In the Courts

Water Cases

Mississippi v. Tennessee, 142 S. Ct. 31 (2021).

This opinion stemmed from a 2014 bill of complaint filed by the State of Mississippi against the State of Tennessee, the City of Memphis, and Memphis Light, Gas and Water (“MLGW”), alleging that MLGW “forcibly siphoned into Tennessee… groundwater owned by Mississippi” resulting in “a substantial drop in pressure and corresponding drawdown” in the Middle Claiborne Aquifer in Mississippi. Mississippi claimed an absolute “ownership” right to all groundwater beneath its surface—even after the water has crossed its borders into Tennessee, arguing that Tennessee’s pumping amounted to a tortious taking of property and seeking at least $615 million in damages.

In response to the bill of complaint, the Supreme Court appointed a Special Master to oversee the dispute and issue a recommendation. He determined that the Middle Claiborne Aquifer is an interstate water resource, that the Aquifer was a “single hydrogeological unit,” that Tennessee’s pumping affected groundwater beneath Mississippi, and that prior to such pumping, “groundwater flowed between Mississippi and Tennessee”—a fact Mississippi did not dispute. The Special Master concluded that, because the aquifer is an interstate water resource, equitable apportionment was the appropriate remedy. Under the doctrine of equitable apportionment, the United States Supreme Court is empowered to judicially allocate rights to a disputed interstate water resource. Because Mississippi’s complaint did not seek equitable apportionment, however, the Special Master recommended dismissal. He also recommended that the Court grant Mississippi leave to file an amended complaint seeking apportionment. Mississippi and Tennessee objected to the Special Master’s recommendation, prompting the Court to conduct an independent review.

The Supreme Court relied on the Special Master’s report and held that the waters of the Middle Claiborne Aquifer are subject to equitable apportionment. Although the Supreme Court had never applied equitable apportionment to an interstate aquifer, the Court determined that equitable apportionment of the Middle Claiborne Aquifer would be “sufficiently similar” to past applications of the doctrine for three reasons. First, equitable apportionment had only ever been applied when transboundary resources were at issue, and here the Court concluded that the Middle Claiborne Aquifer’s multistate character seemed beyond dispute. Second, all past equitable apportionment cases had involved water or fish that flowed naturally between states, and here all parties acknowledge that there was natural transboundary flow within the Middle Claiborne Aquifer. Finally, interstate effects caused by the acts of one state are “a hallmark of… equitable apportionment cases,” and here the Court observed that Tennessee’s actions clearly “reached through the agency of natural laws.” The Court denied Mississippi leave to amend its complaint because Mississippi had not requested leave to amend, and because Mississippi had staunchly rejected the application of the equitable apportionment doctrine.

The Court denied Mississippi’s argument that it has sovereign ownership of all groundwater beneath its surface, stating that while it is true that “each State has full jurisdiction over the lands within its borders, including the beds of streams and other waters,” such jurisdiction does not confer unfettered “ownership or control” of flowing interstate water themselves. When a water resource is shared between several States, each one “has an interest that should be respected by the other.”

Litigation Cases

Phillips v. McNeill, 19-0831, 2021 WL 5750554 (Tex. Dec. 3, 2021).

In Phillips v. McNeill, the Supreme Court of Texas held that a state official acts ultra vires, and therefore is not entitled to immunity, when she fails to provide a statutorily required case hearing.

In this case, John McNeill, a Corpus Christi pharmacist, contracted with the Health and Human Services Commission to provide services for patients enrolled in state health-care programs. After a 2012 audit, the Commission determined that McNeill had been overpaid. After some back and forth between McNeil and the Commission, the Commission ultimately issued a final notice requiring McNeill to repay the overpaid amount, placing a vendor hold on his account until a payment plan was agreed to.

McNeill requested a hearing, arguing that the Commission’s audit was an “abuse investigation” under the Texas Recoupment-Appeal Statute and, as a result, he was entitled to a contested case hearing before the State Office of Administrative Hearings. The Commission denied the request. McNeil then sued the Commission’s Inspector General, seeking a declaration that he was entitled to a contested case hearing under the Recoupment-Appeal Statute.

