Dallas Sues the Sabine River Authority

8/9/2019 Dallas Sues the Sabine River Authority

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CAUSE NO.

CITY OF DALLAS

Plaintiff,

JUDICIAL DISTRICT

CARY MAC ABNEY, CONNIE WARE,

J.D. JACOBS CONN IE WA DE CLIFF R.

TODD DAVID KOONCE EARL

WILLIAMS STAN MATHEWS AND

SHARON N EWCOMER a/k/a MARTHA

SHARO N McMULLEN all of whom are

sued solely in their capacities as members of

the board of directors of the Sabine River

Authority of Texas,

Defendants.

ORANGE COUNTY, TEXAS

CITY S ORIGINAL PETITION FOR

DECLARATORY JUDGMENT

TO THE HONORABLE JUDGE OF SAID COURT:

Plaintiff, the City of Dallas (the City or Dallas ), complains of Defendants, Cary

Mac Abney, Connie Ware, J.D. Jacobs, Jr., Connie Wade, Cliff R. Todd, David W. Koonce,

Earl Williams, Stanley N. Stan Mathews, and Sharon Newcomer, all of whom are sued solely

in their respective official capacities as members of the board of directors (the Board ) of the

Sabine River Authority of Texas ( SRA ), because they acted

ultr vires (i.e., beyond their

power and authority) when they voted on October 9, 2014, to exorbitantly increase the rate

charged to The City for raw water from the Lake Fork Reservoir without the agreement of the

City. The City seeks a declaration that the SRA's board members acted without legal authority

and in violation of the SRA's enabling legislation when purporting to establish the unlawful new

rate, and that the this action was therefore void. In addition, if and when the evidence supports

the need for injunctive relief to prevent any or all SRA board members from violating the terms

of the Court's declaratory judgment at any time. retaliating against the City from bringing this

CITY S ORIGINAL PETITION

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suit, or improperly discriminating against the City in the provision of water services or rates

during the pendency of the action, the City seeks ancillary relief in the nature of injunction

prohibiting the defendants and their respective successors and agents who receive notice of the

Court's order for injunctive relief from violating any declaratory judgment that the Court issues

in this cause, denying or curtailing water supply to the City, and from unilaterally imposing any

water rate changes on the City. In support, the City respectfully shows:

DISCOVERY CONTROL PLAN

1

The City intends that discovery be conducted under Level 3 pursuant to Rule 190

of the Texas Rules of Civil Procedure.

PARTIES

2.

The City is a Texas home-rule municipal corporation situated in Dallas and other

counties in the State of Texas, with its principal offices located at City Hall, 1500 Marilla Street,

Dallas, Dallas County, Texas 75201.

3.

Cary Mac Abney is the President and a member of the Board of the SRA. He

can be served with process at 12777 N. Highway 87, Orange, Texas 77630; 215 E. Austin St.,

Marshall, Texas 75670; or wherever he may be found.

4. Connie Ware is the Vice President and a member of the Board of the SRA. She

can be served with process at 12777 N. Highway 87, Orange, Texas 77630; 4585 FM 2625 E.,

Marshall, Texas 75672; or wherever she may be found.

.D. Jacobs, Jr. is the Secretary/Treasurer and a member of the Board of the SRA.

He can be served with process at 12777 N. Highway 87, Orange, Texas 77630; 5961 Connie

Lane, Forney, Texas 75032-8151, or wherever he may be found.


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6.

Connie Wade is the Secretary Pro-Tern and a member of the Board of the SRA.

She can be served with process at 12777 N. Highway 87, Orange, Texas 77630; 40 Oak Creek

Ridge Drive Longview Texas 75605-1630; or wherever she may be found.

7.

Cliff R. Todd is the past President and a member of the Board of the SRA. He

can be served with process at 12777 N. Highway 87, Orange, Texas 77630; 110 N. Pinewood

Drive Carthage Texas 75633-2213; or wherever he may be found.

