Crystal Clear Special Utility District v. Nelson et al

Filing 75

REPORT AND RECOMMENDATIONS re 58 Motion for Judgment on the Pleadings filed by Las Colinas San Marcos Phase I, LLC. Signed by Judge Andrew W. Austin. (lt)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
CRYSTAL CLEAR SPEC. UTIL. DIST.
v.
DEANN T. WALKER, ARTHUR
D’ANDREA and SHELLY BOTKIN, in
their official capacities as Commissioners
of the Public Utility Commission of Texas1

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A-17-CV-00254-LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:

THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are Las Colinas’ Motion for Judgment on the Pleadings (Dkt. No. 58), the

Response (Dkt. No. 64), and Reply (Dkt. No. 65); Crystal Clear’s Brief on the Proper Scope of
Relief (Dkt. No. 71); the State Officials’ and Las Colinas’ Responses (Dkt. Nos. 72 & 73); and the
Reply (Dkt. 74). The undersigned submits this Report and Recommendation to the District Judge
pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure 72, and Rule 1(d) of
Appendix C of the Local Rules.
I. GENERAL BACKGROUND
Crystal Clear Special Utility District brings this suit against the Commissioners of the Public
Utility Commission of Texas (PUC) in their official capacity and Las Colinas San Marcos Phase I,
LLC, alleging that the PUC’s decertification of property within Crystal Clear’s certificate of
convenience and necessity violates 7 U.S.C. § 1926.
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The Commissioners listed in the caption are the current Commissioners of the PUC. The
docket sheet reflects Brandy Marty Marquez as one of the Commissioners, and does not include
Shelly Botkin. Pursuant to FED. R. CIV. P. 25(d), the Court ORDERS that the Clerk terminate
Marquez as a party, and add Botkin in her place.

Congress enacted § 1926 to protect a utility that is a recipient of federal loans from
curtailment of its service area and encroachment by municipalities in order to ensure that recipients
are able to repay their federal loans. N. Alamo Water Supply Corp. v. City of San Juan, 90 F.3d 910,
915 (5th Cir. 1996) (per curiam). The Fifth Circuit has described the territory of a federally-indebted
water association services as “sacrosanct,” id., and § 1926 specifically requires that:
[t]he service provided or made available through any such association shall not be
curtailed or limited by the inclusion of the area 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 said loan. . . .
Id. at 915; 7 U.S.C. § 1926. Crystal Clear received a federal loan under § 1926, and its certificate
of convenience and necessity granted by the PUC covers about 165 square miles within Hays,
Comal, and Guadalupe counties. In September 2016, Las Colinas filed a petition with the PUC, as
allowed under the Water Code, requesting that the PUC decertify 80 acres of property that is part of
Crystal Clear’s certificate of convenience and necessity, and which is owned by Las Colinas (“the
Disputed Property”).2 The Water Code allows for expedited decertification of a property meeting
certain requirements when it is “not receiving water or sewer service.” Id. In determining whether
to decertify property, the Water Code explicitly states that “[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 the federal loan program.” TEX. WATER CODE § 13.254(a-6).

After Las Colinas’

decertification petition was filed, Crystal Clear intervened in the proceedings, arguing that the Texas
statute was preempted by § 1926 and requesting that the PUC deny Las Colinas’ petition. The PUC
concluded that it was required to abide by the state law and granted Las Colinas’ petition. Crystal
2

