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Groundwater Litigation Update - Stacey Reese

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The document provides updates on various groundwater district litigation matters: 1. BLF Land, LLC v. North Plains GCD challenges a rule limiting allocation based on contiguous acreage divided into Groundwater Production Units. A trial is set for September 2024. 2. Lower Colorado River Auth. v. Lost Pines GCD challenges 9 permitting rules, including limits on contiguous acreage and drought curtailment. 3. Aqua Texas v. Hays Trinity GCD challenges enforcement actions and a moratorium, alleging unequal treatment and penalties exceeding statutory caps. 4. Vanderpool Man., LP v. Bandera County River Auth. challenges the ability to file suit on a permit before a ground

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LITIGATION UPDATE TAGD Regular Business Meeting January 30, 2024 Stacey Reese Law, PLLC 910 West Ave., Suite 15 Austin, TX 78701 www.staceyreese.law stacey@staceyreese.law (512) 535-0742

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1. Validity of Rules Including Production Limit Rules • BLF Land, LLC v. North Plains GCD • Lower Colorado River Auth. v. Lost Pines GCD 2. Enforcement and Moratoriums • Aqua Texas v. Hays Trinity GCD 3. Contested Case Hearings Referred to SOAH • Vanderpool Man., LP v. Bandera County River Auth. & GCD • Lost Pines GCD v. Lower Colorado River Auth. 4. Waiver of Immunity • San Jacinto River Auth. v. City of Conroe 5. Contract Issues • Gatehouse Water, LLC v. Lost Pines GCD • Quadvest, L.P. v. San Jacinto River Auth. Roadmap

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Rule Limiting Allocation based on GPU BLF Land, LLC & Blaine Larsen Farms v. North Plains GCD et al., No. 2:23-00133 (N.D. Tex.). • Potato farmers sued GCD (and directors in individual & official capacities) challenging rule requiring contiguous acreage to be subdivided into Groundwater Production Units (GPUs) • Plaintiffs own/control 50,000+ acres • GPU rule limits size & shape • GPU ≤ 1,600 acres • Annual Limit: 1.5 acre-feet per acre of GPU • Lower Colorado River Auth. v. Lost Pines GCD (rules)

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Rule Limiting Allocation Based on GPU Cont’d BLF Land, LLC & Blaine Larsen Farms v. North Plains GCD et al. • Under annual limit, Plaintiffs allege they should produce 75,000 AFY • Under GPU limits, Plaintiffs produce less than 50,000 AFY • GCD alleges Plaintiffs overpumped in individual GPUs • Plaintiffs allege GPU rule: • is not authorized in Chapter 36 • Is a takings under state and federal law • violates the Equal Protection (large v. small) and Due Process Clauses • Claims against directors in individual capacities dismissed by agreement • GCD countersued: enforcement of overpumpage penalties, injunction & atty fees • Trial in September 2024 Takeaway: may clarify if GCD can impose production limit on GPUs in acreage system

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Permitting Rules Lower Colorado River Auth. v. Lost Pines GCD, No. 423-9385 (Bastrop County, TX) LCRA challenges 9 permitting rules: • Contiguous acreage limit per aquifer • DFC curtailment • Temporary drought curtailment • Unreasonable effects • Monitoring groundwater quality • Groundwater quality standards • Identity of end user before permit • Contract with GCD for construction and conveyance of monitoring wells • Groundwater cannot be transported for more than 1,500 feet in open channel Permitting Rulemaking

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Permitting Rules Cont’d Lower Colorado River Auth. v. Lost Pines GCD • Contiguous acreage limit per aquifer • Simsboro limit: Pending appeal on permit • Other aquifers: allocation is < 1 acre-feet per acre • DFC curtailment • Brings prospective planning into regulation without a hearing • No info on how to determine DFC is not being achieved • DFCs can change • Temporary drought curtailment • No authority; amends permit without a hearing

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Permitting Rules cont’d Lower Colorado River Auth. v. Lost Pines GCD • Unreasonable effects • Definition problematic • Impact to one well could justify denial of permit • protects existing well regardless of location, design or maintenance history • Identity of specific end user before permit • Beneficial use • Gatehouse permit No trial setting; LCRA did not sue directors Takeaway: may get clarity on several emerging legal issues