8.

David W. Koonce is a member of the Board of the SRA. He can be served with

process at 12777 N. Highway 87, Orange, Texas 77630; 717 County Road 1140, Center, Texas

75935-6036; or wherever he may be found.

9.

Earl Williams is a member of the Board of the SRA. He can be served with

process at 12777 N. Highway 87, Orange, Texas 77630; 6912 Hudnall Road, Orange, Texas

77632-3534; or wherever he may be found.

10.

Stanley N. Stan Mathews is a member of the Board of the SRA. He can be

served with process at 12777 N. Highway 87, Orange, Texas 77630; 16 Waterford Drive,

Orange Texas 77630-2072; or wherever he may be found.

11.

Sharon Newcomer a/k/a Martha Sharon McMullen is a member of the Board of

the SRA. She can be served with process at 12777 N. Highway 87, Orange, Texas 77630; 3144

FM 2802 62 Orange Texas 77632-8213; or wherever she may be found.

JURISDICTION AND VENUE

12.

This Court has subject-matter jurisdiction of this action because the amount in

controversy exceeds the minimal jurisdiction limits of this Court and the subject matter is

authorized by Chapter 37 of the Texas Civil Practice & Remedies Code, Sections 24.007, 24.008

and 24.011 of the Texas Government Code and Article V Section 8 of the Texas Constitution.


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13.

Venue is proper in this Court under: (1) Section 15.002(a)(3) of the Texas Civil

Practice and Remedies Code because SRA's principal office is located in this county; (2) Section

15.0151 of the Texas Civil Practice & Remedies Code because SRA is a political subdivision

that is located in this county, which has a population of 100,000 or less; and (3) case law, which

provides that venue lies in the county where a governmental entity could be sued when the

members of the governmental entity's governing body are being sued solely in their official

capacities as officers of the governmental entity..

FACTS

14.

The SRA is a political subdivision of the State. Specifically, the SRA is a

conservation and reclamation district and a water control and improvement district created by the

legislature. See Act of April 27, 1949, §§ 1 & 23, 51st Leg., R.S., ch. 110, 1949 Tex. Gen. Laws

193, as amended (the SRA State Enabling Act ). The SRA Board is the governing body of the

SRA. To the extent that the SRA is empowered to set water rates, such power can be exercised

only by and through the Board. The SRA is not a party to this lawsuit.

15.

In 1981, the City, the SRA, Dallas Power & Light Company, Texas Electric

Service Company, and Texas Power & Light Company (the last three of which are not parties

and are collectively the Corporations ) acting through non-party Texas Utilities Generating

Company ( TUGCO ) entered into an agreement related to the assignment and conveyance of

water from the Lake Fork Reservoir for use by the City for municipal and resale purposes.

ee

Water Supply Contract and Conveyance ( Agreement ), a copy of which is attached to this

petition as Exhibit A and incorporated herein for all purposes. Lake Fork Reservoir is within

the watershed jurisdiction of the SRA. Under the terms of the Agreement, the Corporations,

TUGCO and the SRA conveyed water rights to the City up to 74% of the dependable yield of the


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Lake Fork Reservoir for the City's use as a water supply agency and the right to sell and convey

the water as permitted by law. In exchange, the City agreed to: (1) pay 100% of the construction

cost for the Lake Fork Reservoir by retiring all bonds issued for the financing of the Lake Fork

Dam and Reservoir Project and by reimbursing the bond principal and trustee's fees paid by the

Corporations prior to the execution of the Agreement, and (2) pay a service charge equal to

74% of the reasonable and necessary costs and expenses directly associated with the operation

and maintenance of the Lake Fork facilities.

See Exhibit A at §§ 2.04 & 2.05. Dallas has fully

performed its obligations under the Agreement as amended.

16.