Unless otherwise indicated, all citations to the applicable Texas Water Code provisions will
be limited to the relevant section number, i.e. “§ 13.254(a-5).”
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Clear then filed an appeal in state court. Crystal Clear also filed this federal suit, arguing that TEX.
WATER CODE §§ 13.254(a-5) & (a-6) are preempted by § 1926, and are therefore unconstitutional.
It requested injunctive and declaratory relief to this effect.
Crystal Clear moved for summary judgment on all of its claims, and on March 29, 2018 the
Court entered an order granting summary judgment in part for Crystal Clear, declaring that:
(1) Crystal Clear is federally indebted under Section 1926; (2) Crystal Clear has “provided or made
available” service under § 1926 by virtue of its legal duty to provide service as defined by its
certificate of convenience and necessity; (3) PUC Officials’ order granting the petition to decertify
the Disputed Property from Crystal Clear’s certificate of convenience and necessity curtailed Crystal
Clear’s rights under § 1926; and (4) § 13.254(a-6) is preempted by § 1926. In accordance with the
Court’s Summary Judgment Order (Dkt. No. 66), the Court asked for further briefing on the proper
scope of relief. That is the focus of this Report and Recommendation.
I. DISCUSSION
In general, where there is preemption, there is an implied right of action to assert preemption
claims seeking injunctive and declaratory relief and to enjoin state or local regulation that is
preempted by a federal statutory or constitutional provision. Planned Parenthood of Hous. and Se.
Tex. v. Sanchez, 403 F.3d 324, 333-35 (5th Cir. 2005); Green Valley Special Util. Dist. v. Walker,
324 F.R.D. 176, 181 (W.D. Tex. 2018). The Fifth Circuit has noted that although § 1926(b) does
not create or specify a remedy for the enforcement of violations, an injunction has been “the
principal tool employed by the courts with which to enforce the statute and prevent violations.”
N. Alamo Water Supply Corp., 90 F.3d at 917. Along those lines, courts both in this circuit and in
others have long considered injunctive and declaratory relief to be appropriate to address a violation

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of § 1926(b). El Oso Water Supply Corp. v. City of Karnes City, Tex., No. SA-10-CA-0819-OG,
2012 WL 4747680, at *1 (W.D. Tex. Apr. 11, 2012); Jennings Water, Inc. v. City of N. Vernon,
Ind., 682 F.Supp 421, 427 (S.D. Ind. 2012). Because the Court has already found that there has been
a violation of § 1926(b), injunctive and declaratory relief are appropriate here.
A.

Relief as to the PUC Officials

The PUC makes several arguments as to why Crystal Clear should not be granted declaratory
or injunctive relief. Most are not substantive. For example, PUC Officials complain that the relief
requested by Crystal Clear is both overly broad, and impermissibly vague. They also assert that to
“provide meaningful relief,” the Court must address a host of sections of the Texas Water Code that
were never the subject of this litigation. Finally, they make what is essentially an “unclean hands”
argument, based on allegations that Crystal Clear has made “false statements” to the Court. None
of these arguments have merit.
With regard to the alleged vagueness and overbreadth of the requested relief, the Court need
not address these points, because the relief the Court recommends below does not include the
provisions that PUC Officials complain about.3 Further, the Court rejects the PUC Officials’ claim
that Crystal Clear made false statements to the Court, as it finds that claim to be without any

