Court Opinion

ID: 13808
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:30:00+00
Date Added: 2024-06-11T12:29:59.974657
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT

                             No. 95-40048

NORTH ALAMO WATER
SUPPLY CORPORATION,

                                              Plaintiff-Appellee;

                                versus

CITY OF SAN JUAN,

                                             Defendant-Appellant.

-------------------------

TEXAS RURAL WATER ASSOCIATION,

                                                      Amicus Curiae

         Appeals from the United States District Court
               For The Southern District of Texas
                             (93-CV-265)

                            April 15, 1996
Before KING, WIENER, and BENAVIDES, Circuit Judges:

PER CURIAM:

     This appeal involves a battle between Plaintiff-Appellee North

Alamo Water Supply Company (Utility) and the Defendant-Appellant

city of San Juan, Texas (City) over which one has the right to

provide water service to five residential subdivisions (disputed

areas) in or near the City.        After the City began providing water

service to      the   disputed   areas,    the   Utility    filed   this    suit,

claiming that it had the exclusive right to provide water service

to the disputed areas.         The district court held in favor of the

Utility and enjoined the City.             The City appealed complaining,

inter alia, that the district court’s injunction is improper,

vague,    and   offends   both   the   Constitution        and   principles    of

federalism.     We affirm in part and remand in part for modification

of the injunction consistent with this opinion.

                                       I

                           FACTS AND PROCEEDINGS

A.   BACKGROUND

     The Utility is a Texas nonprofit rural water supply company.

Approximately 20 years ago, the Texas Water Commission, which has

since been succeeded by the Texas Natural Resources Conservation

Commission (Commission),1 granted Certificate of Convenience and

Necessity    Number    10553     (Certificate)     to   the      Utility.     The

Certificate obligates the Utility to provide water services for a

      1
        The Commission has rule making authority to regulate and
supervise retail public utilities’ rates, fees, operations, and
services.

                                       2
large rural area spanning Hidalgo and Willacy counties in South

Texas (Certificated Area).2             To finance construction, operation,

and improvement of its water system, the Utility obtained loans and

grants from the Farmer’s Home Association (FmHA).               At the end of

1993, the Utility owed the FmHA approximately $12,000,000.

     The City is a home rule municipality located in Hidalgo

County, Texas.        It owns and operates a municipal water supply

system and provides water service in several subdivisions north of

the City, some of which lie within the Utility’s Certificated Area.

As the City developed, the Utility would determine from time to

time that various subdivisions of the City that are within the

Certificated Area would be better served by the City.                    In such

instances, the Utility would either execute a written release to

the City or acquiesce in the City’s furnishing water service to

those       subdivisions.        The     five    other   subdivisions3      which

collectively       constitute     the     disputed   areas   are   within     the

Certificated Area and are currently receiving water service from

the City, but the City had never obtained a release from the

Utility to service these subdivisions. The Utility objected to the

City’s providing service to the disputed areas, explaining that

these       subdivisions   are   within    the   Certificated   Area   and    are

        2
        See Tex. Water Code Ann. 13.250(a) (Vernon 1988 & Supp.
1995)(“[A]ny retail public utility that possesses a . . .
certificate of public convenience and necessity shall serve every
consumer within its certificated area and shall render continuous
and adequate service within the area or areas.”)(emphasis added).
    3
      The names of these subdivisions are Loma Linda 1, Loma Linda
2, Los Arboles, B&H Mobile Home Park, and Chaparreles.

                                          3
adjacent to the Utility’s water service lines.               Despite these

objections, the City refused to allow the Utility to provide water

service to the disputed areas.

B.   THE LITIGATION

     In December 1993, the Utility brought this action under 7

U.S.C. § 1926(b) to enjoin the City from providing water service

within the Certificated Area.             In July 1994, the City filed

applications (Applications) under §§ 13.2544 and 13.255,5 seeking

to decertify portions of the Certificated Area and to recertify

them in the City’s name.     On August 18, 1994, before the Commission

reached a decision on the Applications, the district court entered

an Agreed Preliminary Injunction, enjoining the City from servicing

any additional customers within the Certificated Area and ordering

the City to contact the Commission and request that it take no

further action on the Applications until the expiration of the

Agreed Preliminary Injunction.6

     1.    Original Judgment

     On   December    15,   1994,   the   district   court   entered   final

judgment (Original Judgment) in favor of the Utility and against

     4
      Tex. Water Code Ann. § 13.254 (“The commissioner at any time
after notice and hearing may revoke or amend any certification of
public convenience and necessity . . . if it finds that the
certificate holder has never provided, is no longer providing, or
has failed to provide continuous and adequate service in the area,
or part of the area, covered by the certificate.”).
     5
      Id. § 13.255 (addressing single certification in an annexed
or incorporated area).
     6
      This preliminary injunction has not been challenged in this
appeal.

