Green Valley Special Utility District v. City of Cibolo, Texas
ORDER GRANTING 13 Motion to Dismiss. Signed by Judge Sam Sparks. (td)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
CLERK. U.S. OSTRcT
WESTERN DISTRICT OF
GREEN VALLEY SPECIAL UTILITY
Case No. A-16-CA-627-SS
CITY OF CIBOLO, TEXAS,
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Defendant's Motion to Dismiss for Failure to State a Claim Under Rule 12(b)(6) [#13],
Plaintiff's Response [#15] in opposition, and Defendant's Reply [#16] in support. Having reviewed
the documents, the governing law, and the file as a whole, the Court now enters the following
opinion and orders GRANTING the motion to dismiss.
Plaintiff Green Valley Special Utility District (Green Valley) brings this suit against
Defendant, the City of Cibolo, Texas (the City), claiming the City is attempting to illegally provide
sewer service to customers within Green Valley's certified district.
Am. Compl. [#12] ¶ 10.
Green Valley has a loan to fund its water service from the United States Department of Agriculture
(USDA) under 7 U.S.C.
1926, which is secured by revenues from that same water service.
Earlier in this case, this Court interpreted "[t]he service" in
1926(b) to refer to an
association's funded service. See Order [#9]. Because Green Valley failed to plead which service is
funded by federal loan, the Court dismissed Green Valley's Original Complaint but granted leave to
Green Valley has now filed an Amended Complaint, clarifiing it received federal
funds for its water service, not its sewer service. See Am. Compl. ¶ 9. The City filed a motion to
dismiss in reaction. The Court finds Green Valley cannot establish a cause of action under
to protect its sewer service, a service for which it has not used federal funds. Thus, the Court
dismisses Green Valley's Amended Complaint with prejudice because further amendment would be
Although the Court previously recounted the facts of this case, we must begin again at the
beginning: a summary of the facts, drawn from the Amended Complaint and recounted in the light
most favorable to Plaintiff, follows.
Both state and federal law govern the right to sell water and sewer services to the public in
Texas. The Texas Public Utility Commission (PUC) issues applicants Certificates of Convenience
and Necessity (CCN5), which grant exclusive rights to provide water or sewer utility services to a
specified geographic area.
In addition, 7 U.S.C.
1926(a) authorizes loans and grants to nonprofit associations that
provide water and sewer services in rural areas. 7 U.S.C.
1926(a). With this statute, Congress
intended to create a "very effective program of financing the installation and development of
domestic water supplies and pipelines serving farmers and others in rural communities." S. Rep. No.
as reprinted in
1961 U.S.C.C.A.N. 2243, 2309. To protect these indebted associations,
Congress included the following provision:
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 happening of any such event be the basis of requiring such
association 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. § 1926(b).
Green Valley provides water and sewer services to a rural area covering parts of Guadalupe,
Comal, and Bexar counties. See Am. Compl. [#12] ¶
provide water and sewer services to the area. See
Green Valley has two CCNs allowing it to
¶ 5. Green Valley also has an outstanding loan
from the USDA to fund its water service, secured by revenues from the same water service.
The City filed an application under Texas Water Code § 13.255 to obtain a CCN for the right
to provide sewer service in an area that overlaps with Green Valley's sewer service. See
¶ 7. In
its application, the City also requested the decertification of Green Valley, which would prevent
Green Valley from providing sewer service in the overlapping area. See
City's application violates
Green Valley claims the
This Court dismissed Green Valley's Original Complaint.
Order [#9]. In evaluating that
complaint, the Court conducted a thorough analysis of 'the service provided or made available" as
1926(b). Id. at 4-10. Interpreting the statute in light of its statutory and regulatory
context, the Court concluded § 1926(b) refers to the funded service and not other, ancillary services
an association may provide. Id. Because Green Valley failed to plead which of its services, water or
sewer, is funded by federal loan, the Court granted the City's Motion to Dismiss but also gave leave
for Green Valley to amend its complaint. Id. at 10.
Green Valley returns with an Amended Complaint, explaining the federal loan funds its water
service and is secured by the water service revenues. Again, the City moves to dismiss under Federal
Rule of Civil Procedure 12(b)(6). Green Valley responds, asking the Court to "reconsider its
." See Pl.'s Resp. [#15] ¶ 1.
A motion under Rule 12(b)(6) asks a court to dismiss a complaint for "failure to state a claim
upon which relief can be granted."
FED. R. CIV. P.