The Agreement provides that the term would be automatically renewed for a 40-

year term starting on November 1, 2014, unless the City gave written notice of termination at

least one year before November 1, 2014. See

Exhibit A at § 6.01. The City did not give notice of

termination, and, in fact, notified the SRA before November 1, 2013, of the City's intent to

renew the Agreement.

17.

The Agreement provides that [t]he amount of compensation that [SRA] shall be

entitled to receive during any renewal term (exclusive of the City's pro rata share of the Service

Charge) shall be determined by

mutual agreement between the City and [SRA], taking into

account such price as is prevailing in the general area at the time for

like contract sales of water

of similar quality, quantity, and contract period. See

Exhibit A at § 6.02 (emphases added).

The Agreement further provides that, if the City and the SRA are unable to agree on the amount

of compensation prior to the expiration of the term, the Texas Water Commission may establish

interim compensation, until the amount of compensation is finally determined.

Id

18.

For more than six years prior to November 1, 2014, the City attempted to

negotiate with the SRA for the rate for the renewal term. However, the SRA and the City could


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not agree on the rate. The City continued attempting to reach agreement, until the SRA Board's

unilateral imposition of rates m ade it clear that those e fforts we re in vain

19.

Rather than requesting the Public Utility Commission of Texas (*TUC, the

successor agency to the Texas Water Commission with respect to water rates) to establish

interim compensation as contemplated by the Agreement, the Executive Vice President and

General Manager of the SRA sent a letter to the Director of Dallas Water Utilities announcing

the decision of the SRA's Board to increase the rate to be paid by the City. The letter informed

the City, and the City therefore believes and alleges, that on October 9, 2014, the Board of the

SRA purported to adopt a rate of $0.5613 per 1000 gallons, payable on a take or pay basis for

131,860 acre-feet of water per year, with a price escalator based on the Consumer Price Index.

See

letter from David Montagne to Jody Puckett dated October 13, 2014, which is attached to

this petition as Exhibit B and incorporated herein. The City did not and has not agreed to that

rate.

20.

By thus purporting to set the City's water rates without going through the PUC

the SRA Board materially violated the Agreement.

21.

The SRA State Enabling Act sets the limits the SRA Board must follow in

imposing fees and charges for the use of water:

The Board of Directors of the [SRA] shall prescribe fees and charges to be

collected for the use of water, water connections, hydro-electric service, or other

service, which fees and charges

shall be reasonable and

equitable

and fully

sufficient to produce revenues

adequate to pay

and said Board of Directors shall

cause to be paid therefrom:

In 1991, the Legislature combined the Texas Water Commission and two other state agencies into the Texas

Natural Resources Conservation Commission (TNRCC).

See Act of July 30, 2991, 72n d Leg., .S., ch. 3, art. 1,

1991 Tex. Gen. Laws 4. In 2002, the Legislature changed the name of the TNRCC to the Texas Commission on

Environmental Quality (TCEQ).

See Act of June 15, 2001, 77

th

Leg., R.S., ch. 965, § 18.01, 2001 Tex. Gen. Laws

1985. In 2013, the Legislature transferred the water rate functions of the TCEQ to the PUC.

See

Act of May 13,

2013, 83

r d

Leg., ch. 170, § 2.07, 2013 Tex. Gen. Laws 725; Act of May 13, 2013, 83

Leg., ch. 171, § 7, 2013 Tex.

Gen. Laws 772.


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1)

all expenses necessary to the operation and maintenance of the

improvements and facilities of said district. Such operating and maintenance

expenses shall include the cost of the acquisition of properties and materials

necessary to maintain said improvements and facilities in good condition and to

operate them efficiently, necessary wages and salaries of the district, and such

other expenses as may be reasonably necessary to the efficient operation of said

improvements and facilities;

(2)

the annual or semi-annual

interest as it becomes due upon any bonds

issued hereunder payable out of the revenues of said improvements and facilities;

(3)

the amount required to be paid annually into the sinking fund for the

payment of any bonds

issued hereunder, payable out of the revenues of said

improvements and facilities, and to be paid into the reserve and other funds under

the resolution authorizing the issuance of the bonds

Act of April 27, 1949, § 14(o), 51st Leg., R.S., ch. 110, 1949 Tex. Gen. Laws 193, as amended

(emphases added).