                                      4
the City.     After noting that under Texas law the Utility had a

legal duty to provide continuous and adequate service to residents

in the Certificated Area, the district court held that the Utility

had, as a matter of law, “made service available” as required by §

1926(b).     In the alternative, the district court held that because

the Utility had water service lines adjacent to the disputed areas,

it had, as a factual matter, “made service available” as required

by § 1926(b).       The district court concluded that the City had

encroached on the service area of a federally indebted water

association and thus violated § 1926(b).

       The district court found that the Utility’s annual net revenue

attributable to the disputed areas was approximately $365,000.

Accordingly, it permanently enjoined the City from (1) pursuing the

Applications; (2) offering to provide or providing service to the

disputed areas; and (3) offering to provide or providing water

service to areas that lie within the Certified Area but are not

currently served by the City, except as agreed to by the Utility.

Finally, the court also instructed that the transition of service

from   the   City   to   the   Utility       within   the   disputed   areas   be

accomplished so as to minimize interruption in water service.

       2.    Amended Judgment

       On December 27, 1994, the City filed a motion for a new trial

and a motion to alter or amend the judgment (City’s Motions).                  On

December 28, 1994, the Utility filed what it “captioned” as a

motion for leave to amend its complaint (Utility’s Motion).                    On

January 27, 1995, the court overruled the City’s Motions, but took

                                         5
the Utility’s Motion under advisement.             In May 1995, the district

court issued an order which construed the Utility’s Motion as a

Rule 59(e) motion to amend or alter the judgment and granted it

(Amended Judgment).

     The Amended Judgement granted the same relief as the Original

Judgment.    In addition, it clarified that the City must relinquish

to the Utility control of the water distribution infrastructures in

the disputed areas.        On May 5, 1995, the City filed its amended

notice of appeal, challenging, inter alia, the district court’s

findings    of   fact,   its   legal     conclusions,    and   the   remedy   it

fashioned.

C.   THE COMMISSION AGREES WITH   THE   DISTRICT COURT

     On May 30, 1995, the Commission issued a Cease and Desist

Order (Commission’s Order) at the request of the Utility.                     The

Texas Commission ruled that, as the disputed areas are within the

Certificated Area, the Utility had the exclusive right to provide

water in the disputed areas.            As a result, the Commission’s Order

directed (1) the Utility to provide “continuous and adequate”

service to the disputed areas; (2) the City to continue providing

water service to the disputed areas until the Utility initiates

service; and (3) the City to cease providing water service to the

disputed areas upon initiation of service by the Utility.                     The

Commission declined to order the City to relinquish control of the

water distribution infrastructures to the Utility, explaining that

it did not have the power to do so.             As a final instruction, the

Commission ordered the City and the Utility to “mend their fences,”

                                          6
by filing applications to reflect the official boundaries of their

respective certificated areas.

                                           II

                                    DISCUSSION

A.   THE VIOLATION ISSUES:

     1.         Standard of Review

     We review a judgment on the merits of a nonjury civil case

applying        the    usual   standards    of   review.7   Thus,   we   review

conclusions of law de novo and findings of fact for clear error.8

If the district court's account of the evidence is plausible in

light of the record viewed in its entirety, we may not reverse even

if we are convinced that, had we been sitting as the trier of fact,

we would have weighed the evidence differently.9

     2.         The Statute:     7 U.S.C. § 1926(b)

     The initial issue in this appeal centers around Section

1926(b).10       That section provides in pertinent part:

     The service provided or made available through any such
     [indebted water] association shall not be curtailed or
     limited by the inclusion of the area 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 said

         7
       See Crisis Transp. Co. v. M/V Erlangen Express, 794 F.2d
185, 187 n.5 (5th Cir. 1986).
     8
             See id.
     9
       See First United Fin. Corp. v. Specialty Oil Co., Inc., 5
F.3d 944, 947 (5th Cir. 1993) (citing Anderson v. City of Bessemer
City, N.C., 470 U.S. 564, 574 (1985)).
     10
             7 U.S.C. § 1926(b).

