North Alamo Water Supply Corp. v. City of San Juan, Tex.

• Decision Date: 15 April 1996
• Docket Number: No. 95-40048,95-40048
• Citation: 90 F.3d 910
• Parties: NORTH ALAMO WATER SUPPLY CORPORATION, Plaintiff-Appellee, v. CITY OF SAN JUAN, TEXAS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 910

90 F.3d 910

35 Fed.R.Serv.3d 1276

NORTH ALAMO WATER SUPPLY CORPORATION, Plaintiff-Appellee, v. CITY OF SAN JUAN, TEXAS, Defendant-Appellant.

No. 95-40048.

United States Court of Appeals Fifth Circuit.

April 15, 1996.

James William Dyer, McAllen, TX, for plaintiff-appellee.

Jesus Maria Ramirez, Jose Roberto Guerrero, Gavino Morin, Motalvo & Ramirez, McAllen, TX, for defendant-appellant.

Mary A. Keeney, Office of the Attorney General for the State of Texas, Austin, TX, for State of Texas amicus curiae.

Susan M. Horton, Texas Municipal League, Austin, TX, for Texas Municipal League amicus curiae.

Kenneth L. Petersen, Jr., Small, Craig & Werkenthin, Austin, TX, for Texas Rural Water Association amicus curiae.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, WIENER and BENAVIDES, Circuit Judges:

PER CURIAM:

This appeal involves a battle between Plaintiff-Appellee North Alamo Water Supply Company (Utility) and the Defendant-Appellant city of San Juan, Texas (City) over which one has the right to provide water service to five residential subdivisions (disputed areas) in or near the City. After the City began providing water service to the disputed areas, the Utility filed this suit, claiming that it had the exclusive right to provide water service to the disputed areas. The district court held in favor of the Utility and enjoined the City. The City appealed complaining, inter alia, that the district court's injunction is improper, vague, and offends both the Constitution and principles of federalism. We affirm in part and remand in part for modification of the injunction consistent with this opinion.

I FACTS AND PROCEEDINGS

A. BACKGROUND

The Utility is a Texas nonprofit rural water supply company. Approximately 20 years ago, the Texas Water Commission, which has since been succeeded by the Texas Natural Resources Conservation Commission (Commission), ¹ granted Certificate of Convenience and Necessity Number 10553 (Certificate) to the Utility. The Certificate obligates the Utility to provide water services for a large rural area spanning Hidalgo and Willacy counties in South Texas (Certificated Area). ² To finance construction, operation, and improvement of its water system, the Utility obtained loans and grants from the Farmer's Home Association (FmHA). At the end of 1993, the Utility owed the FmHA approximately $12,000,000.

The City is a home rule municipality located in Hidalgo County, Texas. It owns and operates a municipal water supply system and provides water service in several subdivisions north of the City, some of which lie within the Utility's Certificated Area. As the City developed, the Utility would determine from time to time that various subdivisions of the City that are within the Certificated Area would be better served by the City. In such instances, the Utility would either execute a written release to the City or acquiesce in the City's furnishing water service to those subdivisions. The five other subdivisions ³ which collectively constitute the disputed areas are within the Certificated Area and are currently receiving water service from the City, but the City had never obtained a release from the Utility to service these subdivisions. The Utility objected to the City's providing service to the disputed areas, explaining that these subdivisions are within the Certificated Area and are adjacent to the Utility's water service lines. Despite these objections, the City refused to allow the Utility to provide water service to the disputed areas.

B. THE LITIGATION

In December 1993, the Utility brought this action under 7 U.S.C. § 1926(b) to enjoin the City from providing water service within the Certificated Area. In July 1994, the City filed applications (Applications) under §§ 13.254 ⁴ and 13.255, ⁵ seeking to decertify portions of the Certificated Area and to recertify them in the City's name. On August

18, 1994, before the Commission reached a decision on the Applications, the district court entered an Agreed Preliminary Injunction, enjoining the City from servicing any additional customers within the Certificated Area and ordering the City to contact the Commission and request that it take no further action on the Applications until the expiration of the Agreed Preliminary Injunction. ⁶

1. Original Judgment

On December 15, 1994, the district court entered final judgment (Original Judgment) in favor of the Utility and against the City. After noting that under Texas law the Utility had a legal duty to provide continuous and adequate service to residents in the Certificated Area, the district court held that the Utility had, as a matter of law, "made service available" as required by § 1926(b). In the alternative, the district court held that because the Utility had water service lines adjacent to the disputed areas, it had, as a factual matter, "made service available" as required by § 1926(b). The district court concluded that the City had encroached on the service area of a federally indebted water association and thus violated § 1926(b).