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One of these arguments merits a brief mention. PUC Officials argued that any injunction
imposed for a time period defined as “as long as Plaintiff’s federal loan remains outstanding,” is
improper, as such a time period is “unknown, unknowable, and potentially infinite.” Dkt. No. 72
at 9. This is a silly argument. Numerous courts have enjoined the curtailment of a utility’s service
in exactly this manner. El Oso Water Supply Corp., 2012 WL 4747680 at *1 (W.D. Tex. Apr. 11,
2012) (enjoining the City from prosecuting any claims under Chapter 13 “so long as its service area
is protected under 7 U.S.C. § 1926(b)”); Jennings Water, 682 F. Supp. at 427 (enjoining curtailment
“during the term of a loan”), aff’d, 895 F.2d 311 (7th Cir. 1989). Moreover, the PUC Officials state
in their own brief that there are “publicly available records of Crystal Clear’s loan documentation.”
Dkt. No. 72 at 16.
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evidentiary support. What the PUC Officials claim to be false statements simply do not appear to
be such. Last, the PUC Officials’ request that the Court provide it with what would plainly be an
advisory opinion regarding the impact of the Court’s legal ruling in this case on several Texas Water
Code sections that were never the subject of briefing nor challenged by Crystal Clear, is improper.
The only statutes that Crystal Clear challenged here were §§ 13.254(a-5) and (a-6). Those are also
the only statutes that the parties briefed and the Court addressed. Opining about whether other
portions of the Texas Water Code are impacted by the Court’s rulings would be improper, and the
Court declines the PUC Officials’ invitation to do so. As the Supreme Court has stated,
Article III of the Constitution limits the “judicial power” of the United States to the
resolution of “cases” and “controversies.” The constitutional power of federal courts
cannot be defined, and indeed has no substance, without reference to the necessity
to “adjudge the legal rights of litigants in actual controversies.”
Valley Forge Christian Coll. v. Am. United for Separation of Church and State, 454 U.S. 464, 471
(1982) (citations omitted). Here, there is no “case” or “controversy” concerning §§ 13.254(a), (a-1),
or (b), and for this Court to opine on those specific sections would amount to an advisory opinion,
which is strictly prohibited by Article III.
The PUC Officials’ sole substantive objection to the entry of relief against them is the claim
that the relief would be retroactive and not prospective, and thus would violate the limits set by Ex
Parte Young, 209 U.S. 123 (1908). Judge Yeakel, however, already rejected the argument in his
order adopting the undersigned’s Report and Recommendation on February 15, 2018. (Dkt. No. 46)
As noted there, Ex Parte Young allows suits seeking prospective injunctive relief against state
officials in their official capacity; Crystal Clear has asserted a federal right, and is seeking injunctive
and declaratory relief that is prospective in nature against state officials in their official capacities.
See Dkt. No. 32 at 3-5; Dkt. No. 46. The Court need not look backwards to remedy the harm caused
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by the PUC Officials’ reliance on a preempted statute to decertify a portion of Crystal Clear’s
territory, but rather it need only declare that the final order violated federal law, and enjoin PUC
Officials from taking any actions to enforce that order.
The Court cannot complete this discussion without noting that the PUC Officials’ brief
contains the unsettling suggestion that it does not recognize federal law as the supreme law of the
United States. Specifically, PUC Officials state that even if the Court strikes § 13.254(a-6),
Section 13.254(a-5) states that the PUCT “shall grant” a petition meeting [(a-5)’s]
three requirements, and, being a creature of statute, the PUCT may not consider an
extrastatutory factor—such as the utility’s status as a debtor to the
USDA—regardless of that portion of 13.254(a-6) reaffirming that principle.
Dkt. No. 72 at 15. The Constitution begs to differ. Though it should not be necessary, the Court
reminds PUC Officials that Article VI of the Constitution provides:
This Constitution, and the laws of the United States which shall be made in
pursuance thereof; and all treaties made, or which shall be made, under the authority
of the United States, shall be the supreme law of the land; and the judges in every
state shall be bound thereby, anything in the Constitution or laws of any State to the
contrary notwithstanding.
U.S. CONST. Art. VI (emphasis added). Thus, regardless of whether § 13.254(a-5) explicitly directs
the PUC to consider the provisions of 7 U.S.C. § 1926(b), the PUC has no choice in the matter, as
the Constitution compels it to consider that applicable federal law. The fact that the PUC suggests
otherwise is troubling. Generally, a court should be as circumscribed as possible when it determines
the scope of a ruling invalidating a statute, and this is particularly true when there are both separation
of powers and federalism issues implicated, as there are here. But the PUC Officials’ suggestion that
they have no choice but to follow state law even in the face of a directly contrary federal
law—despite the fact that the agency has a general counsel and a staff full of attorneys—supports
Crystal Clear’s argument that the Court should go further than simply enjoining enforcement of
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§ 13.254(a-6).4 Accordingly, the Court has added in its recommended relief, a declaration regarding
§ 13.254(a-5) as well.
B.

Relief as to Las Colinas

Separately, Crystal Clear urges the Court to include Las Colinas as part of any injunctive
relief granted by the Court because Las Colinas sought and obtained improper decertification of
Plaintiff’s service area in violation of Plaintiff’s federal rights. The Court, however, is unpersuaded
that relief need be ordered against Las Colinas. Instead, the relief ordered against PUC officials
should be sufficient to address any potential future harm that could occur to Crystal Clear, involving
the tract owned by Las Colinas. Given that the Court is recommending that the order decertifying
the Disputed Property be declared void, and that the PUC be enjoined from enforcing it, Las Colinas
will not be able to obtain water service from a provider other than Crystal Clear, without petitioning
the PUC anew. The Court’s recommendation that both §§ 13.254(a-5) and (a-6) be declared