The issue before the Supreme Court of Texas was whether McNeill was entitled to an administrative contested case hearing of his challenge to the results of the Commission’s audit. In reviewing the issue, the Court determined that the Texas Recoupment-Appeal Statute entitled McNeill to a contested case hearing. Consequently, the Commission officials’ failure to provide a statutorily required contested case hearing was ultra vires and thus she was not shielded by sovereign immunity.

The Court noted that the Court of Appeals should never have reached the constitutional due-process issue—stating: “as a rule, we only decide constitutional

questions when we cannot resolve issues on nonconstitutional grounds.” Having decided the case on statutory grounds, the Court refused to discuss the Constitutional question.

Von Dohlen v. City of San Antonio, No. 04-20-00071-CV.

On October 28, 2021, the Supreme Court of Texas heard oral arguments in the case of Von Dohlen v. City of San Antonio. The decision has yet to be announced, but it will likely provide guidance on what type of lawsuits are barred by governmental immunity under a relatively new state law prohibiting governmental entities from discriminating against companies based on their membership or support of a religious organization.

In 2019, the San Antonio City Council passed a concession agreement that prohibited a Chick-fil-A restaurant from opening in the San Antonio International Airport. Council members objected to the inclusion of Chick-fil-A in the agreement, arguing that Chick-fil-A has a legacy of anti-LGBTQ behavior. Subsequently, the Texas Legislature passed Government Code Chapter 2400, which prohibits governmental entities from taking any adverse action against any business based on support provided to a religious organization. After the legislation took effect, Von Dohlen and other San Antonio residents filed a lawsuit alleging that the City was violating Chapter 2400 of the Government Code by excluding Chick-fil-A.

In hearing the case on appeal, the San Antonio Court of Appeals cited case precedent in determining that while such a suit does not generally implicate governmental immunity, governmental immunity will preclude a suit if its purpose or effect is to cancel or nullify a contract made for the benefit of the state. Accordingly, the San Antonio Court held that Von Dohlen’s lawsuit was barred by governmental immunity because the only plausible remedy was to invalidate the concession agreement passed by the city council. The issue now before the Supreme Court of Texas is whether the San Antonio

residents have standing to sue the City of San Antonio for excluding Chick-fil-A from doing business at the San Antonio airport.

Jones v. Turner, 617 S.W. 2d. (Tex. App.-Houston [14th Dist.] 2020, pet. granted).

The Supreme Court of Texas recently granted review of Jones v. Turner. The Court will hear oral arguments in February of 2022. The ultimate decision will provide guidance on when residents have standing to challenge an alleged level of underfunding within a city’s budget. City of Houston residents filed suit challenging the City’s allocation of funds to a newly established drainage fund. Residents argue that the drainage fund was underfunded based on the required funding formula provided in the City’s charter.

To have standing to pursue a lawsuit, a plaintiff must show that they suffered a particularized injury distinct from the general public. Houston residents assert they have standing under a narrow exception to the particularized-injury rule. The rule allows a taxpayer to sue to stop the illegal expenditure of public funds without asserting a particularized injury. To assert the exception, residents must show that the public funds are expended on the alleged illegal activity. In reviewing the case on appeal, the Houston Court of Appeals found the residents did not show that the City’s underfunding was illegal. As a result, the residents lack standing to pursue the lawsuit. Now the Supreme Court of Texas will decide whether there is enough evidence to establish that the City’s alleged underfunding constituted illegal activity and whether that activity is sufficient to establish the residents’ standing.

Air and Waste Cases

TJFA, L.P. v. TCEQ and 130 Environmental Park, LLC, 632 S.W.3d 660 (Tex. App.—Austin 2021, pet. filed Dec. 8, 2021).

As reported in the October edition of The Lone Star Current, on July 23, 2021 the Third District Court of Appeals in Austin rendered a decision in TJFA, L.P. v. TCEQ and 130 Environmental Park, LLC concerning whether TCEQ erred in issuing a municipal solid waste (“MSW”) permit to 130 Environmental Park, LLC (“130 EP”) to construct and operate a new Type I MSW landfill in Caldwell County. The appellate court found in favor of TCEQ and 130 EP after examining a range of issues raised by the plaintiff-appellant, TJFA, L.P. (“TJFA”).