22.

Here, the SRA is already being reimbursed by the City for 74 of the expenses

necessary for the operation and maintenance of the SRA's improvements and facilities at Lake

Fork in exchange for providing the City with 74 of the dependable yield of water from that

lake. The City's reimbursement includes the SRA's expenses for capital improvements and

capital additions to the Lake Fork reservoir so the SRA has no unreimbursed capital costs for the

lake. In addition, the City's reimbursement includes an allocated amount for the SRA's

administrative and general expenses. Moreover, the SRA has sold its 26 share of Lake Fork

water to other customers at rates that allow it to recover the remaining 26 of its expenses

necessary to operate and maintain its improvements and facilities at the lake.

23.

Here, the SRA does not owe any interest on any bonds for the Lake Fork

improvements and facilities because the City has already paid 100 of the cost of retiring all

bonds issued by the SRA for the financing of the Lake Fork project. There are no outstanding

bonds for the Lake Fork Project.


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24. Here, the SRA is not required to make a payment into a sinking fund for the

payment of the bonds issued for the Lake Fork improvements and facilities because the City has

already paid 100% of the cost of retiring all bonds issued by the SRA for the financing of the

Lake Fork project.

25. Thus, the service charge itself is fully sufficient to produce revenues adequate for

the SRA to pay: (1) all of its expenses necessary to operate and maintain the Lake Fork

improvements and facilities, (2) any interest on any bonds for those improvements and facilities,

and (3) the amount required to be paid into a sinking fund for the payment of any bonds issued

for those improvements and facilities.

26.

Notwithstanding the facts described above, the new rate for the City purportedly

set by the SRA's Board increases the amount the City will pay for its water from Lake Fork by

approximately nine times or 24.1 million more annually than the City has been paying: from

approximately 3,022,023.00 to 27,139,238.93.

27.

Here, the new rate adopted by the SRA's Board exceeds the rates charged by the

SRA for sales to other customers for raw water supplied from Lake Fork or Lake Tawakoni, and

in fact is two times the amount charged by SRA for sales of raw water to other customers for use

outside the Basin

28. Because the SRA's Board set the City's rate at a time when the Agreement

contemplates rates agreed upon by the parties or rates set by the PUC, the Board members'

action in setting rates unilaterally was ultra vires and void.

29.

Because SRA's Board purported to set the City's rate at a time when only the

PUC had authority to determine the rate in the absence of an agreement between the parties, the

Board members' action in setting the rate unilaterally was ultra vires and void.


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30.

Because the SRA's Board purported to set a rate for the City that was not

reasonable or equitable, the Board members' action was ultra vires and void.

31. Section 37.004(a) of the Texas Civil Practice and Remedies Code provides: A

person . . . whose rights, status, or other legal relations are affected by a statute, [or] contract, . . .

may have determined any question of construction or validity arising under the . . . statute [or]

contract . . . and obtain a declaration of rights, status, or other legal relations thereunder.

32.

Section 37.011 of the Texas Civil Practice and Remedies Code authorizes the

Court to grant supplemental relief in the nature of injunctive relief if necessary or proper,

particularly if it appears that a defendant will not comply with the declaratory judgment.

33.

A governmental official has no immunity from a suit in the official's official

capacity seeking a declaration that the official has acted outside of his or her constitutional or

statutory authority.

See City of El Paso v. Heinrich

284 S.W.3d 366, 372 (Tex. 2009).

34.

The City incorporates by reference the allegations in Paragraphs 1-33 of this

pleading in each of the claims asserted below

FIRST CLAIM DECLARATORY JUDGMENT

35.

