Gulf Water Benefaction Co. v. Public Utility Commission of Texas, 81-2370

• Decision Date: 30 April 1982
• Docket Number: No. 81-2370,81-2370
• Citation: 674 F.2d 462
• Parties: GULF WATER BENEFACTION COMPANY, Peoples National Utility Company, Plaintiffs-Appellants, v. The PUBLIC UTILITY COMMISSION OF TEXAS and the State of Texas, Defendants-Appellees. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 462

674 F.2d 462

GULF WATER BENEFACTION COMPANY, Peoples National Utility Company, Plaintiffs-Appellants, v. The PUBLIC UTILITY COMMISSION OF TEXAS and the State of Texas, Defendants-Appellees.

No. 81-2370

Summary Calendar.

United States Court of Appeals Fifth Circuit.

April 30, 1982.

Joe Alfred Izen, Jr., Houston, Tex., for plaintiffs-appellants.

Ronald G. Knight, Asst. Atty. Gen., Austin, Tex., for defendants-appellees.

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

Before BROWN, POLITZ and WILLIAMS, Circuit Judges.

PER CURIAM:

Gulf Water Benefaction Company for the third time in a federal court presents a challenge to aspects of state utility rate-making. It also argues that the Bankruptcy Court should not have dismissed its Chapter XI petition, although it admits that no plan of arrangement can be confirmed until it has settled the rate-making dispute. Both the Bankruptcy Court and District Court before us ruled that the Johnson Act, 28 U.S.C. § 1342, deprived them of jurisdiction to consider the challenges and left Gulf Water to pursue its remedies in Texas state court. We affirm on the basis of Judge Seals' complete and thorough opinion (attached as an appendix).

AFFIRMED.

APPENDIX

Before the Court for consideration are two appeals by debtor-appellant, Gulf Water Benefaction Company ("Gulf Water"), from the bankruptcy court's orders of dismissal entered in Bankruptcy Numbers HB-79-95 (See Chapter XI petition) and HB-79-95 Adversary G (ancillary adversary proceeding). Gulf Water is joined by Peoples National Utility Company ("Peoples"), a purported co-plaintiff in Adversary G, ¹ in appealing the bankruptcy court's dismissal of Adversary G. The respective appeals, filed in the United States district court under Civil Action Numbers H-80-1814 and H-80-1815, have been consolidated by this Court under Civil Action Number H-80-1814 for purposes of appellate review.

Debtor-appellant Gulf Water is a Texas corporation engaged in the domestic sewerage treatment business. Through the operation of two sewer plants leased from Peoples, a water utility company, Gulf Water treats and processes the domestic sewerage of 775 residential consumers in North Harris County, Texas.

Regulatory and State District Court Proceedings

Prior to the institution of the bankruptcy proceedings which are the subject of these appeals, Gulf Water along with Peoples had sought utility rate increases before the Public Utility Commission of Texas ^** (PUC) in PUC docket 96. PUC, however, rejected the petition for rate increases and Gulf Water and Peoples appealed the regulatory commission's decision to state district court. Pending appellate review by the district court in Travis County, Texas, Gulf Water and Peoples charged their customers higher utility rates than scheduled by the PUC. As a result of consumer complaints, the PUC held another rate hearing in PUC docket 1211 and established new rates. Gulf Water and Peoples, still dissatisfied, refused to obey these new rates and filed a second appeal in state district court (Cause No. 276,982). The PUC then brought suit (Cause No. 276,449) against Gulf Water and Peoples in state district court to enforce the Texas Public Utility Regulatory Act ("PURA"), Tex.Rev.Civ.Stat.Ann. art. 1446c, Vernon (1980). Subsequently, the PUC took a judgment nihil dicit in Cause No. 276,449. ² At approximately the same time, the PUC also moved the state district court in Cause No. 276,982 to dismiss Gulf Water and Peoples' second appeal of the PUC's imposed rate level for lack of prosecution.

Chapter XI Petition for Arrangement

On February 14, 1979, during the pendency of the preceding state court litigation, ³ Gulf Water filed its petition for arrangement in bankruptcy court under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 1121. The basis of Gulf Water's voluntary petition was its inability to meet its current financial obligations and recognition that it would be unable to meet its future business obligations because of inadequate revenue. Underlining Gulf Water's insolvent financial condition was its failure to receive requested rate hikes from various local and state regulatory agencies. Thus, in its pleadings before the bankruptcy court, Gulf Water asserted that its "income is and has been inadequate because various regulatory authorities, ..., have endeavored to set the debtor's rates at a level that amounts to a confiscation of (debtor's) property without compensation.... (Debtor's (proposed) Arrangement filed in Bankruptcy No. HB-79-95 on April 25, 1979, at 2).