TJFA has since filed a Petition for Review to the Texas Supreme Court on December 8, 2021. One of the issues raised in the Petition for Review concerns whether filing a Parts I/II MSW permit application effectively grandfathers an application from a later enacted county siting ordinance. The Third District Court of Appeals ruled that if a Parts I/II permit application is declared administratively complete before a siting ordinance is enacted, it is sufficient to grandfather the application from the later enacted county siting ordinance. The Third District Court of Appeals also found in favor of TCEQ and 130EP on issues related to alleged spoliation of evidence, drainage, and land use. TJFA raised these issues in its Petition for Review, as well. The Texas Supreme Court’s ruling on the siting ordinance issue will be especially important for future MSW applicants to consider.

Utility Cases

PUC Exclusive Jurisdiction and ERCOT Sovereign Immunity Remain Hot Topics Following Panda II.

As we addressed in the July publication, the Texas Supreme Court issued a decision in March 2021 refusing to decide whether the Electric Reliability Council of Texas (“ERCOT”) should benefit from sovereign immunity and whether the Public Utility Commission (“PUC”) has exclusive jurisdiction over claims concerning ERCOT. Elec. Reliability Council of Tex., Inc. v. Panda Power Generation Infrastructure Fund, LLC, 619 S.W.3d 628 (Tex. 2021) (“Panda II”). The Court determined that procedural considerations barred it from ruling on the substantive issues presented. Given the outages resulting from Winter Storm Uri, the unaddressed issues from Panda II have great significance for the public’s ability to pursue claims against ERCOT. As such, the case received considerable attention and four justices dissented.

On March 12, 2021, near the time the Supreme Court was issuing its decision in Panda II, CPS Energy (“CPS”), a municipally owned utility, filed suit against ERCOT and several of its board members and executives in the 285th District Court in Bexar County. CPS Energy v. Electric Reliability Council of Texas, Inc. and William L. Magness, No. 2021-CI-04574 (285th Dist. Ct., Bexar County, Tex. Mar. 12, 2021). During Winter Storm Uri, ERCOT raised the per-megawatt hour price of electricity to $9,000 in order to account for supply scarcity. CPS’s petition was filed in response to that spike and included claims such as breach of contract, negligence, and violations of the Texas Constitution. CPS argued that ERCOT kept prices at the raised rate for longer than required, resulting in considerable overcharges to market participants. CPS alleged that ERCOT owed the utility money and that ERCOT’s “Default Uplift Invoices” plan for recouping funds from insolvent market participants will improperly reduce the amount owed to CPS, resulting in an unconstitutional taking and an unconstitutional extension of credit to cover the debt of private entities.

CPS eventually nonsuited its claims against all individual defendants except for former ERCOT CEO, William Magness. ERCOT filed a jurisdictional plea based on sovereign immunity and exclusive jurisdiction and a motion to transfer venue to Travis County. The trial court denied both motions.

In June 2021, ERCOT filed an interlocutory appeal in the Fourth District Court of Appeals to challenge the trial court’s denial of its plea to the jurisdiction. In re Electric Reliability Council of Texas, Inc. and William L. Magness, No. 04-21-00244-CV, 2021 WL 2814899 (Tex. App.—San Antonio Jul. 7, 2021, pet. filed). CPS filed a motion to dismiss for lack of appellate jurisdiction.

In September 2021, while the Court of Appeals case was ongoing, ERCOT filed a Petition for Writ of Mandamus before the Texas Supreme Court raising the same jurisdictional and immunity questions the Court confronted in Panda II.

On December 13, 2021, the Court of Appeals issued an order denying CPS’s motion to dismiss as to ERCOT and granting as to William Magness. The Court reversed the trial court’s order denying ERCOT’s plea to the jurisdiction and dismissed CPS’s claims against ERCOT. In doing so, the Court relied on the ERCOT regulatory scheme laid out in the Public Utility Regulatory Act (“PURA”) and found that the PUC has exclusive jurisdiction over both the common law and constitutional claims at issue. CPS must first exhaust its administrative remedies.