This claim arises under Chapter 37 of the Texas Civil Practice and Remedies

Code, particularly section 37.004 a), and the com mon law of this state.

36.

The City seeks and is entitled to declarations that the fees and charges prescribed

by the SRA's Board members on October 9, 2014, to the City for the use of water from Lake

Fork are ultra vires and void because: (a) at the time only the PUC, and not the SRA's Board

members, had authority to set water rates for the City's water from the Lake Fork Reservoir; and

(b) the SRA's Board members lacked (and continue to lack) the power to set rates other than

rates that are reasonable and equitable.


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SECOND CLAIM: CONDITIONAL CLAIM FOR SUPPLEMENTAL RELIEF

IN THE NATURE OF INJUNCTIVE RELIEF

37.

The City conditionally seeks injunctive relief against any Defendant and any of

their respective successors or agents who receives knowledge of the injunction, against any

attempt or act to impose unilateral water rates on the City, to refuse to provide water to the City

in accordance with the Agreement, or to retaliate against the City in connection with this

litigation if and when the City adduces evidence demonstrating that such injunction is necessary

or proper

THIRD CLAIM: ATTORNEYS FEES

38.

Pursuant to Sections 37.009 of the Texas Civil Practice & Remedies Code, the

City requests that it be awarded recovery of its costs and reasonable and necessary attorneys'

fees as appropriate for preparation and trial of this matter and all appeals against all Defenda nts

JURY DEMAND

39.

The City requests a trial by jury on all issues so triable.

MISCELLANEOUS

40.

The City reserves the right to amend or supplement this pleading.

41.

Pursuant to Rule 47 of the Texas Rules of Civil Procedure, the City seeks

monetary relief over 100,000 but not more than 200,000 in the form of costs, expenses,

attorney fees, and non-monetary relief.

REQUEST FOR DISCLOSURE

42.

The City requests each Defendant to disclose in writing all the information

described in Rule 194.2 of the Texas Rules of Civil Procedure to the City within 50 days of

service of this Petition.


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PRAYER

WH EREFO RE PREM ISES CONSIDE RED the City prays that the Court:

(1) cite Defendants to appear and answer this lawsuit;

(2)

declare and decree that the SRA s Board members acted without legal authority

on October 9, 2014, when they purported to approve fees and charges (rates) to the City for the

use of water from Lake Fork and that these fees and charges are therefore void.

(3)

find that the SRA Board members unilateral action to set rates was in material

violation of the Agreement and order the SRA Board Members to perform their obligation under

the Agreement to approve only rates either set by the PUC or agreed to between the SRA and the

City;

(4)

render judgment awarding the City its reasonable attorneys fees and costs of suit

against all Defendants;

(5)

grant the City supplemental relief in the nature of injunction when and if the

evidence demonstrates that such relief is necessary or proper; and

(6)

grant the City such other and further relief, at law or in equity, to which it is justly

entitled.


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Respectfully submitted,

Ileana N. Fernandez

Executive Assistant City Attorney

State Bar No. 06933980

Christopher D. Bowers

First Assistant City Attorney


Office of the City Attorney

City of Dallas

1500 M ariIla Street, 7BN

Dallas, Texas, 75201

214-670-3519

214-670-0622 fax)

[email protected]

[email protected]

Gwendolyn Hill Webb


Webb Webb, Attorneys At Law

211 East Seve nth Street, Suite 712

Austin Texas 78701

512-472-9990

512-472-3183 fax)

[email protected]

Norman J. Gordon


Merw an N. Bhatti


Mounce, Green, Myers, Safi, Paxson

Galatzan, A Professional Corporation

100 N. S tanton, Suite 1000

El Paso, Texas 79901

915-532-2000

915-541-1548 fax)

[email protected]

[email protected]

By:

No n J. Gordon

Attorneys for City of Dallas

CITY'S ORIGINAL PETITION

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Dallas Sues the Sabine River Authority

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