Texas Supreme Court rules against litigious San Jacinto River Authority, which then files new lawsuit to retaliate

Beginning of the opinion by Texas Supreme Court Brent Busby against the San Jacinto River Authority, on Friday, March 27, 2020, on behalf of a unanimous Supreme Court.

The Golden Hammer Staff Reports

Austin and Conroe, March 30 – The Supreme Court of Texas ruled against the San Jacinto River Authority (SJRA) in an opinion, which Justice Brent Busby delivered on behalf of the Court on Friday, March 27, 2020, early in the morning. Later that afternoon, SJRA retaliated by filing a new claim in the form of a frivolous counterclaim and third-party claim against the Cities of Conroe, Magnolia, and Splendora, in the 284th District Court of Montgomery County in Conroe.

SJRA had sought a favorable venue in Travis County (Austin) in its dispute with large groundwater producers and the three cities, so the river authority filed a lawsuit there under the Expedited Declaratory Judgment Act (EDJA), which the Legislature enacted specifically to enable government bond issuers to seek expedited judicial relief in the event a taxpayer or other party sought to interfere with a government bond issuance.

The litigation springs from SJRA’s attempts to raise water prices in Montgomery County drastically to support its gigantic monopolistic expansion into water sales through the sale of surface water from Lake Conroe. Specifically, SJRA, which used to control the Lone Star Groundwater Conservation District (LSGCD), before the November, 2018, General Election replaced the SJRA-controlled Board members, sought tightly to restrict groundwater sales and production through strict groundwater regulations.

In 2016, the cities informed SJRA that they would no longer pay the water rates SJRA demanded under SJRA’s contracts with those respective governmental entities, because they cities and their residents believed the water rates constituted confiscatory pricing. The Conroe and Magnolia City Councils each passed resolutions accusing SJRA of overcharging for water in violation of its groundwater reduction plan contracts and questioning the legitimacy of SJRA’s entire groundwater reduction plan program.

A brief summary of the San Jacinto River Authority’s tactics with respect to water sales and pricing.

The Supreme Court ruled unanimously, however, that while SJRA could seek a declaration whether it could set rates for participants in the groundwater production plan contracts, SJRA could not utilize the pro-government bond issuer provisions of EDJA to ask a Travis County District Court to determine whether (1) the actual rates SJRA set for water prices were reasonable under its contracts with the cities and (2) whether the City of Conroe’s refusal to pay the Fiscal Year 2017 rate is illegal and invalid and a breach of Conroe’s contract with SJRA.

Only a few hours after the Supreme Court issued its opinion, SJRA filed a third party petition and counterclaim in a pending lawsuit which large groundwater producers had brought against SJRA related to many of the same issues. In the third party petition, SJRA sued the three cities.

SJRA’s latest lawsuit in a long string of extraordinarily costly lawsuits, which SJRA usually loses, appears frivolous for two reasons, one procedural and one substantive.

Under Rule 38 of the Texas Rules of Civil Procedure, a defendant may not bring a third party petition, which sues a new party to the lawsuit, such as the three cities, unless the defendant has first received permission from the court (if the third party petition is more than 30 days after the defendant filed an answer). Therefore, procedurally, SJRA appears to have broken the rules.

Additionally, SJRA is seeking attorneys fees for a new “declaratory judgment” claim in its counterclaim. Texas law is clear, however, that declaratory judgment counterclaims may not proceed as a means of recovering attorney fees, if the subject matter of the declaration sought is already before the trial court. In this instance, Quadvest and the other large groundwater producers already raised the issues for which SJRA seeks declarations in the lawsuit petition against SJRA. Therefore, substantively, SJRA appears to have ignored a long line of Texas legal authorities.

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