Importantly, the Court of Appeals was faced with determining whether ERCOT is a “governmental unit.” Eligibility for seeking an interlocutory appeal is dependent on whether an entity is a governmental unit. If an entity is not a governmental unit, it may only seek relief for an adverse ruling through mandamus. The Supreme Court has not yet rendered a decision on ERCOT’s governmental-unit status. The Court of Appeals found that ERCOT satisfies relevant statutory prongs for “governmental unit” and was therefore eligible to file an interlocutory appeal. This is a significant finding because it conflicts with other decisions from fellow Texas appeals courts.

As of December 30, 2021, CPS requested that the Supreme Court pause ruling on ERCOT’s petition until after the January 27, 2022 deadline for CPS to appeal the Court of Appeals’ decision.

Texas Supreme Court to Evaluate the Application of Statutory Canons of Construction to Final Agency Orders.

On November 29, 2021, the Public Utility Commission (“PUC” or “Commission”) and Southwestern Electric Power Company (“SWEPCO”) (collectively “Petitioners”) filed a Petition for Review in the Texas Supreme Court against Texas Industrial Energy Consumers (“TIEC”), et al. PUC and SWEPCO v. Texas Industrial Energy Consumers, Et. Al., No. 21-0817 (Tex. Sep. 20, 2021).

The case originally arises out of SWEPCO’s 2008 Certificate of Convenience and Necessity (“CCN”) proceeding for a coal plant. Utilities must apply for a CCN or a CCN amendment to initiate service in a new area. The utility must show that a certificate is necessary for the service, accommodation, convenience, or safety of the public, and complies with statutory requirements. When the PUC approved the CCN amendment for SWEPCO in 2008, the PUC set a cap on “capital costs” that could be included in SWEPCO’s rate base. In a later 2012 rate case, PUC Docket No. 40443, SWEPCO sought to include the costs of constructing the plant in its rates. The Commission allowed inclusion of the coal plant construction costs in SWEPCO’s rates, up to the permitted cap from the CCN docket. The decision required a determination as to whether carrying costs were to be included in the cap. The Commission found the 2008 CCN order ambiguous on whether carrying costs were included in the cap and instead relied on evidence from the administrative record in finding the cap was not intended to include carrying costs. The trial court affirmed the PUC final order. The Third Court of Appeals then reversed and remanded to the PUC for further proceedings.

Petitioners ask the Court to address two issues: (1) whether contested-case orders are to be evaluated under the same rules of construction used by courts to interpret statutes and administrative rules, and (2) whether the 2008 CCN final order included carrying costs in the cap on construction costs.

Petitioners argue for the inclusion of the carrying costs by attacking the Third Court of Appeal’s use of the “plain meaning” rule in interpreting a contested-case order. Rather, Petitioners argue that contested-case orders are products of a quasi-judicial process and should therefore consider the record in rendering a decision. Additionally, Petitioners argue that the use of the “plain meaning” rule controverts the Administrative Procedure Act (“APA”) because the APA “requires a link between the evidence and the agency’s ultimate decision in a contested case.”

Alternatively, Petitioners argue that even if traditional statutory interpretation rules do apply, the Third Court of Appeals misapplied the principles to the PUC order at issue. In short, Petitioners’ argument is that other canons of construction can be employed without a threshold finding of ambiguity, and the PUC and trial court were correct to look to the surrounding facts in the record.

All Respondents waived the opportunity to file a response. This case is pending.

“In the Courts” is prepared by James Muela in the Firm’s Water Practice Group; Wyatt Conoly in the Firm’s Litigation Practice Group; and Sam Ballard in the Firm’s Air and Waste Practice Group. If you would like additional information or have questions related to these cases or other matters, please contact James at 512.322.5866 or jmuela@lglawfirm.com, Wyatt at 512.322.5805 or wconoly@lglawfirm.com, or Sam at 512.322.5825 or sballard@lglawfirm.com.

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