The district court found that the Utility's annual net revenue attributable to the disputed areas was approximately $365,000. Accordingly, it permanently enjoined the City from (1) pursuing the Applications; (2) offering to provide or providing service to the disputed areas; and (3) offering to provide or providing water service to areas that lie within the Certified Area but are not currently served by the City, except as agreed to by the Utility. Finally, the court also instructed that the transition of service from the City to the Utility within the disputed areas be accomplished so as to minimize interruption in water service.

2. Amended Judgment

On December 27, 1994, the City filed a motion for a new trial and a motion to alter or amend the judgment (City's Motions). On December 28, 1994, the Utility filed what it "captioned" as a motion for leave to amend its complaint (Utility's Motion). On January 27, 1995, the court overruled the City's Motions, but took the Utility's Motion under advisement. In May 1995, the district court issued an order which construed the Utility's Motion as a Rule 59(e) motion to amend or alter the judgment and granted it (Amended Judgment).

The Amended Judgment granted the same relief as the Original Judgment. In addition, it clarified that the City must relinquish to the Utility control of the water distribution infrastructures in the disputed areas. On May 5, 1995, the City filed its amended notice of appeal, challenging, inter alia, the district court's findings of fact, its legal conclusions, and the remedy it fashioned.

C. THE COMMISSION AGREES WITH THE DISTRICT COURT

On May 30, 1995, the Commission issued a Cease and Desist Order (Commission's Order) at the request of the Utility. The Texas Commission ruled that, as the disputed areas are within the Certificated Area, the Utility had the exclusive right to provide water in the disputed areas. As a result, the Commission's Order directed (1) the Utility to provide "continuous and adequate" service to the disputed areas; (2) the City to continue providing water service to the disputed areas until the Utility initiates service; and (3) the City to cease providing water service to the disputed areas upon initiation of service by the Utility. The Commission declined to order the City to relinquish control of the water distribution infrastructures to the Utility, explaining that it did not have the power to do so. As a final instruction, the Commission ordered the City and the Utility to "mend their fences," by filing applications to reflect the official boundaries of their respective certificated areas.

II

DISCUSSION

A. THE VIOLATION ISSUES:

1. Standard of Review

We review a judgment on the merits of a nonjury civil case applying the usual 2. The Statute: 7 U.S.C. § 1926(b)

                standards of review. 7  Thus, we review conclusions of law de novo and findings of fact for clear error. 8  If the district court's account of the evidence is plausible in light of the record viewed in its entirety, we may not reverse even if we are convinced that, had we been sitting as the trier of fact, we would have weighed the evidence differently. 9
                

The initial issue in this appeal centers around Section 1926(b). ¹⁰ That section provides in pertinent part:

The service provided or made available through any such [indebted water] association shall not be curtailed or limited by the inclusion of the area 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 said loan.... ¹¹

The service area of a federally indebted water association is sacrosanct. Every federal court to have interpreted § 1926(b) has concluded that the statute should be liberally interpreted to protect FmHA-indebted rural water associations from municipal encroachment. ¹²

In City of Madison, Miss. v. Bear Creek Water Ass'n Inc., ¹³ we held that § 1926(b) "indicates a congressional mandate that local governments not encroach upon the services provided by such [water] associations, be that encroachment in the form of competing franchises, new or additional permit requirements, or similar means." We explained that the history behind this section indicates two congressional purposes: (1) to encourage rural water development by expanding the number of potential users of such systems, thereby decreasing the per-user cost, and (2) to safeguard the viability and financial security of such associations (and FmHA's loans) by protecting them from the expansion of nearby cities and towns. With this background, we turn to the violation issue. ¹⁴

3. Did the City Violate § 1926(b)?

To secure the protections of § 1926(b) the Utility must establish that (1) it has a continuing indebtedness to the FmHA, and (2) the City has encroached on an area to...