                                           7
     loan . . . .11

The service area of a federally indebted water association is

sacrosanct.       Every federal court to have interpreted § 1926(b) has

concluded that the statute should be liberally interpreted to

protect FmHA-indebted          rural   water    associations   from     municipal

encroachment.12

     In City of Madison, Miss. v. Bear Creek Water Ass’n Inc.,13 we

held that § 1926(b) “indicates a congressional mandate that local

governments not encroach upon the services provided by such [water]

associations,      be   that   encroachment      in   the   form   of   competing

franchises, new or additional permit requirements, or similar

means.”      We    explained    that   the     history   behind    this   section

indicates two congressional purposes: (1) to encourage rural water

development by expanding the number of potential users of such

systems, thereby decreasing the per-user cost, and (2) to safeguard

the viability and financial security of such associations (and

FmHA's loans) by protecting them from the expansion of nearby

     11
          Id. (emphasis added).
    12
       Wayne v. Of Sebring, 36 F.3d 517, 527-28 (6th Cir. 1994),
cert. denied, 115 S. Ct. 2000 (1995); Jennings Water, Inc. v.
City of North Vernon, Ind., 895 F.2d 311, 315 (7th Cir. 1989);
Glenpool Util. Auth. v. Creek County Rural Water Dist. No. 2, 861
F.2d 1211, 1214 (10th Cir. 1988), cert. denied, 490 U.S. 1067
(1989); City of Madison, Miss. v. Bear Creek Water Ass'n., Inc.,
816 F.2d 1057, 1059 (5th Cir. 1987); North Shelby Water Co. v.
Shelbyville Mun. Water & Sewer Comm’n, 803 F. Supp. 15, 21 (E.D.
Ky. 1992); Pinehurst Enter., Inc. v. Town of Southern Pines, 690
F. Supp. 444, 451 (M.D.N.C.1988), aff'd, 887 F.2d 1080 (4th Cir.
1989); Moore Bayou Water Ass'n., Inc. v. Town of Jonestown, Miss.,
628 F. Supp. 1367, 1369 (M.D.Miss. 1986);    Rural Dist. No. 3 v.
Owasso Util. Auth., 530 F. Supp. 818, 824 (M.D.Okla. 1979).
     13
816 F.2d at 1060-61.

                                         8
cities and towns.      With this background, we turn to the violation

issue.14

     3.       Did the City Violate § 1926(b)?

     To secure the protections of § 1926(b) the Utility must

establish that (1) it has a continuing indebtedness to the FmHA,

and (2) the City has encroached on an area to which the Utility

“made service available.”15 As of the end of 1993, the Utility owed

the FmHA approximately $12,000,000. The City does not contest that

the first, “indebtedness” element is satisfied.                  Instead, it

contends that the Utility failed to establish the second, “made

service available” element.         We disagree.

     Under     Texas   law,   the   Certificate    gives   the   Utility   the

exclusive right to serve the area within its CCN and obligates it

“to serve every consumer within its certified area and . . . render

continuous and adequate service within the area or areas.”16                We

hold that the Utility’s state law duty to provide service is the

legal equivalent to the Utility’s “making service available” under

§1926(b).17 When confronted with a similar issue, other courts have

    14
      Id. at 1060 (citing S.Rep. No. 566, 87th Cong., 1st Sess.,
reprinted in 1961 U.S. Code Cong. & Admin. News 2243, 2309).
     15
       See 7 U.S.C. § 1926(b); see also City of Madison 816 F.2d
at 1059; Glenpool, 861 F.2d at 1214.
      16
       See Tex. Water Code Ann. § 13.001(b)(1),(2) & § 13.250(a)
(West 1988 & Supp.    1995); see also Commission’s Order (“[The
Utility] holds the CCN for the five [disputed] subdivisions . . .
and has the legal right to solely serve those subdivisions.”).
         17
        See Tex. Water Code Ann. 13.250(a) (Vernon 1988 & Supp.
1995)(“[A]ny retail public utility that possesses a . . .
certificate of public convenience and necessity shall serve every
consumer within its certificated area and shall render continuous

                                       9
reached the same result, holding that when state law obligates a

utility to        provide   water     service,    that   utility    has,   for   the

purposes of § 1926(b), “made service available.”18

     In the alternative, the district court found as a factual

matter         that   the   Utility     had      “made   service     available.”19

Specifically, the district court made three findings of fact

relevant to this conclusion: (1) The Utility currently provides

water service to subdivisions adjacent to the disputed areas; (2)

the Utility has lines and adequate facilities to provide service to

the disputed areas; (3) the Utility has not refused service to

anyone who has requested service within the Certificated Area.

These findings of fact are not clearly erroneous.                  Accordingly, on

the strength of these alternative legal and factual determinations,

we affirm the district court’s conclusion that the Utility had

“made services available” to the disputed areas.               As a result, we

also agree with the holding of the district court that the City

violated § 1926(b).

