In the Courts

Water Cases

Save Our Springs All., Inc. v. Tex. Comm’n on Env’t Quality, No. 23-0282, 2025 Tex. LEXIS 306, (Tex. April 11, 2025).

The Supreme Court of Texas issued its Opinion earlier today on an important discharge permitting case that affirms TCEQ’s approach to implementing antidegradation requirements. In Save Our Springs Alliance v. TCEQ and City of Dripping Springs, the Court affirmed TCEQ’s permitting decision on the City of Dripping Springs’ discharge permit, over objections that increased nutrient loadings allowed under the permit would violate antidegradation rules because of decreases in dissolved oxygen levels (and increases in total phosphorus and total nitrogen).

The Supreme Court found that TCEQ correctly followed its own Implementation Procedures (approved by EPA) under the existing Texas Surface Water Quality Standards, and declined to adopt Save Our Springs’ argument that a 10% lowering of dissolved oxygen would amount to degradation per se of water quality. The Court looked at the underlying rules’ requirements that look at whether overall water quality is degraded, rather than isolating particular parameters impacted by a permitting decision, and ultimately held that TCEQ did not violate applicable antidegradation rules.

Cactus Water Servs., LLC v. COG Operating, LLC, No. 23-0676, 2025 Tex. LEXIS 79 (Jan. 31, 2025).

On March 18, 2025, the Texas Supreme Court heard oral arguments for Cactus Water Servs., LLC v. COG Operating, LLC. “Produced water,” once considered a liability because of its status as a waste byproduct, is finding a new life – and value – through water treatment technologies and state policies that allow produced water to be treated and recycled for other uses. The dispute before the Court is whether the owner of the surface estate or the lessee of mineral rights owns the produced water created as a result of oil and gas operations.

COG Operating, LLC (“COG”) is the mineral lessee under four oil and gas leases with two surface owners, covering approximately 37,000 acres in Reeves County, Texas. COG’s oil and gas operations in this area, the Delaware Basin (located within the greater Permian Basin), focus on the drilling and operation of horizontal wells, which extend horizontally into shale formations with low permeability and enable the extraction of oil and gas that would otherwise be inaccessible through hydraulic fracturing or “fracking.” Fracking consists of “shooting” large quantities of water, chemicals, and sand into shale formations at high pressure to create cracks in the rock to allow oil and gas to flow to the wellbore and up to the surface. Though an efficient technique for bringing hydrocarbons out of tight formations, the fluid that comes to the surface contains a host of other substances in addition to hydrocarbons, and once the oil and gas have been separated, the remaining fluid, referred to as produced water, often contains chloride, sodium, calcium, potassium, strontium, barium, iron, hydrogen sulfide, carbon dioxide, and trace amounts of oil, in addition to water.

COG routinely disposed of produced water with other oil and gas waste. However, in 2019 and 2020, the surface owners transferred to Cactus Water Services, LLC (“Cactus”) the right to sell all water “produced from oil and gas wells and formations on or under the [covered properties].” After Cactus notified COG of its right to the produced water, COG initiated suit, claiming that COG has the exclusive right to the produced water under its mineral leases. The trial court granted summary judgment in COG’s favor, finding that COG owned the produced water as part of COG’s “product stream.” The 8th Court of Appeals affirmed and concluded based on an analysis of applicable Texas statutes and regulations that produced water is oil and gas “waste” as a matter of law, and COG has the exclusive right to the oil and gas product stream, including produced water. Cactus petitioned the Court for review, arguing that the 8th Court of Appeals erred because the surface estate owns all subsurface water absent an express conveyance. Such is the question before the Court.

As the potential reuses for produced water grow and public opinion regarding the status of produced water as “waste” shifts, ownership of produced water, whether determined through explicit lease terms or decision by the Court, will likely be at the forefront of lessor/lessee discussions right down to the molecule. Those with an interest in the confluence of water and oil and gas operations are encouraged to keep an eye out for an opinion from the Court on this topic.

This case, as it was decided in the 8th Court of Appeals, was covered in the October 2023 edition of The Lone Star Current.

In re Bexar Medina Atascosa Ctys. Water Control & Improvement Dist. No. One, No. 04-24-00538-CV, 2025 Tex. App. LEXIS 787 (Tex. App.—San Antonio Feb. 12, 2025, no pet. h.).

San Antonio Water System (“SAWS”) filed a declaratory judgment suit against Bexar Medina Atascosa Counties Water Control and Improvement District Number One (“BMA”) and certain directors and employees, seeking a declaration that a water supply agreement between the parties is void. SAWS alleges that the water supply agreement violates the “gift clause” of the Texas Constitution, which prohibits the state and its subdivisions from giving, granting, or appropriating public money unless for a public purpose, because the agreement requires SAWS to expend ratepayer funds for water it is not receiving, even during times when BMA does not have sufficient quality water to comply with the agreement. BMA filed a plea to the jurisdiction alleging that (1) BMA has governmental immunity; (2) SAWS has not properly pled any ultra vires claims; and (3) the Public Utility Commission has exclusive jurisdiction over SAWS’ claims.

