City of College Stat. v. U.S. Dept. of Agriculture
| Citation | 395 F.Supp.2d 495 |
| Decision Date | 17 October 2005 |
| Docket Number | No. Civ.A. H-04-4558.,Civ.A. H-04-4558. |
| Parties | CITY OF COLLEGE STATION, Plaintiff, v. UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Claude Robert Heath, Bickerstaff Heath et al, Austin, TX, Jose Vela, Jr., Assistant US Attorney, Houston, TX, for Plaintiff/Defendant.
Curt M. Langley, Jackson Walker LLP, Houston, TX, Leonard H. Dougal, Small Craig & Werkenthin, Philip D. Mockford, Jackson Walker LLP, Austin, TX, for Defendant.
Pending before the Court is Plaintiff the City of College Station's request for preliminary injunctive relief (Dkt.# 1). The Court held a preliminary injunction hearing on March 15, 2005. After considering the arguments, the administrative record, and the applicable law, the Court is of the opinion that Plaintiff's request for preliminary injunctive relief should be GRANTED.
Plaintiff filed this lawsuit on December 3, 2004, against Defendants United States Department of Agriculture ("USDA") and the Rural Utilities Service ("RUS") (Collectively "Federal Defendants"), and against the Wellborn Special Utility District ("Wellborn").1 Wellborn is a home-rule city organized under Article XI, section 5, of the Constitution of the State of Texas. The USDA is an agency of the United States government. The RUS is an agency of the USDA. The complaint was filed pursuant to the Administrative Procedure Act, 5 U.S.C. § 702 ("APA"), the Mandamus Act, 28 U.S.C. § 1361, the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, and the Federal Question Jurisdictional Amendments Act of 1980, 28 U.S.C. § 1331. The Plaintiff seeks mandamus and injunctive relief, requesting the Court to compel an officer or employee of the Federal Defendants to perform a duty owed to the Plaintiff, specifically to refrain from lending money to Wellborn. Plaintiff alleges that the Federal Defendants violated 7 C.F.R. § 1780.1 et seq., the Federal Defendants' policies and procedures for making and processing direct loans and grants for water projects, when it agreed to fund a loan to Wellborn.
This case arises in the context of the Consolidated Farm and Rural Development Act (Consolidated Farms Home Administration Act of 1961) 7 U.S.C. § 1926, which was enacted in 1961 as part of a statutory framework designed to provide federal loans to rural water associations. Note, Water Associations and Federal Protection under 7 U.S.C. § 1926(b): A Proposal to Repeal Monopoly Status, 80 TEX. L.REV. 155, 157-60 (2001) (). The program is designed to serve entities that cannot qualify for comparable loans in the private sector. See 7 C.F.R. § 1780.7(d). In recognition of the fact that borrowers who qualify for this program serve the "most financially needy communities," 7 C.F.R. § 1780.2, the statute assumes they may need assistance to avoid interference with the revenue stream that will be the source for repaying the loan. Accordingly, § 1926(b) protects borrowers under the program against loss of their customers or service areas to cities or other entities that annex part of that service area. Section 1926(b) states:
The service provided or made available through any such association shall not be curtailed or limited by inclusion of the area served by such association 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 such loan; nor shall the happening of any such event be the basis of requiring such association to secure any franchise, license, or permit as a condition to continuing to serve the area served by the association at the time of the occurrence of such event.
7 U.S.C. § 1926(b). Unless waived by the borrower and the USDA, the § 1926(b) protection remains in effect for the entire term of the loan, which is commonly 40 years. That protection affects persons who seek to develop land served by a borrower under the program as well as cities adjacent to those areas. Plaintiff argues that, due to § 1926(b) protection, rural water systems like Wellborn are generally able to prevent the unconsented transfer of territory within their service area. Plaintiff contends that this puts rural water systems with § 1926(b) protection in a monopolistic position, making it possible for them to overcharge municipalities for the opportunity to serve newly developed areas.