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Enforcement and Moratoriums Aqua Texas, Inc. v. Hays Trinity GCD et al., No. 41:23-cv-01576 (W.D. Tex.) Aqua overpumped permits in 2022 GCD assessed penalties exceeding $448,000 Aqua alleges: • GCD completely forgave other penalties and is treating Aqua differently • Moratorium is illegal, a taking, and forces Aqua to pump from wells in Jacob’s Well man. zone • Penalty exceeds statutory cap Aqua seeks injunction, damages and atty fees

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Enforcement and Moratoriums, Cont’d Aqua Texas, Inc. v. Hays Trinity GCD et al. Penalty of $5.00/thousand gallons exceeds statutory caps: • enabling legislation does not authorize a “penalty fee” • exceeds cap on production fees of $10.00 per-acre-foot annually §36.205(c)(2). • violates §36.102 requiring reasonable penalty not more than $10,000 per day • GCD didn’t assess ”per day” penalty • Penalty not reasonable when others got complete forgiveness No answer filed yet, but GCD issued press release Motion to Dismiss anticipated Aqua did not bring claims against directors in individual capacities Takeaway: may get clarity on interplay of production fee v. penalty

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Contested Case Hearing Referred to SOAH Vanderpool Man., LP v. Bandera County River Auth. & GCD et al., No. 5:23-cv-461 (W.D. Tex.) GCD approved permit for less than requested Applicant requested a contested case hearing at SOAH Applicant then filed lawsuit in federal court while case at SOAH was pending Court dismissed case holding that lawsuit was premature/not ripe because GCD may still clarify or change its mind after SOAH issues proposal for decision Case still pending at SOAH; protestants joined; CCH set for April 29 Takeaway: cannot file suit on permit until GCD decision is final

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Contested Case Hearing Referred to SOAH Cont’d Lost Pines GCD et al. v. Lower Colorado River Auth., No. 03-23-00303-CV (Tex. App.—Austin) 2018: 3rd COA in End Op applied 55-day deadline (Subch F APA) as deadline when motion for rehearing is denied by operation of law • Under Ch 36, denied by operation of law if not granted or denied before the 91st day after request is submitted. §36.412(e). 2022: LCRA appealed decision on the permit application • GCD/protestants argued appeal not filed during mandatory 60-day window after decision became final (LCRA relied on 90 days instead of 55-days for finality) 2023: District court denied pleas; Legislature made changes to §36.4165 2024: Case pending at 3rd COA; briefing complete; oral argument requested Takeaway: should clarify whether §36.4165 is meaningless or if it applies despite reference to Subchapter F

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Waiver of Immunity San Jacinto River Auth. v. City of Conroe et al., No. 22-0649 (Tex. Supreme Court) • GRP Contract between SJRA and Cities of Conroe, Splendora, & Magnolia required mediation before filing a lawsuit • SJRA did not mediate before filing suit to collect past due GRP fees • The Cities demanded mediation after SJRA filed suit and SJRA refused • Local Government Contract Claims Act provides limited waiver of immunity subject to terms and conditions in Ch 271 • Ch 271: pre-suit dispute resolution provisions are enforceable • Cities raised immunity in pleas to jurisdiction • Trial court granted pleas and dismissed with prejudice • Appellate court affirmed • SJRA appealed to Texas Supreme Court • Briefing complete; oral argument on Jan. 9, 2024 Takeaway: if affirmed, pre-suit mediation clauses are enforceable & jurisdictional

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Contract Issues Gatehouse, LLC. v. Lost Pines GCD et al., No. 1:22-cv-00132 (W.D. Tex.) • Permits for 28,500 AFY had special condition requiring binding contract(s) for at least 12,000 AFY within 5 years after permit was issued • Contract was submitted • GCD determined it did not meet special condition • Gatehouse sued and filed MSJ that GCD did not have authority to determine validity of contract • Court denied Gatehouse’s MSJ • Case settled in October 2023 • GCD approved permit for 18,500 AFY Takeaway: special conditions should be justified; think critically about what you really need to demonstrate beneficial use (retail v. wholesale supplier issue)

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Contract Issues Cont’d Quadvest, L.P. v. San Jacinto River Auth., No. 4:19-cv-04508 (S.D. Tex.) • GCD rule required LVGU to reduce groundwater by 30% and develop a groundwater reduction plan (GRP) to demonstrate compliance with rule • LVGUs entered into GRP contracts with SJRA • bought LVGUs compliance through pooling & paying groundwater pumping fees to SJRA (SJRA provides no GW) • GCD rule invalidated by court, but not GRP contracts • GCD is not a party to the GRP contracts • Lawsuits over SJRA GRP rates & contracts • Quadvest: SJRA’s GRP contract violates federal antitrust law • Bench trial January 2024 Takeaway: think critically about how you effectuate a cutback/reduction; method can have far reaching implications even if the regulation is no longer in effect