Before the scheduled hearing date for BMA’s plea to the jurisdiction, SAWS served BMA twenty-six requests for production and four interrogatories. BMA objected to the discovery on the grounds that such discovery was merits-based and not relevant to determining BMA’s preliminary jurisdictional question. After SAWS filed a motion to continue the case and compel BMA’s responses, the trial court held a hearing on the issue. Despite BMA’s argument that SAWS was not entitled to any discovery at this stage of the proceeding, the trial court verbally granted the continuance and limited discovery on “the availability of water; the methods of calculation; [and] the quality of water.” Immediately thereafter, BMA filed a petition for a writ of mandamus, alleging that the trial court abused its discretion and BMA’s appellate remedy is inadequate.

The 4th Court of Appeals found that the trial court abused its discretion by continuing the hearing on BMA’s plea to the jurisdiction and ordering discovery on a jurisdictional challenge that was based on the sufficiency of the pleading and did not rely on the existence of any jurisdictional facts. In doing so, the 4th Court of Appeals reasoned that the trial court impaired BMA’s right to have its jurisdictional claim decided at “the earliest opportunity” and to an accelerated appeal on the plea to the jurisdiction. Further, the 4th Court of Appeals held that BMA lacked an adequate remedy on appeal because the trial court’s order subjected BMA to the burden and expense of litigation through pre-trial discovery before determining BMA’s claim of immunity. Based on the foregoing, the 4th Court of Appeals conditionally granted BMA’s petition for a writ of mandamus and ordered the trial court to withdraw its oral rulings within fourteen days.

Litigation Cases

In this quarter’s installment of In the Courts, we look at a couple of constitutional takings cases—one a classic condemnation and another a regulatory taking. In both instances, we see the Texas courts’ continued tendency to protect private-property rights at the possible expense of governments’ condemnation and regulatory authority.

City of Killeen v. Oncor Elec. Delivery Co. LLC, No. 03-23-00063-CV, 2025 Tex. App. LEXIS 1355, *1 (Tex. App.—Austin Feb. 28, 2025, no pet. h.).

In a recent decision, the Third Court of Appeals reiterated that the “[Texas] Constitution precludes a city from initiating a condemnation proceeding against a utility if the condemnation would take not only the utility’s real property but also the ‘going concern’ value of its property.” Id. at 25. However, for the first time, the Third Court has held that an electric transmission and distribution utility cannot have the streetlights that it operates condemned under a city’s eminent-domain authority. Id. at 37.

Oncor Electric Delivery Company owns and operates streetlights throughout the City of Killeen. Oncor was formed to “own [the former conglomerate utility’s] wires and deliver power [to] others . . . but is restricted from owning generation assets or buying or selling electricity themselves.” Id. at 2. In other words, it owns the light posts and wires but does not directly provide consumers with electricity.

When the city attempted to purchase the streetlight system, Oncor preemptively sued, and won, before the city’s governing body could even vote to begin condemnation proceedings. The Third Court concluded that because the City would take the entirety of Oncor’s streetlight system within the City, Oncor was entitled to the “going-concern” value of its streetlight system if it were condemned. But Texas law provides no mechanism for awarding a condemnee going-concern value. Hence the court concluded that the hypothetical condemnation was not constitutionally permitted.

The potential impact and consequences may be meaningful within the Third Court—many operations, such as privately-owned electric car charging stations, are theoretically analogous and may be preempted from a government’s eminent domain powers.

Commons of Lake Hous., Ltd. v. City of Hous., No. 23-0474, 2025 Tex. LEXIS 203 (Mar. 21, 2025).

In March, in a similar, but ultimately unrelated case, the Texas Supreme Court ruled on a matter alleging that the City of Houston had inversely condemned a development in a floodplain. In this case, Houston amended its city ordinances to increase the elevation requirements for construction in a floodplain. Id. After long-lasting development and construction cooperation over the decades between the two parties, Hurricane Harvey changed the relationship. Id. at 2.

In the aftermath, Houston doubled its requirement for how high foundation slabs must be built in one of the Plaintiff’s most lucrative sites—from one foot in elevation, to two. Id. at 3. This seemingly small change purportedly cost the Plaintiff over $7M. Id.

In the ensuing regulatory takings suit, Houston argued that it was protected from suit by sovereign immunity. Id. at 4. In reversing the court of appeals, the Supreme Court held that a city that validly exercises its police power may still violate the Takings Clause of the Texas Constitution. Id. at 14–16. That is to say, in Texas, properly utilizing a government’s police power is not a bulletproof defense to a compensable takings allegation.