As early as 1971, Wellborn and its predecessor, Wellborn Water Supply Corporation ("Wellborn WSC"), had a water purchase agreement with Texas A & M University (the "University"). In 1992, Wellborn WSC entered into a water supply contract with the Plaintiff. The Plaintiff committed itself to provide Wellborn WSC with water. In the contract, Wellborn WSC agreed "as part of the consideration for the execution of [the] Agreement... to allow [the Plaintiff] to provide the water service to any area annexed by [the Plaintiff] without separate charge."
In 1998, Wellborn assumed four debts owed by Wellborn WSC to the USDA. Between 1966 and 1986, the USDA made these four loans to Wellborn WSC pursuant to 7 U.S.C. § 1926. Among the transferred debts were four 40-year notes payable to the USDA. Plaintiff alleges that the outstanding balance on the notes is currently about $500,000. Upon assumption of the four debts, Wellborn received protection afforded by § 1926(b).
Additionally, as early as 1998, Wellborn acquired leases to explore for a new water source so that it could supply its own water. By the summer of 2002, new wells were in service along with the necessary pump stations and transmission lines. A million gallon overhead storage facility was also constructed as part of the new system. In 2001, the University notified Wellborn that it had elected to not continue as a regular water supplier. Thereafter, the University would supply water only in emergency situations.
The Brushy Water Supply Corporation ("Brushy WSC") is another rural water facility that is separated from Wellborn by land owned by the University. By late 2002, Brushy WSC was faced with a need to enhance its storage capacity and water pressure to meet its service obligations and requirements imposed by the Texas Commission on Environmental Quality (the "TCEQ"). Wellborn's excess overhead storage capacity was identified as the most expedient and cost saving method to meet the requirements. Wellborn realized that it could also benefit from Brushy WSC's excess water. Brushy WSC and Wellborn thus entered into an Interconnection Agreement in February 2003. The agreement called for a twelve inch interconnection line between Wellborn and Brushy WSC ("interconnection line").
Meanwhile, in 2002, the Plaintiff annexed five tracts of land in Wellborn's service area and requested that Wellborn transfer the right to provide water service pursuant to the 1992 contract. The five tracts of land currently have roughly 170 customers. According to Wellborn, the areas within its certificate of convenience and necessity ("CCN") subject to the annexations comprise only six percent of its total service area, or 170 out of a total of 2,717 customers. Wellborn, however, refused to transfer the service area and repudiated the 1992 contract. Wellborn claims that the contract is invalid because it has never been approved by the TCEQ and allegedly conflicts with § 1926(b). The Plaintiff then brought suit in state court to enforce the contract.
In what it alleges was an effort to remove any § 1926(b) barrier in the contract dispute, the Plaintiff tendered an amount to Wellborn and the USDA equal to Wellborn's entire 1926(b) indebtedness, which was estimated to be $507,000. Wellborn declined the offer and the USDA did not object to that decision.
On April 23, 2004, while the contract dispute was pending in state court, Wellborn filed an application for an additional federal loan. Plaintiff alleges that if this loan is consummated, it will result in imposing additional layers of § 1926(b) protection on Wellborn, extending the protection until 2044, and tripling the cost of removing that protection by paying off the debt. In its new application, Wellborn seeks $1,034,000 from the USDA through its RUS agency for two projects: (1) the twelve inch interconnection line and (2) changing the existing Wellborn manually read meters with meters that can be read remotely by means of a radio signal. The interconnection line project could be used to serve the entire Wellborn service area, including the portion of Wellborn that was annexed by the Plaintiff and now within the City of College Station ("City"). Similarly, the water meter project is anticipated to replace all meters in Wellborn, including the approximately 170 meters located within the City. Although the application does not separate the cost of the two projects, the general manager of Wellborn, Stephen Cast, testified that the bulk of the funds will be used for the water meter replacement project.
On August 19, 2004, the Federal Defendants approved the Ioan in the full amount of $1,034,000. The term of the loan is to be 40 years. Plaintiff challenges the validity of this loan.
The Plaintiff seeks judicial review of an informal agency action under the APA. The standard of review in an APA case is whether the agency action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706. A decision is arbitrary or capricious "only when it is `so implausible that it could not be ascribed to a difference in view or the product of agency expertise.'" Gibson v. United States, 11 Cl.Ct. 6, 15 (1986) (quoting Motor Vehicle Manufacturers Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77...
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