United States District Court, W.D. Texas, Austin Division
CRYSTAL CLEAR SPEC. UTIL. DIST.
BRANDY MARTY MARQUEZ, et al.
HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION OF THE UNITED STATES
W. AUSTIN UNITED STATES MAGISTRATE JUDGE
this Court are Defendant Public Utility Commission
Officials' Motion to Dismiss (Dkt. No. 11); Defendant Las
Colinas' Motion to Dismiss (Dkt. No. 12); Plaintiff's
Response (Dkt. No. 15); Defendant Las Colinas' Reply
(Dkt. No. 16); and Plaintiff's Sur-Response (Dkt. No.
18). The District Court referred the above motions to the
undersigned Magistrate Judge for report and recommendation
pursuant to 28 U.S.C. §636(b)(1)(A), Fed.R.Civ.P. 72,
and Rule 1(c) of Appendix C of the Local Rules.
Clear Special Utility District brings this suit against the
Commissioners of the Public Utility Commission of Texas (PUC)
in their official capacity,  PUC Executive Director Brian H.
Lloyd, 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 violated
7 U.S.C. § 1926.
enacted § 1926 to protect a utility that is a recipient
of federal loans from curtailment of its service area and
encroachment by municipalities. N. Alamo Water Supply
Corp. v. City of San Juan, 90 F.3d 910, 917 (5th Cir.
1996). The statute makes the territory that a
federally-indebted water association serves
“sacrosanct, ” and specifically requires that
[t]he 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. . . .
Id. at 915; 7 U.S.C. § 1926. Crystal Clear
received a federal loan under § 1926, and its CCN
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 under Tex. Water Code §
13.254(a-5) to decertify property it owns that is within
Crystal Clear's CCN. This Water Code section allows for
expedited decertification of a property meeting certain
requirements when it is “not receiving water or sewer
service.” Id. The statute directs 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.” After the decertification petition was filed,
Crystal Clear intervened in the proceedings, arguing that the
Texas statute was preempted by 7 U.S.C. §1926 and the
PUC should deny the petition. The PUC found that it was
required to abide by the state law and granted Las
Colinas' petition. Dkt. No. 11-1 at 18. Shortly after,
Crystal Clear filed an appeal in state court. Id. at
3. In addition to appealing the order pursuant to the Texas
administrative procedure act, Crystal Clear also sought
declaratory relief based on claims of federal preemption and
ultra vires acts by the PUC, and seeking a construction of
the term “service” in the Texas statute. Several
months later, and with very little having happening in the
state court case until recently, Crystal Clear filed this case in
federal court, arguing that Tex. Water Code §§
13.254(a-5) & (a-6) are preempted by 7 U.S.C. §
1926, and therefore unconstitutional. It seeks an injunction
and declaratory relief to this effect.
the PUC and Las Colinas filed motions to dismiss alleging
that (1) the Anti-Injunction Act bars Crystal Clear's
claims, and (2) the Court should abstain from deciding this
case under various abstention doctrines. The PUC additionally
argues that they are immune from suit under the Eleventh
Amendment and that the exception recognized in Ex Parte
Young does not apply.
Eleventh Amendment Immunity
the PUC argues that Crystal Clear's claims against them
are barred by the Eleventh Amendment. Their argument is broken
into four distinct points. First, that Ex Parte
Young is not applicable to this action. Second, that
Crystal Clear lacks standing to seek an injunction because it
cannot show an irreparable injury when Tex. Water Code §
13.254 provides for compensation. Third, that Crystal Clear
cannot assert a federal right. And finally, that there is an
important state sovereignty interest that precludes
application of Ex Parte Young. The Court will take
each point in turn.
Ex Parte Young
Eleventh Amendment precludes suits in which a state agency is
named as a defendant. Pennhurst State Sch. & Hosp. v.
Halderman, 465 U.S. 89, 100 (1984). This includes suits
against state officials when “the state is a real,
substantial party in interest.” Id. at 101-02.
However, there is a narrow exception to Eleventh Amendment
immunity under Ex Parte Young, 209 U.S. 123 (1908),
allowing a plaintiff to bring a suit for a violation of the
Constitution or federal law when it is “brought against
individual persons in their official capacities as agents of
the state, and the relief sought [is] declaratory or
injunctive in nature and prospective in effect.”