Yet there is some hope: the Court indicated that an exercise of police power that is “substantially related to the people’s general welfare and was reasonable and not arbitrary” would not be a compensable taking. Id. at 17–18. In practice, governments that exercise their police powers may still commit a regulatory taking, and perhaps should be prepared for intensive fact-finding and research to ensure their government action is “substantially” beneficial and not unreasonable.

Palliative Plus LLC v. A Assure Hospice, Inc., No. 03-23-00770-CV, 2025 Tex. App. LEXIS 314 (Tex. App.—Austin Jan. 24, 2025, no pet. h.).

When evaluating whether former employees, who have left to form a competitor, breached a noncompete agreement, the Third Court of Appeals ruled against the former employer. Id. Although the former employees arguably poached other employees and clients—a claim the opinion does not dispute—the Court found there was insufficient evidence to conclude a breach of non-competition. When the Plaintiff, Palliative Plus LLC, presented some evidence, namely an affidavit from a member stating that the former employees orally agreed to an employee handbook containing noncompete provisions, the Court relied on the deficiency that the Plaintiff could not provide a single, let alone one for each employee, signed agreement with a noncompete provision. Id. at 7. The trial court, which the appeals court affirmed, granted motions for summary judgment in favor of the Defendant. A summary judgment motion, colloquially expressed, evaluates whether no reasonable trier of fact, judge or jury, could find for the nonmoving party—in this case, the Plaintiff. See id. at 6. This opinion should, at the very least, illustrate the need for companies to ensure (i) effective record keeping of employee-related documents and (ii) systematic onboarding processes to ensure that each employee executes, or signs, the same documents that the company deems necessary. Realistically, this precedent creates a larger evidentiary threshold in order to succeed in a noncompete claim.

Note that the Plaintiff argued, unsuccessfully, that it believed the former employees impermissibly accessed and destroyed their files that allegedly contained the noncompete agreement. Id. at 9. The trial and appellate courts were unmoved “because [Plaintiffs did not establish that the former employee[s] intentionally or negligently destroyed documents [with sufficient evidence]].” Id.

Air and Waste Cases

60-Day Stay Granted in CERCLA PFAS Listing Challenge – Rule Remains in Effect.

On February 11, 2025, the Environmental Protection Agency (“EPA”) filed a motion to place a 60-day hold on the consolidated case in which industry leaders are protesting the designation of PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) (the “Final Rule”). EPA argued that the Agency’s new leadership following the change in administration needs time to familiarize itself with the Final Rule and the case proceedings. Petitioners did not oppose the hold. The court granted the motion on February 24, 2025, effectively pausing all proceedings in the matter until the schedule resumes on April 25, 2025. The underlying rule designating PFOA and PFOS as hazardous substances under CERCLA remains in effect during the stay.

Port Arthur Community Action Network v. Texas Commission on Environmental Quality, No. 24-0116, 2025 WL 492750 (Texas 2025).

When issuing a Prevention of Significant Deterioration (“PSD”) permit, the Texas Commission on Environmental Quality (“TCEQ”) must determine the best available control technology (“BACT”) and find that the proposed facility’s controls meet BACT. In determining BACT, TCEQ relies on currently available technology and does not include speculative control methods from other permitted facilities that are not yet in operation. Further, previously issued BACTs may be relevant but do not necessarily impose the control technology for a new facility.

After issuing a permit to construct a new liquid natural gas facility in Port Arthur (“Port Arthur LNG”), an environmental non-profit argued in court that TCEQ should issue the same restrictions on Port Arthur LNG that TCEQ issued on another planned facility, Rio Grande LNG. On February 16, 2024, the Fifth Circuit sent a certified question to the Texas Supreme Court asking whether TCEQ could impose the same limitations on the new liquid natural gas facility. The Supreme Court of Texas (“SCOTX”) answered the question almost one year later on February 14, 2025.

First, SCOTX held that BACT relates to currently available technology that is proven to be technically practicable and economically reasonable. This means the method is already proven to reduce or eliminate emissions through research and experience. The level of operational experience should relate to real-world experience, not solely rely on its future expectations in previously approved permit applications. Thus, SCOTX rejected the question’s suggestion that BACT might include methods the TCEQ “deems to be capable of operating in the future.”
Second, SCOTX cautioned against automatically assuming the selected BACT for one facility applies to all other similar facilities. Instead, TCEQ looks individually at each facility to determine the BACT. While similarly issued permits can have great relevance for similar facilities, they are not necessarily determinative for selecting a BACT for another facility.

“In the Courts” is prepared by Samantha Tweet in the Firm’s Districts Practice Group; Nathan Marroquin in the Firm’s Litigation Practice Group; and Mattie Neira 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 Samantha at 512.322.5894 or stweet@lglawfirm.com, or Nathan at 512.322.5886 or nmarroquin@lglawfirm.com, or Mattie at 512.322.5804 or mneira@lglawfirm.com.