12(b)(6). The plaintiff must plead sufficient facts
to state a claim for relief that is facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged." Iqbal, 566 U.S. at 678. Although a plaintiff's factual allegations
need not establish that the defendant is probably liable, they must establish more than a "sheer
possibility" that a defendant has acted unlawfully. Id. Determining plausibility is a "context-specific
task," and must be performed in light of a court's "judicial experience and common sense." Id. at
In deciding a motion to dismiss under Rule 12(b)(6), a court generally accepts as true all
factual allegations contained within the complaint. Leatherman v. Tarrant Cty. Narcotics Intelligence
Coordination Unit, 507 U.S. 163, 164 (1993). A court, however, is not bound to accept legal
conclusions couched as factual allegations. Papasan
Allain, 478 U.S. 265, 286 (1986). Although
all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff must plead "specific
facts, not mere conclusory allegations." Tuchman v. DSC Commc'ns Corp., 14 F.3d 1061, 1067(5th
Cir. 1994). In deciding a motion to dismiss, courts may consider the complaint, as well as other
sources such as documents incorporated into the complaint by reference, and matters ofwhich a court
may take judicial notice. Tellabs, Inc.
Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
Although leave to amend a complaint is to be freely given under Rule 15(a), a district court
may deny leave to amend after considering factors such as "undue delay, bad faith or dilatory motive
on the part of the movant, repeated failures to cure deficiencies by amendments previously allowed,
undue prejudice to the opposing party by virtue of allowance of the amendment, and futility of the
amendment." Schiller v. Physicians Res. Grp. Inc., 342 F.3d 563, 566 (5th Cir. 2003). If a plaintiff
has had fair opportunity to make its case and a cause of action has not been established, the court
should finally dismiss the suit. Id. at 567.
Green Valley's ability to state a claim in this case hinges on whether its sewer service is
protected under 7 U.S.C.
1926(b). This Court interprets
1926(b) to safeguard only the type of
service funded by federal loan, not ancillary services an association may also provide. Because Green
Valley "acknowledges that proceeds from its federal loan were used.
only in connection with its
water system" but nevertheless seeks protection for its sewer service, the Court finds Green Valley
has failed to state a claim.
As previously noted, this Court determined the meaning of "the service provided or made
available" under § 1926(b) when it evaluated the prior motion to dismiss. Here, Green Valley spends
the majority of its response to the City's Motion to Dismiss arguing this Court's prior order was
incorrect. In particular, Green Valley argues the Court should interpret
1926(b)'s protections to
apply to "any service" an association provides if the association receives a federal loan because
(1) the plain language of the statute does not limit protection to the funded service; (2) the Court's
interpretation ofthe singular term "service" is inapplicable where a federal loan funds more than one
service; (3) this Court's interpretation contradicts Fifth Circuit precedent endorsing a liberal
interpretation of the statute; (4) a broader interpretation better serves the statute's purposes; and
(5) the Court should refrain from legislating by judicial mandate.
The Court finds none of Green Valley's arguments regarding the interpretation of § 1926(b)
more persuasive the second time around. Green Valley continues to urge a broader reading of
1926(b), but this Court declines to expand the definition of "the service" beyond the funded
service, the construction most directly suggested by § 1926(b) and its context.
As discussed in this Court's prior order, because no court within the Fifth Circuit has
interpreted "the service provided or made available" and the plain language of the statute is not
instructive, this Court turns to the statute's context, both statutory and regulatory, and the purposes
behind its enactment. See UnitedStates v. Uvalle-Patricio, 478 F.3d 699, 703 (5th Cir. 2007) (noting
interpretation of a statute begins with the statute's plain language); Pub. Water Supply Dist. No. 3
City ofLebanon, 605 F.3d 511, 519(8th Cir. 2010) (looking at the plain language of § 1926(b) and
finding the language provided "little insight into the interpretive question").While Green Valley
1926(b) "unambiguously states that any 'service provided or made available' through any
federally indebted association" should be protected, Green Valley misstates the plain language of §
1926(b). Pl.'s Resp. [#15] ¶ 2. The exact language of the statute specifies "[t]he service provided or
made available" is eligible for
1926(b) (emphasis added). Green Valley's
argument any service should be protected ignores the definite article in front of service. And although
the plain language of the statute does demonstrate
1926(b) intended to safeguard a specific service,
it does not resolve the issue of which service.
1926(b) protects a specific service is further bolstered by the statute as a
whole, specifically Congress's use ofthe singular rather than the plural. See United States v. Morton,
467 U.S. 822, 828 (1984) ("We do not.
construe statutory phrases in isolation; we read statutes
as a whole."). As previously analyzed by this Court, because Congress used "service" and "services"
throughout the statute, "the service provided or made available" was not intended to mean all
services an association may provide. Compare 7 U.S.C.
1926(b) with 7 U.S.C.
(describing a grant program for "cable operators that establish common carrier facilities and
services") (emphasis added); see also Pub. Water Supply, 605 F.3d at 520 ("Read in pan materia
with 7 U.S.C.
1926(a), Congress's pattern of using the singular to refer to a single type of service
while using the plural to refer to a collection of multiple types of services is decisive.").