Aguilar v. Tex. Dep't of Crim. Justice, 160 F.3d
1052, 1054 (5th Cir. 1998). To decide if the Eleventh
Amendment bar is inapplicable under Ex Parte Young,
“a court need only conduct a straightforward inquiry
into whether [the] complaint alleges an ongoing violation of
federal law and seeks relief properly characterized as
prospective.” Va. Office for Prot. & Advocacy
v. Stewart, 563 U.S. 247, 255 (2011).
Clear contends that its claims fall into the Ex Parte
Young exception because it asserts a violation of
federal law and seeks declaratory and injunctive relief that
is prospective in nature against the appropriate state
officials, in their official capacity. The PUC disputes
this, arguing that Crystal Clear's claims are actually
retrospective. However, Crystal Clear's claims for
declaratory and injunctive relief are clearly prospective in
nature. Crystal Clear alleges that the PUC decertified a
portion of its CCN in violation of § 1926 and seeks to
enjoin the PUC from enforcing the allegedly unconstitutional
decertification order, “which would prospectively abate
the alleged violation.” Id. at 255-56; see
also Verizon Md., Inc. v. Pub. Serv. Comm'n, 535
U.S. 635, 645 (2002) (“The prayer for injunctive
relief-that state officials be restrained from enforcing an
order in contravention of controlling federal law-clearly
satisfies our ‘straightforward inquiry.'”).
Crystal Clear's claims for declaratory and injunctive
relief fit squarely within the Ex Parte Young
exception and are not barred by the Eleventh Amendment.
next argues that Crystal Clear lacks standing to assert a
claim for injunctive relief because it cannot show an
irreparable harm arising from the decertification. The PUC
points to Tex. Water Code § 13.254(a-6) which states
that “[t]he utility commission may require an award of
compensation by the petitioner to a decertified retail public
utility” if it grants a petition filed under §
13.254(a-5). This, they argue, sufficiently compensates
Crystal Clear, and thus it cannot show an irreparable injury.
argument is based on a flawed understanding of the law
governing permanent injunctions. The standard for obtaining a
permanent injunction in an express preemption case does not
require a showing of irreparable injury, as it is presumed
when preemption is established. As the Fifth Circuit has
stated several times:
The party seeking a permanent injunction must meet a
four-part test. It must establish (1) success on the merits;
(2) that a failure to grant the injunction will result in
irreparable injury; (3) that said injury outweighs any damage
that the injunction will cause the opposing party; and (4)
that the injunction will not disserve the public interest.
In an express preemption case, however, “the
finding with respect to likelihood of success carries with it
a determination that the other three requirements have been
VRC LLC v. City of Dallas, 460 F.3d 607, 611 (5th
Cir. 2006) (citing Trans World Airlines, Inc. v.
Mattox, 897 F.2d 773, 783 (5th Cir.1990)) (citations
omitted) (emphasis added). Thus, a district court in
Mississippi rejected the irreparable harm argument in a case
under § 1926(b). Miss. Rural Water Ass'n, Inc.
v. Miss. Pub. Serv. Comm'n, 2014 WL 12540566, at
*3-4 (S.D.Miss. Dec. 9, 2014) (finding that any action that
violated this statute results in irreparable harm). This
argument thus has no merit.
No Federal Right Under § 1926
next argues that Crystal Clear cannot assert a federal right
under § 1926 for decertification of its CCN because
“[a] water utility's right to ‘provide
service' or ‘make service available' for
purposes of § 1926 arises solely under state law,
” and “Section 1926(b) does not confer any right
to a particular service area.” Dkt. No. 11 at 8.
According to the PUC, because Texas grants the utility's
CCN, any decertification of that area by the state would not
curtail or limit the utility's service area protected
under § 1926. This argument is directly contrary to the
federal statute and applicable case law, and begs the entire
question presented by this case. Under § 1926,
“[t]he service area of a federally indebted water
association is sacrosanct.” N. Alamo, 90 F.3d
at 915. This statute is intended to be interpreted broadly.
Id. Thus, encroachment in any form, such as
“competing franchises, new or additional permit
requirements, or similar means, ” is prohibited.
Id. (quoting City of Madison v. Bear Creek Water
Ass'n, Inc., 816 F.2d 1057, 1060-61 (5th Cir.
1987)). Section 1926(b) plainly grants federally indebted
rural water utilities a right to protection against
encroachment, and there is no legal support whatsoever for
the PUC's claim to the contrary. See Miss. Rural
Water Ass'n, 2014 WL 12540566, at *1 (allowing a
§ 1983 action against the state public service
commission for application of a statute that conflicted with
§ 1926). This argument is meritless.
Important State ...