Appeals Court Says Parties Should Mediate Contract Dispute

By: San Jacinto River Authority SJRA
| Published 04/27/2022


CONROE, TX -- You may have seen an opinion was issued by the 9th Court of Appeals in Beaumont in the ongoing suit between the San Jacinto River Authority, the City of Conroe, and the City of Magnolia. There has been a lot of misinformation on social media about the meaning of this ruling. According to the ruling, the parties failed to mediate regarding Conroe and Magnolia’s unpaid amounts that are owed under the parties’ Groundwater Protection Plan (GRP) contract.

The ruling of the appeals court was procedural in nature and did not address the merits of the case. The court did state that “SJRA’s enabling statute empowers it to set rates sufficient to repay its bonds.” SJRA is considering its options, including a motion for rehearing in the court of appeals and a petition for review in the Texas Supreme Court.

Statement from SJRA General Manager Jace Houston:

The SJRA entered into contracts with 80 utilities across Montgomery County to develop a new water supply to meet Montgomery County’s current and future needs. In recent years, a handful of those utilities have breached their contracts by refusing to pay the approved water rate. SJRA is required by law to enforce the contracts and collect the amounts due, so there are currently three ongoing lawsuits related to these collection efforts. The Beaumont Court’s decision affects one of those lawsuits and is by no means the end of that litigation.

SJRA’s contracts have been declared valid and incontestable by the Texas Supreme Court, and that decision has been affirmed by a state district court in Austin. The opinion issued recently by the Beaumont Court states that SJRA should have mediated before filing a suit to collect the payments due under the contract. The Beaumont Court did not rule on the merits of the case or the validity of the contract. It simply decided that the parties should have mediated before a suit was filed.

We disagree with the court’s reasoning, and we’re obviously disappointed with the ruling because it just prolongs the process of collecting the unpaid amounts that are owed under the contract. We’ve been in discussions with Conroe for many years, and we will obviously continue those discussions while we appeal the court’s decision.

SJRA has a valid and incontestable contract with 80 utilities that has been confirmed by the Texas Supreme Court. We’ve reached out to Conroe and the other breaching customers for years to try and resolve this dispute. We will continue to do so. In the meantime, we are required by law to continue pursuing legal enforcement of the contracts, and if at some point in the future we are unable to collect the amounts due, then the State of Texas can step in and sue all the utilities directly to recover the debt. There is simply no path forward where the breaching utilities can avoid paying the amounts owed under the contract. Everyone involved should follow the Beaumont Court’s advice and work together to resolve the contract dispute without further litigation. Continued litigation only adds costs for customers.