental entities petitioning a court for affirmative relief cannot then assert immunity to the opposing party’s counterclaim to offset the damage sought by the government. But no court had ever married Lawson to Reata…until now. Hughes v. Tom Green County contained a unique set of facts allowing both of these precedents to be applicable in the same proceeding. Importantly, the Court used the Reata immunity waiver to reach the Lawson rule that the County can’t assert immunity when sued for breaching a settlement agreement. Hughes thus clarifies the outer bounds of both the Reata and Lawson holdings. In the underlying litigation to Hughes, the County intervened in a probate proceeding, during which the heirs and the County signed an agreement to share equally in any recovery in order to combine forces against the third opposing party in the proceeding. The heirs and County both claimed rights to the remainder of the same mineral estate from a university. The heirs later sued the County for breach of their agreement; the County asserted immunity to the breach of contract claims. Using Reata, the Court reasoned that because the County voluntarily interjected itself into probate litigation to claim title to property, they had asserted an affirmative claim, and that the County had abrogated immunity as to competing title claims—like that of the heirs in the prior litigation. Significantly, the Texas Supreme Court clarified that Reata’s application is not dependent on the assertion of monetary damages, but rather on the relationship of the adverse claims. Based on the decision that the County was not entitled to immunity via Reata, the court applied Lawson to bar the County’s claim of immunity based on their alleged breach of the agreement. The Court reasoned that the Mutual Partial Assignment (“MPA”) agreement made between the heirs and the County settled the adverse and mutually exclusive claims of the parties via the cross assignment of any litigation proceeds. The Court reasoned that the MPA worked to “eliminate or reduce the claims or rights of its signatories” and “settled the adversity that existed between the County and the Heirs” in the underlying litigation, and therefore Lawson was applicable. However, a concurrence authored by Justice Boyd argues that Reata was not relevant to the proceedings at all and that the County’s immunity should have never been implicated. He argues the County’s claim was a competing claim and that there was no adverse claim against a political subdivision necessitating immunity analysis at all, making Reata an unnecessary predicate to get to the Lawson question in the case. In our assessment, Justice Boyd was correct, and this case creates some troubling questions going forward. Under Reata, the counter-claimant against the government can only get an offset against anything the government is awarded in its claim against the counter-claimant. In other words, if the government sues for $100,000 and the defendant files a counterclaim, then the defendant can only offset against the government’s $100,000 claim. If the defendant wins and is awarded $2 billion, it can’t collect—all it can do is offset against the government’s claim. What does Hughes do to that rule? We don’t really know. It seems that if the government were to settle that hypothetical case and breach its settlement agreement, the erstwhile defendant could now sue (and recover) its $2 billion. That, at least, is the implication of Hughes. This case presented a unique set of facts that are unlikely to be often repeated. So perhaps we need not dwell on such hypotheticals. But the court’s decision contains enough question marks that we can comfortably predict that it will lead to many more decisions from the Supreme Court to clarify the law.

City of New Braunfels v. Carowest Land Ltd., No. 03-17-00696-CV, 2019 WL 2127743 (Tex. App.—Austin May 16, 2019).

In another governmental immunity case, the Texas Court of Appeals held that the City of New Braunfels’ immunity was not waived, reversing the district court’s order denying the City’s plea to the jurisdiction. Carowest conveyed property to the City for construction of a drainage channel (the “South Tributary Project”), and the City then hired Yantis Company to construct the project. When the project did not proceed smoothly, the City and Carowest signed a Letter Agreement to modify the project. Under the Letter Agreement, Carowest would receive all the fill from the South Tributary Project and some fill from another project—the North Tributary Project (also constructed by Yantis). In exchange, Carowest agreed to indemnify the City and hold it harmless for any claims brought by Yantis for any modification costs, including costs of delay. Yantis submitted a delay claim to the City for work attributed to the South Tributary Project, which the City forwarded to Carowest to handle. Disregarding a Partial Waiver and Release of Lien it signed with the City, Yantis later resubmitted its delay claim. The City informed Yantis that it had previously waived all costs associated with change, including delay costs. Carowest then sued the City and Yantis because Yantis did not abandon its delay claim and the City never rescinded its request to Carowest to handle that claim. The parties severed the claims into two cases.

In Carowest I, the Texas Court of Appeals concluded that there was no immunity regarding the South Tributary Project declaratory judgment claims because it was a breach of contract matter and the court had limited jurisdiction by virtue of the City’s counterclaims for monetary relief.

However, in Carowest II, the Texas Court of Appeals found that immunity barred the North Tributary Project declaratory-judgment claims since the Texas Open Meetings Act only waived immunity for injunctive and mandamus relief, while a breach of contract action only waived immunity for injunctive relief. Neither waived immunity for declaratory relief.

