San Jacinto River Authority lawsuit against Conroe, Magnolia, other entities may proceed after court of appeals affirms three out of four claims

An ongoing lawsuit between the City of Conroe and the Lone Star Groundwater Conservation District over water rates is now headed to the Texas Supreme Court.

An ongoing lawsuit between the City of Conroe and the Lone Star Groundwater Conservation District over water rates is now headed to the Texas Supreme Court.

Update: This story has been updated on Sept. 6 to include comments from Conroe City Attorney Marc Winberry. 

Update: This story has been updated to include a statement from Jace Houston, general manager for the San Jacinto River Authority. The statement is from the authority's news release issued Wednesday afternoon. 

On Friday, the Court of Appeals for the Third District of Texas ruled to dismiss one of four declarations in the San Jacinto River Authority’s lawsuit against the cities of Conroe, Magnolia and Splendora—as well as other connected utility companies—over water usage fees. With this decision, the SJRA's lawsuit against the entities may proceed in Travis County.

The SJRA—a state agency that works to conserve the water resources of the San Jacinto River watershed—sells surface water from Lake Conroe to select entities as a part of the groundwater reduction plan, or GRP, to comply with groundwater regulations in Montgomery County. Conroe and The Woodlands are among the entities that buy surface water from the SJRA, as Conroe entered into a GRP contract in May 2010, SJRA General Manager Jace Houston said Monday night via a phone interview.

The dispute began after the SJRA voted to increase the water usage rate by 18 cents per 1,000 gallons in May 2016. Houston said the authority published a 10-year projection on its website prior to the GRP contract to give entities an understanding of how the rate may change over time.

Before the rate increase could take effect Sept. 1, 2016, the city of Conroe approved a resolution stating that the SJRA was overcharging and the city would "refuse payment of the increase in fees, rates, or charges" and would pay the SJRA in accordance with pre-existing rates, according to court documents. The city of Magnolia approved a resolution refusing the increase shortly after.

After Conroe and Magnolia refused to pay the authority’s increased water usage fees, the SJRA filed the lawsuit in Travis County in November 2016 under the Expedited Declaratory Judgement Act (EDJA). According to court documents, the city of Conroe then filed several motions that contested whether the SJRA's claims were within the EDJA, including a motion to transfer the lawsuit from Travis County to Montgomery County, but the district court denied the motions.

The next year, the SJRA approved another increase of 14 cents per 1,000 gallons, and the cities again refused to pay the rate increase. The rate increase took effect Sept. 1, 2017, with the authority attributing 12 cents of the increase to legal fees associated with the lawsuit, according to previous Community Impact Newspaper reports.

According to Aug. 31 court documents, the Third District Court of Appeals ruled in favor of three declarations, which stated the fiscal year 2017 rate, rate order and the GRP contracts—including the contract with Conroe—are legal and valid; the SJRA issued its 2017 rate in accordance with the GRP contracts; and the SJRA is authorized to set rates in accordance with the GRP contracts. However, the court of appeals chose to dismiss the SJRA’s claim “that Conroe’s refusal to pay the fiscal year 2017 rate is illegal and invalid, and its failure to pay is a breach of the GRP contract.”

“We’re pleased that the Austin court of appeals agreed that the SJRA exceeded its authority by attempting to find Conroe in default of the agreement,” Conroe City Administrator Paul Virgadamo said in a phone interview Monday afternoon. “We’re going to study the decision and consult with our attorneys whether or not we will appeal it.”

However, Houston said he believes the court's decision is a win for the SJRA, because although the breech of contract declaration was dismissed, the lawsuit's three other declarations were affirmed. Therefore, the EDJA lawsuit may proceed in Travis County on an expedited basis, Houston said.

With the court's most recent decision on Friday, each party will bear its own legal fees relating to this appeal, according to court documents. Furthermore, the entities have until Sept. 17 to motion for a rehearing with the court.

“Once the trial court rules that the contracts and rates are valid, then it is clear that the cities are
breaching the contracts by refusing to pay,” Houston said in a news release issued Wednesday. “The EDJA will allow the court to determine validity relatively quickly. Once the contracts and rates are declared valid, SJRA can easily prove breach in a separate suit.”

In a phone interview Thursday, Conroe City Attorney Marc Winberry—who is not the attorney on this case, but serves as a consulting attorney for the city—said the city is still studying the implications of the Third District Court of Appeal's decision. Winberry said the city will consider whether it is appropriate to appeal the court's decision to deny Conroe's request to change trial venues from Travis County to Montgomery County.

"If the case does actually go to trial at some point, either here or there, one of the things we were gratified about was that the Court of Appeal's decision did point out and recognize that under the [GRP] contract, the SJRA has the obligation, at all times, to maintain the rate at the lowest possible level consistent with good management practices," Winberry said. "We don’t agree that they have done that. And if it goes to trial ... we believe will be able to show that the SJRA has adopted rates that are extremely excessive."
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