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Groundwater Litigation Update - Stacey Reese

  • 1. LITIGATION UPDATE TAGD Regular Business Meeting January 30, 2024 Stacey Reese Law, PLLC 910 West Ave., Suite 15 Austin, TX 78701 www.staceyreese.law stacey@staceyreese.law (512) 535-0742
  • 2. 1. Validity of Rules Including Production Limit Rules • BLF Land, LLC v. North Plains GCD • Lower Colorado River Auth. v. Lost Pines GCD 2. Enforcement and Moratoriums • Aqua Texas v. Hays Trinity GCD 3. Contested Case Hearings Referred to SOAH • Vanderpool Man., LP v. Bandera County River Auth. & GCD • Lost Pines GCD v. Lower Colorado River Auth. 4. Waiver of Immunity • San Jacinto River Auth. v. City of Conroe 5. Contract Issues • Gatehouse Water, LLC v. Lost Pines GCD • Quadvest, L.P. v. San Jacinto River Auth. Roadmap
  • 3. Rule Limiting Allocation based on GPU BLF Land, LLC & Blaine Larsen Farms v. North Plains GCD et al., No. 2:23-00133 (N.D. Tex.). • Potato farmers sued GCD (and directors in individual & official capacities) challenging rule requiring contiguous acreage to be subdivided into Groundwater Production Units (GPUs) • Plaintiffs own/control 50,000+ acres • GPU rule limits size & shape • GPU ≤ 1,600 acres • Annual Limit: 1.5 acre-feet per acre of GPU • Lower Colorado River Auth. v. Lost Pines GCD (rules)
  • 4. Rule Limiting Allocation Based on GPU Cont’d BLF Land, LLC & Blaine Larsen Farms v. North Plains GCD et al. • Under annual limit, Plaintiffs allege they should produce 75,000 AFY • Under GPU limits, Plaintiffs produce less than 50,000 AFY • GCD alleges Plaintiffs overpumped in individual GPUs • Plaintiffs allege GPU rule: • is not authorized in Chapter 36 • Is a takings under state and federal law • violates the Equal Protection (large v. small) and Due Process Clauses • Claims against directors in individual capacities dismissed by agreement • GCD countersued: enforcement of overpumpage penalties, injunction & atty fees • Trial in September 2024 Takeaway: may clarify if GCD can impose production limit on GPUs in acreage system
  • 5. Permitting Rules Lower Colorado River Auth. v. Lost Pines GCD, No. 423-9385 (Bastrop County, TX) LCRA challenges 9 permitting rules: • Contiguous acreage limit per aquifer • DFC curtailment • Temporary drought curtailment • Unreasonable effects • Monitoring groundwater quality • Groundwater quality standards • Identity of end user before permit • Contract with GCD for construction and conveyance of monitoring wells • Groundwater cannot be transported for more than 1,500 feet in open channel Permitting Rulemaking
  • 6. Permitting Rules Cont’d Lower Colorado River Auth. v. Lost Pines GCD • Contiguous acreage limit per aquifer • Simsboro limit: Pending appeal on permit • Other aquifers: allocation is < 1 acre-feet per acre • DFC curtailment • Brings prospective planning into regulation without a hearing • No info on how to determine DFC is not being achieved • DFCs can change • Temporary drought curtailment • No authority; amends permit without a hearing
  • 7. Permitting Rules cont’d Lower Colorado River Auth. v. Lost Pines GCD • Unreasonable effects • Definition problematic • Impact to one well could justify denial of permit • protects existing well regardless of location, design or maintenance history • Identity of specific end user before permit • Beneficial use • Gatehouse permit No trial setting; LCRA did not sue directors Takeaway: may get clarity on several emerging legal issues
  • 8. Enforcement and Moratoriums Aqua Texas, Inc. v. Hays Trinity GCD et al., No. 41:23-cv-01576 (W.D. Tex.) Aqua overpumped permits in 2022 GCD assessed penalties exceeding $448,000 Aqua alleges: • GCD completely forgave other penalties and is treating Aqua differently • Moratorium is illegal, a taking, and forces Aqua to pump from wells in Jacob’s Well man. zone • Penalty exceeds statutory cap Aqua seeks injunction, damages and atty fees