In this third action, Carowest claimed the trial court had jurisdiction over a portion of its claim because the City asserted counterclaims for affirmative relief against Carowest and therefore waived immunity. In the parent claim, the City asserted claims for monetary relief. Within the severed claim on appeal, however, the City had not asserted a claim for monetary relief, only declaratory relief. Since this appeal concerned a bare claim for declaratory relief, unlike in Carowest I where the City asserted counterclaims for monetary relief, immunity was not waived. Extending the reasoning in Reata, the court distinguished the present claim for declaratory relief from the City’s counterclaims in Carowest I breach of contract action, and it did not find a waiver of governmental immunity.

Air and Waste Cases

Atlantic Richfield Co. v. Christian, No. 17-1498, 2019 WL 2412911 (June 10, 2019, granting cert.).

In June 2019, the U.S. Supreme Court granted certiorari in Atlantic Richfield Co. v. Christian, agreeing to review a case arising out of the Montana Supreme Court, which may have a significant impact on Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) cleanup efforts across the country. The main issue revolves around whether CERCLA preempts common law claims for environmental remediation of sites undergoing cleanup. The Montana Supreme Court held that CERCLA does not preempt state law restoration claims. The U.S. Supreme Court is being asked to consider (1) whether CERCLA preempts state common law claims for restoration that seek cleanup remedies that conflict with EPA-ordered remedies; and (2) whether a landowner at a Superfund site is a “potentially responsible party” that must seek EPA’s approval under CERCLA before engaging in remedial action. We will monitor the developments in this case and provide updates in the future, as they arise.

Sierra Club v. EPA, 925 F.3d 490 (D.C. Cir. 2019).

In May 2019, the U.S. Court of Appeals D.C. Circuit held that the EPA’s 2014 rule revising state air monitoring requirements was lawful, despite Sierra Club’s arguments to the contrary. Sierra Club claimed the rule would unlawfully place state air monitoring network plans outside the state implementation plan review process, but the court ruled this claim was time-barred. In addition, the court held Sierra Club lacked standing for its claim that the 2014 rule illegally permitted EPA regional administrators to give case-by-case approval for reductions in the minimum required sampling frequency for fine particulate matter. Finally, the court rejected Sierra Club’s argument that the revisions made to quality assurance requirements for monitoring in prevention of significant deterioration areas would undermine monitoring efforts.

State of California v. EPA, No. 18-cv-03237-HSG, 2019 WL 1995769 (N.D. Cal. May 2019).

In May 2019, a California U.S. District Court ruled that the EPA is required to promulgate a federal plan to implement the 2016 Municipal Solid Waste Landfill Emission Guidelines by November 6, 2019 for states that have not submitted a state plan (Texas has not). The ruling came as a result of a lawsuit brought by eight states (California, Pennsylvania, Illinois, Maryland, New Mexico, Oregon, Rhode Island, and Vermont), claiming that the EPA has a mandatory duty to review and act on any state plans submitted and to impose a federal plan for those that did not submit one. While the federal plan will apply to Texas (and other states lacking their own plan), once promulgated, there is no set time for compliance with the federal plan at this time.

State of New York v. EPA, No. 19-1019 (D.C. Cir. filed Jan. 30, 2019).

In 2018, the EPA issued a “close-out” rule that would allow 20 states subject to the Cross-State Air Pollution Rule (“CSAPR”) to avoid stricter controls on emissions sources that would affect attainment with the National Ambient Air Quality Standards in downwind states. The CSAPR is a cap-and-trade program that includes limits on ozone-forming nitrogen oxides (NOx). In January 2019, six states (New York, New Jersey, Connecticut, Delaware, Maryland, and Massachusetts) filed suit against the EPA in the U.S. Court of Appeals D.C. Circuit, urging the court to vacate the “close-out” rule and force EPA to promulgate a replacement rule mandating pollution cuts before 2020.

Utility Cases

Time Warner Cable Texas LLC v. CPS Energy, 17-0840, 2019 WL 2147257 (Tex. May 17, 2019.