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In their briefing, the parties argue about whether the Court should order PUC Officials to
“re-certify” the Las Colinas property back into Crystal Clear’s service area. PUC Officials contend
that the Court does not have the authority to do so, arguing that while the Court has the power to
“inform the State Officials what the law means . . . it may not command them to exercise their
discretion that the state legislature has unambiguously delegated to them to grant or deny CCNs.”
Dkt. No. 72 at 13. “Thus,” claim the PUC Officials, “if Crystal Clear desires to have the [property]
added to its existing service area, Crystal Clear has two lawful options. It can pursue its case in state
court, which is the sole tribunal authorized to reverse the agency’s order, or it can file an application
with the PUCT under Texas Water Code sections 13.241 et seq. to obtain certification of the tract
at issue. . . .” Id. There would seem to be a rather obvious third option, which is that, upon the final
resolution of this case and any appeals, PUC Officials vacate what will have been finally determined
to be an improper order. The suggestion that Crystal Clear would instead have to either wait for a
Texas court to reverse the order (when the controlling law on the validity of the order is federal law),
or go through an entirely new certification process to regain its rights to this part of its service area,
is another sign of the apparent recalcitrance of the PUC Officials to recognize the supremacy of
federal law. Having said this, as already discussed in the text, the Court believes that enjoining PUC
Officials from enforcing in any way the decertification order is sufficient to protect Crystal Clear’s
rights. Should that not be the case, Crystal Clear should promptly seek contempt relief from the
Court.
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preempted (as discussed below) will prevent Las Colinas from being able to obtain decertification
on the same terms again. Because injunctive relief should always be narrowly tailored, and because
Crystal Clear’s rights under § 1926(b) vis-a-vis Las Colinas will be protected by the declaratory and
injunctive relief entered against PUC Officials, the Court declines to recommend granting any relief
against Las Colinas.5
II. RECOMMENDATION
Based on the foregoing discussion and the Court’s Summary Judgment Order (Dkt. No. 66),
the undersigned Magistrate Judge RECOMMENDS that the Court enter judgment in favor of
Crystal Clear Special Utility District and against the PUC Officials on Crystal Clear’s claims for
declaratory relief brought under 28 U.S.C. § 2201, 42 U.S.C. § 1983, and Crystal Clear’s request for
permanent injunctive relief brought under 7 U.S.C. § 1926(b), as follows:
The undersigned RECOMMENDS that the Court make the following declarations:
(1)

PUC officials’ Final Order of September 28, 2016, in the matter titled Tex. Pub. Util.
Comm’n, Petition of Las Colinas San Marcos Phase I LLC, Docket No. 46148 was
entered in violation of 7 U.S.C. § 1926(b) and is void.

(2)

TEX. WATER CODE § 13.254(a-6) is preempted by 7 U.S.C. § 1926 and is void;

(3)

To the extent that TEX. WATER CODE § 13.254(a-5) directs PUC Officials to grant
a petition for decertification that meets the requirements of that provision without
regard to whether the utility holding the certification is federally indebted and
otherwise entitled to the protections of 7 U.S.C. § 1926(b), the statute is preempted
and is void;

The undersigned FURTHER RECOMMENDS that the Court enjoin the Commissioners
of the Public Utility Commission of Texas, in their official capacities, as follows:

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This also allows the Court to avoid having to reach the Noerr-Pennington argument Las
Colinas raised in both its briefing on the appropriate relief, and in its Motion for Judgment on the
Pleadings (Dkt. No. 58).
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(1)

The PUC, its officers, employees, and agents are permanently enjoined from
enforcing in any manner the order of September 28, 2016 in the matter titled Tex.
Pub. Util. Comm’n, Petition of Las Colinas San Marcos Phase I LLC, Docket No.
46148 (Final Order).

Finally, as noted above, the undersigned does not believe that any declaratory or injunctive
relief against Las Colinas is necessary. Given this, the Court RECOMMENDS that Las Colinas’
Motion for Judgment on the Pleadings be denied as moot. (Dkt. No. 58).
III. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections.
Battles v. United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987). A party’s failure to file
written objections to the proposed findings and recommendations contained in this Report within
fourteen (14) days after the party is served with a copy of the Report shall bar that party from de
novo review by the district court of the proposed findings and recommendations in the Report and,
except upon grounds of plain error, shall bar the party from appellate review of unobjected-to
proposed factual findings and legal conclusions accepted by the district court. See 28 U.S.C.
§ 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140 (1985); Douglass v. United Servs. Auto. Ass’n, 79
F.3d 1415, 1428–29 (5th Cir. 1996).
SIGNED this 29th day of November, 2018.

_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE

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