Responding to this conclusion, Green Valley claims the Court's interpretation of "service"
to mean the funded service is unsuitable where a federal loan funds more than one service. Pl.'s
Resp. [#15] ¶ 4. But Green Valley's argument fails to understand the Court is not interpreting service
under § 1926(b) to mean one, singular service. See Order [#9] at 7-8. Instead, the Court construes
service as a category, the type of service financed by a qualifying federal loan. Id. An association may
have multiple funded services, all of which would benefit from
1926(b)'s protection. But that is
not the case here as Green Valley's sewer service is not federally funded. See Am. Comp!. [#12] ¶ 9.
Thus, the Court concludes the statutory context supports finding § 1926(b) protects a definitive type
of service, the funded service.
This Court's interpretation of the statute also conforms to the policy goals of 1926. Green
Valley disagrees, arguing this Court's interpretation contradicts the Fifth Circuit's directive in North
Alamo to liberally interpret
1926(b) to protect indebted water associations from municipal
encroachment. Pl.'s Resp. [#15] ¶J 5-6 (citing N Alamo Water Supply Corp.
City of San Juan,
90 F.3d 910, 915 (5th Cir. 1996)). Under the Fifth Circuit's precedent, according to Green Valley,
1926(b) should be extended to shield all of an association's services from encroachment. Id. Green
Valley's interpretation of § 1926(b), however, stretches the statute and the Fifth Circuit's prior
decision too far.
For context, in North Alamo the Fifth Circuit observed "[e]very federal court to have
1926(b) has concluded that the statute should be liberally interpreted to protect
FmHA-indebted rural water associations from municipal encroachment." 90 F.3d at 915.The Fifth
Circuit did not, as Green Valley seems to advocate, establish a directive mandating a liberal
interpretation favoring the indebted association in every case. See id. Furthermore, other courts have
recognized limits on liberally interpreting § 1926(b) after considering the entirety of the statute and
its objectives. See Scioto Cty. Reg'l Water Dist. No.
lv. Scioto Water Inc.,
Cir. 1996) (finding an association is no longer entitled to
103 F.3d 38, 41-42 (6th
1926(b) protection if it has repaid its
federal debt); Pub. Water Supply, 605 F.3d 520-2 1 (limiting an association's § 1926(b) shield to the
Thus, like the Fifth Circuit in North Alamo, this Court looks to the objectives underlying
1926(b) rather than merely applying a liberal interpretation as a general rule. See N Alamo, 90 F.3d
at 915. The Fifth Circuit explained the two purposes behind § 1926(b): "(1) to encourage rural water
development by expanding the number of potential users of such systems, thereby decreasing the
per-user cost, and (2) to safeguard the viability and financial security of such associations (and
FmHA's loans) by protecting them from the expansion of nearby cities and towns." Id. Considered
together, these two purposes support viewing
government sought to encourage. Furthermore,
1926(b) as protecting the very service the federal
1926's purposes show the statute as a whole was
primarily intended to encourage rural development. Expanding
1926(b) to grant an association
monopoly power over all services it might provide could discourage rural development by stymieing
the growth of other service providers, potentially undermining the purposes of § 1926.
By contrast, Green Valley claims a broader interpretation of § 1926(b)'s protections better
aligns with the statute's purposes, especially because Green Valley administers an "integrated service
area." Pl.'s Resp. [#15] ¶
(citing Am. Compl. ¶ 21). Green Valley argues any reduction in its
integrated water and sewer services will decrease its revenues, damage its viability and financial
security, and therefore defeat the statute's purpose. Id. But how far should a court go to safeguard
an association's revenues? Should it shelter every auxiliary service an association provides? No, to
expand § 1926(b)' s protection to services unconnected with the federal loan overextends the statute.
See Pub. Water Supply,
605 F.3d at 521 ("In short, divorcing the type
association's] qualifying federal loan from the type of service that
of service underlying [an
1926(b) protects would stretch
the statute too far.")
Although Green Valley complains this Court should refrain from legislating by judicial
mandate, this Court avoids that very misstep. Rather than create a new application for § 1926(b), this
Court's interpretation of "the service" as the funded service remains within the confines ofthe statute
and its purposes. Consequently, because Green Valley has not received federal funds for its sewer
service, the Court finds Green Valley cannot establish a cause of action under
1926(b) and Green
Valley's Amended Complaint should be dismissed.
For all the foregoing reasons, the Court GRANTS the City's Motion to Dismiss. Although
leave to amend a complaint is to be freely given, here additional amendment of the complaint would
be futile. Because the Court determined
1926(b) protects an association's funded service, Green
Valley cannot establish a cause of action to protect its sewer service, a service for which it has not
used federal funds. Thus, Green Valley's Amended Complaint must be dismissed WITH
IT IS ORDERED that Defendant's Motion to Dismiss [#13] is GRANTED; and
IT IS FINALLY ORDERED that all claims brought by Plaintiff in this case are
DISMISSED WITH PREJUDICE.
SIGNED this the
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?