  • 9. Enforcement and Moratoriums, Cont’d Aqua Texas, Inc. v. Hays Trinity GCD et al. Penalty of $5.00/thousand gallons exceeds statutory caps: • enabling legislation does not authorize a “penalty fee” • exceeds cap on production fees of $10.00 per-acre-foot annually §36.205(c)(2). • violates §36.102 requiring reasonable penalty not more than $10,000 per day • GCD didn’t assess ”per day” penalty • Penalty not reasonable when others got complete forgiveness No answer filed yet, but GCD issued press release Motion to Dismiss anticipated Aqua did not bring claims against directors in individual capacities Takeaway: may get clarity on interplay of production fee v. penalty
  • 10. Contested Case Hearing Referred to SOAH Vanderpool Man., LP v. Bandera County River Auth. & GCD et al., No. 5:23-cv-461 (W.D. Tex.) GCD approved permit for less than requested Applicant requested a contested case hearing at SOAH Applicant then filed lawsuit in federal court while case at SOAH was pending Court dismissed case holding that lawsuit was premature/not ripe because GCD may still clarify or change its mind after SOAH issues proposal for decision Case still pending at SOAH; protestants joined; CCH set for April 29 Takeaway: cannot file suit on permit until GCD decision is final
  • 11. Contested Case Hearing Referred to SOAH Cont’d Lost Pines GCD et al. v. Lower Colorado River Auth., No. 03-23-00303-CV (Tex. App.—Austin) 2018: 3rd COA in End Op applied 55-day deadline (Subch F APA) as deadline when motion for rehearing is denied by operation of law • Under Ch 36, denied by operation of law if not granted or denied before the 91st day after request is submitted. §36.412(e). 2022: LCRA appealed decision on the permit application • GCD/protestants argued appeal not filed during mandatory 60-day window after decision became final (LCRA relied on 90 days instead of 55-days for finality) 2023: District court denied pleas; Legislature made changes to §36.4165 2024: Case pending at 3rd COA; briefing complete; oral argument requested Takeaway: should clarify whether §36.4165 is meaningless or if it applies despite reference to Subchapter F
  • 12. Waiver of Immunity San Jacinto River Auth. v. City of Conroe et al., No. 22-0649 (Tex. Supreme Court) • GRP Contract between SJRA and Cities of Conroe, Splendora, & Magnolia required mediation before filing a lawsuit • SJRA did not mediate before filing suit to collect past due GRP fees • The Cities demanded mediation after SJRA filed suit and SJRA refused • Local Government Contract Claims Act provides limited waiver of immunity subject to terms and conditions in Ch 271 • Ch 271: pre-suit dispute resolution provisions are enforceable • Cities raised immunity in pleas to jurisdiction • Trial court granted pleas and dismissed with prejudice • Appellate court affirmed • SJRA appealed to Texas Supreme Court • Briefing complete; oral argument on Jan. 9, 2024 Takeaway: if affirmed, pre-suit mediation clauses are enforceable & jurisdictional
  • 13. Contract Issues Gatehouse, LLC. v. Lost Pines GCD et al., No. 1:22-cv-00132 (W.D. Tex.) • Permits for 28,500 AFY had special condition requiring binding contract(s) for at least 12,000 AFY within 5 years after permit was issued • Contract was submitted • GCD determined it did not meet special condition • Gatehouse sued and filed MSJ that GCD did not have authority to determine validity of contract • Court denied Gatehouse’s MSJ • Case settled in October 2023 • GCD approved permit for 18,500 AFY Takeaway: special conditions should be justified; think critically about what you really need to demonstrate beneficial use (retail v. wholesale supplier issue)
  • 14. Contract Issues Cont’d Quadvest, L.P. v. San Jacinto River Auth., No. 4:19-cv-04508 (S.D. Tex.) • GCD rule required LVGU to reduce groundwater by 30% and develop a groundwater reduction plan (GRP) to demonstrate compliance with rule • LVGUs entered into GRP contracts with SJRA • bought LVGUs compliance through pooling & paying groundwater pumping fees to SJRA (SJRA provides no GW) • GCD rule invalidated by court, but not GRP contracts • GCD is not a party to the GRP contracts • Lawsuits over SJRA GRP rates & contracts • Quadvest: SJRA’s GRP contract violates federal antitrust law • Bench trial January 2024 Takeaway: think critically about how you effectuate a cutback/reduction; method can have far reaching implications even if the regulation is no longer in effect