Adversaries A, B, C

Shortly after Gulf Water filed its Chapter XI petition, the PUC filed a complaint in the bankruptcy proceeding (Adversary A) seeking a determination from the bankruptcy court as to whether the stay provisions of Bankruptcy Rule 11-44, 11 U.S.C., automatically stayed the pending state court litigation between Gulf Water and Peoples and the PUC and the State of Texas (Cause Nos. 276,449 and 276,982).

On April 6, 1979, Gulf Water and Peoples responded by filing a complaint (Adversary B) seeking to enjoin the PUC in both of the pending state court cases in the event that the bankruptcy court determined that the automatic stay provision was not applicable. Gulf Water and Peoples also attempted to file an amended complaint in this ancillary proceeding which sought a determination that the utility rates set by the PUC were unconstitutional and which further asked that the bankruptcy court set new utility rates that were constitutional. The bankruptcy court refused to allow the amended complaint in Adversary B on the ground that it would constitute surprise to the opposing parties.

Gulf Water and Peoples then filed a second complaint (Adversary C) which requested essentially the same injunctive relief (staying the state court litigation) as previously requested in Adversary B along with a request that the bankruptcy court strike the PUC scheduled rates as being constitutionally void and that the bankruptcy court grant all the relief necessary to abate the existing condition of pollution.

In Adversary A, the bankruptcy court ruled that the automatic stay provisions under Bankruptcy Rule 11-44 did not apply to the two actions pending in state district court. (Bankruptcy Court's Order entered in Bankruptcy No. HB-79-95 Adversary A on September 11, 1979).

In Adversary B, the bankruptcy court, after holding a trial on appellants' request for injunctive relief, found that Gulf Water and Peoples were not entitled to an injunction against the PUC because they had failed to show the unavailability of an adequate remedy at law. The bankruptcy court also indicated that it was hesitant to intervene in a situation where the remedies available under state law had not yet been exhausted. Moreover, the bankruptcy court, recognizing that historically the power to regulate intrastate services such as utilities has been reserved to the states under the tenth amendment of the United States Constitution, advised the parties that it felt, under the circumstances of this case, that the state court would be the better forum for resolving this controversy. (Bankruptcy Court's Memorandum Opinion entered in Bkrtcy., 1981, 2 B.R. 357).

In Adversary C, the PUC filed a Motion to Strike or, in the Alternative, a Motion to Dismiss asserting that the issues raised in Adversary C were duplicitous of the issues raised in Adversary B and further did not state a claim upon which relief could be granted. Without notifying the PUC, Gulf Water and Peoples filed a Notice of Voluntary Dismissal Without Prejudice ("Notice") in Adversary C. Upon learning of this Notice, the PUC filed a motion to vacate the voluntary dismissal. The bankruptcy court vacated plaintiffs' notice of dismissal and then dismissed Adversary C after finding most of the allegations in Adversary C to be redundant of the issues raised and dismissed in Adversary B. As to the remaining issues in Adversary C (constitutionality of the utility rates and abatement of the pollution condition), the bankruptcy court dismissed these issues on the ground that it would again decline to exercise jurisdiction to intervene in a situation where the available state remedies had not been exhausted by the plaintiffs.

Adversary G

After failing to obtain the relief sought in Adversaries B and C, Gulf Water and Peoples filed a "Complaint to Enjoin Confiscation of Property, Complaint to Enjoin Continuance of Proceedings in Interference with Administration of Debtors' Property; Complaint for Declaratory Relief and to Abate Pollution" on January 2, 1980.

In Adversary G, Gulf Water and Peoples, as plaintiffs, asserted that the utility rates set by the PUC were unconstitutional and thus they were deprived of their civil rights because (1) the rates were so low as to be confiscatory and therefore amounted to a taking of property without just compensation and (2) plaintiffs were not accorded procedural due process since the notice sent to them by the PUC did not fairly appraise them that the PUC would consider a change in the utility rates at the hearing in PUC docket 1211. Accordingly, plaintiffs moved the bankruptcy court, pending a decision on the merits of Gulf Water's petition for arrangement, to enjoin the PUC from enforcing the rates promulgated in PUC docket nos. 96 and 1211 and to enjoin the PUC and the State of Texas from enforcing the Judgment Nihil Dicit entered in Cause No. 276,449 in the state district court of Travis County. Plaintiffs further moved the bankruptcy court to rule that the utility rates fixed under state law were unconstitutional and to, in effect, impose a non-confiscatory rate which plaintiffs could charge to their customers.

The bankruptcy court, having addressed these same issues in Adversaries B and C and after considering the pleadings, briefs and oral argument of counsel concluded that it should not exercise any jurisdiction it...