In 2009, CPS Energy (“CPS”), the municipally-owned electric utility owned by the City of San Antonio, filed a petition at the Public Utility Commission (“PUC”) complaining of AT&T and Time Warner Cable regarding pole attachments made by the companies to CPS-owned poles (PUC Docket No. 36633). CPS complained that AT&T and Time Warner were both refusing to pay CPS’s invoiced fee for their attachments to poles owned by CPS. Time Warner and AT&T both had pole attachment agreements with CPS dating from the 1980’s, whereby they both agreed to pay a rate of $3.75 per attachment. Time Warner’s agreement had an escalator clause allowing annual rate increases, but AT&T’s agreement did not. Over time, Time Warner’s rate had escalated to $15.63, while AT&T continued to pay the lower amount. Upset that CPS did not try to collect the higher fees from AT&T, Time Warner sued CPS in 2008. Time Warner alleged that CPS violated Public Utility Regulatory Act (“PURA”) § 54.204(c) which, since September 1, 2006, has required utilities like CPS to charge all telecommunications providers “a single, uniform pole attachment…rate,” and § 54.204(b), which prohibits utilities from discriminating between providers regarding pole attachment rates or terms. By agreement of the parties, the lawsuit was abated pending completion of the PUC complaint proceeding. In its PUC complaint, CPS argued that it had tried to collect the higher fee from AT&T, but to no avail, and sought the PUC’s help in enforcing the non-discrimination provisions of PURA and ordering AT&T to pay the higher rate. The matter was litigated at the PUC until the Order on Rehearing was issued on February 1, 2013 (after over 4 years and more than 900 filings by the parties). Early on, the PUC dismissed CPS’s request that the Commission order AT&T and Time Warner to pay overdue fees. Then, in its Order on Rehearing, the PUC found that CPS had violated § 54.204(c) for the period in which it made no meaningful effort to collect a uniform rate, and ordered CPS to comply with the statutory provisions going forward. The PUC also recalculated the maximum allowable pole attachment rate to be charged by CPS. On appeal from the PUC Order, the district court affirmed the PUC’s conclusions. The Court of Appeals reversed, however, reasoning that PURA § 54.204(c) only requires that a utility charge uniform rates, not that it also collect them. The Court of Appeals concluded that the PUC exceeded its authority in requiring CPS to use meaningful and serious efforts to collect its rates. On May 27, 2019, the Supreme Court of Texas overturned the Court of Appeals decision, noting that “CPS Energy failed to make any serious or meaningful effort to collect from AT&T before it initiated the enforcement proceeding, and it collected far more from Time Warner than from AT&T.” The Supreme Court, therefore, determined that “CPS Energy discriminated in collecting rates from these telecommunications providers,” and that “the PUC could reasonably have concluded, as it did, that CPS Energy violated the plain terms of PURA Section 54.204(b).”

City of Alvin v. Comcast of Houston LLC, No. 4:19-CV-00458 (S.D. Tex. May 22, 2019.

Numerous cities served by Comcast of Houston, LLC (“Comcast”) have brought suit against Comcast, disputing the accuracy and completeness of Comcast’s franchise fee payments. In February 2019, the case was removed to U.S. District Court for the Southern District of Texas. On April 5, Comcast filed a Partial Motion to Dismiss, alleging that the Cable Act and Chapter 66 of the Texas Utilities Code both bar the cities’ claims for franchise fees on what Comcast deems to be non-cable service revenues. Comcast also claimed in its motion that the cities had not asserted a viable declaratory judgment claim, and that the request for accounting claim was invalid. At the end of May, the court issued its Memorandum and Order. The results from the decision are mixed, but ultimately it remains positive for cities’ ability to continue to pursue their statutory claim for underpayment. The court dismissed without prejudice the cities’ request for accounting, finding that the issue is premature. However, the Order did not speak to the issue that fees have gone unpaid, or whether Comcast improperly itemized deductions, which are both issues at the heart of the case. The court stated that “the true issue is whether Comcast’s method for determining what constitutes ‘gross’ revenue from cable services is flawed or invalid under the terms of the Agreement or the Act and regulation.” This means that this claim remains to be adjudicated. Because the cities’ claims have not all been dismissed, the court will continue to resolve the primary dispute.

Atmos Pipeline – Texas v. Railroad Commission of Texas, No. D-1-GN-17-005869 (353rd. Dist. Ct. Travis County, Tex.).

The appeal filed by Atmos Pipeline-Texas (“APT”) from the Texas Railroad Commission’s decision in APT’s last rate case (GUD No. 10580) is scheduled for oral argument in the Travis County District Court on July 31, 2019. The issues on which APT appealed are the capital structure methodology used by the Commission, the return on equity (11.5%) ordered by the Commission, the exclusion of certain incentive compensation amounts, and limitations on the results of the cost allocation methodology. ACSC, the Commission, the City of Dallas, the ATM coalition, and Texas Industrial Energy Consumers intervened in APT’s appeal in support of the agency order. Arguments will be heard by Judge Scott Jenkins of the 353rd District Court.

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In the Courts is prepared by the Firm’s Water and Compliance and Enforcement Practice Groups, Emily Linn in the Firm’s Employment Law and Litigation Practice Groups, and Samuel Ballard in the Firm’s Air and Waste Practice Group. If you would like additional information, please contact Emily at 512.322.5889 or elinn@lglawfirm.com, or Sam at 512.322.5825 or sballard@lglawfirm.com.