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City of Schertz v. United States Department of Agriculture

United States District Court, W.D. Texas, Austin Division

October 29, 2019

UNITED STATES DEPARTMENT OF AGRICULTURE, acting by and through George Ervin “Sonny” Perdue, III, Secretary of Agriculture; RURAL UTILITIES SERVICE, acting by and through Edd Hargett, State Director; and GREEN VALLEY SPECIAL UTILITY DISTRICT, Defendants.



         Before the Court are Defendants United States Department of Agriculture (“USDA”) and Rural Utilities Service's (“RUS”) Motion to Dismiss, (Dkt. 21); Defendant Green Valley Special Utility District's (“GVSUD”) Motion to Dismiss, (Dkt. 22); and accompanying briefing. For the reasons discussed below, the Court grants both motions and dismisses Plaintiff City of Schertz's (“Schertz”) Complaint, (Dkt. 1), without prejudice.

         I. BACKGROUND

         This case emerged amidst ongoing litigation between Schertz and GVSUD about the Public Utility Commission of Texas's (“PUCT”) decision to decertify a portion of GVSUD's wastewater service area. (Compl, Dkt. 1, at 4). GVSUD maintains that the decision violates 7 U.S.C. § 1926(b), which enables USDA to extend loans to rural water and wastewater associations managing utilities in poor communities. (Id. at 4-5). When USDA and an association close a loan under § 1926(b), the loan generally uses the association's customers or service areas as the collateral, and the statute protects the government's interest in that collateral by preventing those customers or service areas from annexation by municipalities or other associations. (Id. at 5). If developers want to use a different utility for newly constructed buildings, or municipalities want to serve those buildings themselves, they must pay the § 1926(b) borrower for the ability to do so. (Id. at 6). RUS will generally only remove § 1926(b) protection from an association borrower's service area if the borrower consents; obtaining that consent is often equivalent to a purchase of property rights.[1] (Id.).

         In 2003, USDA and RUS approved a § 1926(b) loan to GVSUD to assist GVSUD's investment in water utility infrastructure, secured by the resulting water utility revenue. (Id. at 8). After Schertz and Cibolo, an adjacent city, applied to PUCT to certify them as the wastewater utility for areas within their boundaries, the Fifth Circuit held that the 2003 loan protected GVSUD's ability to provide both water and wastewater service under § 1926(b).[2] Green Valley Special Util. Dist. v. City of Cibolo, Texas, 866 F.3d 339, 343 (5th Cir. 2017). (Compl., Dkt. 1, at 9).

         In 2018, GVSUD applied for another § 1926(b) loan to be secured by wastewater provision revenues-the subject of this case. (Id.). USDA and RUS have approved the $5, 430, 000 loan, but the loan has not yet closed. (Id. at 9-10).


         USDA, RUS, and GVSUD's motions to dismiss are made under both Federal Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6). Rule 12(b)(1) governs their arguments about sovereign immunity and lack of constitutional standing, while Rule 12(b)(6) applies to their arguments about lack of prudential standing. Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir. 1998) (discussing application of Rule 12(b)(1)); Harold H. Huggins Realty, Inc. v. FNC, Inc., 634 F.3d 787, 795 n.2 (5th Cir. 2011) (discussing application of Rule 12(b)(6)). Because the Court grants their motions based solely on Rule 12(b)(1), see infra Part III.B, the Court discusses only that standard here.

         A party seeking to challenge the court's subject-matter jurisdiction to hear a case, including whether the plaintiff has constitutional standing to bring her claim, may file a motion under Federal Rule of Civil Procedure 12(b)(1).[3] Home Builders Ass'n of Miss., 143 F.3d at 1010. The party claiming federal subject-matter jurisdiction must show that the court indeed has that jurisdiction. Willoughby v. U.S. ex rel. U.S. Dep't of the Army, 730 F.3d 476, 479 (5th Cir. 2013). When evaluating a 12(b)(1) motion to dismiss, the court may look to “(1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Id. (quoting Spotts v. United States, 613 F.3d 559, 566-67 (5th Cir. 2010)). This material must suffice to demonstrate constitutional standing: it must assert a “concrete and particularized” injury (that is, one affecting the complaining party “in a personal and individual way”), a “causal connection between the injury and the conduct complained of, ” and a likelihood that the injury would be “redressed by a favorable decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 560 n.1 (1992). Of particular salience to this case is the standing requirement that plaintiffs must plead more than mere “‘some day' intentions-without any description of concrete plans”-to sufficiently allege an injury. Id. at 564. And while “the risk of real harm” can “satisfy the requirement of concreteness” for injuries, “a bare procedural violation” is not the equivalent of a truly “concrete harm.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1549 (2016), as revised (May 24, 2016).

         Meanwhile, “sovereign immunity deprives the court of jurisdiction, ” so “claims barred by sovereign immunity can be dismissed only under Rule 12(b)(1) and not with prejudice.” Warnock v. Pecos Cty., Tex., 88 F.3d 341, 343 (5th Cir. 1996). The Administrative Procedure Act (“APA”) generally allows federal agencies to assert sovereign immunity when they have not taken final agency action. See infra Part III.A (discussing the conditions under which the APA waives agencies' sovereign immunity). Thus, motions to dismiss on the basis of sovereign immunity that argue an agency has not taken final action are properly made under Rule 12(b)(1). Cf. Tsolmon v. United States, 841 F.3d 378, 382 (5th Cir. 2016) (“Courts consider whether the [Federal Tort Claims Act] applies via a Rule 12(b)(1) motion, because whether the government has waived its sovereign immunity goes to the court's subject matter jurisdiction.”).

         If the court does not have jurisdiction, it may not consider further claims in the case. So, when “a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits” such as a Rule 12(b)(6) motion. Willoughby, 730 F.3d at 479 (quoting Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001)).

         III. ANALYSIS

         A. Sovereign Immunity

         The Court first turns to USDA and RUS's Rule 12(b)(1) motion. See Willoughby, 730 F.3d at 479; Part II, supra. USDA and RUS argue that because the 2019 loan is not yet closed, they have not yet taken “final agency action, ...

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