In a devastating ruling for Quadvest, L.P., and Woodland Oaks Utility, L.P., John Delaney, visiting judge in the 284th District Court in Montgomery County, rejected their pre-trial arguments and granted a summary judgment that validated the San Jacinto River Authority’s Groundwater Reduction Plan (GRP) contract. Both Quadvest and Woodland Oaks have been subsidence deniers in the past.
The only question now is whether the SJRA’s water rates are fair. However, Jace Houston, SJRA general manager, points out that SJRA makes no profit from selling water and that the defendants have cost the river authority more than $12.7 million by withholding contractual payments due under the GRP contract.
Other signers of the contract who did not contest it have had to pick up the slack for Quadvest and Woodland Oaks, placing an unfair burden on them. Both companies are private companies that pump groundwater in Montgomery County.
Content of Rulings
In a terse, one paragraph order, the judge ruled that the arguments, pleadings, papers and evidence of Quadvest and Woodland Oaks should be denied under applicable law. Delaney signed the order on December 16th, 2022.
In a separate order on the same day, Judge Delaney ruled on the defendant’s defenses. Quadvest and Woodland Oaks claimed:
- Lack of consideration
- Failure of consideration
- Mutual Mistake
In the second order, the Judge simply stated that those defenses were DENIED.
The order concluded, “The Court has determined as a matter of law that “SJRA’s GRP Contracts are incontestable, valid, and enforceable according to their terms.”
Why Contract is Incontestable
State law makes it clear that when a contract is signed that relates to a bond offering and which has been approved by the State Attorney General, the contract is incontestable. In this case, the SJRA issued $550 million of bonds and the Texas Attorney General approved the contract.
SJRA used the bonds to build its surface water treatment plant on Lake Conroe and a distribution system. The distribution system also required acquiring rights of way.
“Consideration” received by the 80 entities signing the contract included:
- The ability to pump more groundwater than they otherwise could have under Lone Star Groundwater Conservation District (LSGCD) rules in effect at the time.
- Reduced costs because they didn’t have to re-dig wells as often when aquifers depleted.
Quadvest and Woodland Oaks claimed they received no consideration because LSGCD had since changed its rules after the current Board became elected in 2018 – thanks in large part to major contributions by Quadvest.
The goal of reducing groundwater usage was an attempt by suppliers in the region to reduce subsidence.
Since 2020, Quadvest and Woodlands Oaks have refused to pay the rate due under the contract, but have continued to charge their customers as if they are abiding by the contracted amount.
Jace Houston, SJRA general manager, points out that the defendants had 30 other groundwater reduction plans they could have joined back in 2010 (when the contract went into effect) if they felt they weren’t getting fair consideration.
Subsidence reduced, then leveled off for several years after the contract. However, it is now accelerating again thanks to virtually unlimited groundwater pumping by Quadvest and others.
Second Lawsuit Still Winding its Way Through Courts
Although the ruling applied only to Quadvest and Woodland Oaks, it also has implications for two other entities, the Cities of Magnolia and Conroe.
Both signed the SJRA GRP contract. And both withhold payments. Magnolia is currently $800,000 in arrears and Conroe owes $15.8 million. With Quadvest and Woodland Oaks, that brings the total owed to the SJRA up to $29.3 million.
However, Magnolia and Conroe are not making the same claims as the two private entities. They claim “governmental immunity.”
Interestingly, the attorney general is worried about such claims BETWEEN governmental entities. If for some reason a judge allows the claim, a high percentage of regional water supply contracts in the State of Texas could become unenforceable, according to Mr. Houston. As a result, the Texas Water Development Board has stopped making loans and grants to entities in breach of such contracts. Interestingly, of the 80 parties signing the SJRA GRP contract, virtually half are governmental entities of some sort.
“Quadvest and others have tried for years to cloud the issues and confuse the public about the GRP Contracts, and today all of that has been put to rest,” said Mr. Houston. “Decisions up to this point have been on pre-trial matters such as jurisdiction and venue. We are pleased to have a ruling on the merits that declares the GRP contracts valid and incontestable in any court.”
“Any further proceedings in Montgomery County should only be to verify that the rates are reasonable,” said Houston. “We look forward to presenting to the court how SJRA takes great care to prepare a very conservative and reasonable budget, and charge rates that are ultimately voted on by our customers.”
Judge Delaney’s rulings, though not directly on the subject of subsidence, have the potential to impact it. Without a financial incentive by companies like Quadvest to deny subsidence, perhaps the LSGCD board will quit trying to deny it, too.
Posted by Bob Rehak on 12/21/2022
1940 Days since Hurricane Harvey
The thoughts expressed in this post represent opinions on matters of public concern and safety. They are protected by the First Amendment of the US Constitution and the Anti-SLAPP Statute of the Great State of Texas.