     4.         Does § 1926(b) Violate the Tenth Amendment?

     Before turning to the issues of remedy, we pause to address

the City’s constitutional challenge to § 1926(b).                   For the first

time on appeal, the City insists that § 1926(b) represents an

and adequate service within the area or areas.”)(emphasis added).
          18
          Glenpool, 861 F.2d at 1214 (“made service available”
requirement satisfied if state law requires utility to provide
service within a certified area).
     19
       North Shelby,803 F.Supp. at 21 (“made service available”
requirement satisfied when utility has water lines running
throughout disputed areas).

                                         10
illegitimate exercise of the Congress’ power under the Spending

Clause.20 We will not consider an issue that a party fails to raise

in   the        district   court,   absent    extraordinary   circumstances.21

Extraordinary circumstances exist when the issue involved is a pure

question of law and a miscarriage of justice would result from our

failure to consider it.22           Such extraordinary circumstances do not

exist here.          As this court has previously addressed a similar

constitutional challenge (and resolved it contrary to the City’s

position),23 we follow our general forfeiture rule and decline to

consider the issue.

B.    THE INJUNCTION ISSUES:

      1.         Standard Of Review

      The panel reviews the district court’s grant or denial of a

permanent injunction for abuse of discretion.24           The district court

abuses its discretion if it (1) relies on clearly erroneous factual

           20
          Footnote 8 of the district court’s opinion explicitly
states, “[n]o Tenth Amendment argument has been made in the present
case.”
      21
        Singleton v. Wulff, 428 U.S. 106, 120 (1976); Thomas v.
Capital Sec. Services, 836 f.2d 866, 884 n.25 (5th Cir. 1988)(en
banc).
      22
           Verden v. C&B Boat Co., Inc., 860 F.2d 150, 155 (5th Cir.
1988).
           23
          City of Madison, 816 F.2d at 1060 (“[W]e perceive no
significant limitation on the city’s powers by virtue of a statute
enacted to protect FmHA’s subsidy of rural water authorities.”);
see also Helvering v. Davis, 301 U.S. 619 (1936)(“When money is
spent to promote the general welfare, the concept of welfare or the
opposite is shaped by Congress, not the states. So the concept be
not arbitrary, the locality must yield”).
      24
       Peaches Entertainment Corp. v. Entertainment Repertoire
Assoc., 62 F.3d 690, 693 (5th Cir. 1995).

                                         11
findings when deciding to grant or deny the permanent injunction

(2) relies on erroneous conclusions of law when deciding to grant

or deny the permanent injunction, or (3) misapplies the factual or

legal conclusions when fashioning its injunctive relief.25

     2.     Was Injunctive Relief Appropriate?

     The City urges that the district court’s conclusions that the

Utility would have suffered irreparable harm and had no adequate

legal remedy    were “clearly erroneous.”   The City asserts that the

record contains no factual basis for such a conclusions.          We

disagree. The record reflects the following facts: (1) the Utility

is indebted to the FmHA; (2) in the disputed areas the City has

encroached on the Utility’s service area; and, (3) as a result, the

Utility would lose revenue exceeding $365,000 a year if the City’s

encroachment went unabated.    The district court held (and we have

now affirmed) that, as a legal and factual matter, the Utility had

“made service available” to the disputed areas.      In other words,

unless the City is prevented from violating § 1926(b), the Utility

will lose $365,000 in annual revenue.

     Section 1926(b) does not create or specify a remedy for the

enforcement of violations, but an injunction has been the principle

tool employed by the courts with which to enforce the statute and

prevent violations.26 Given these circumstances, we hold that the

     25
          Id.
     26
        See, e.g., City of Madison, 816 F.2d at 1059 (enjoining a
city from annexing subdivisions within a utility’s certificated
area after finding violation of § 1926(b)); see also Jennings
Water, 895 F.2d at 315 (a violation of §1926(b) provided sufficient
basis for the issuance of an injunction).

                                 12
record contains ample evidence to support the injunction.27

     3.     Is The Injunction Sufficiently Specific?

     Next, the City complains that the district court’s judgment

fails to satisfy the requirements of Rule 65(d).28          In the form of

a laundry list of specious quibbles and rhetorical questions, the

City urges that the injunction is vague, unclear, and imprecise.

We find that none of these flaws to be present.        The injunction is

sufficiently and reasonably detailed and specific to permit the

transfer    of   water   service   from   the   City   to   the   Utility.

Transferring water service from the City to the Utility will be a

     27
        The district court’s injunction has forbidden the City to
provide or offer to provide water service within the entire
Certificated Area.     This injunction, albeit broad, does not
constitute an abuse of discretion. The Utility, by virtue of its
indebtedness to the FmHA and state law duty to provide “continuous
and adequate” service to the Certificated Area, Tex. Water Code
Ann. 13.250(a), has satisfied the requirements of § 1926(b) with
respect to the entire Certificated Area. Thus, § 1926(b) protects
the entire Certificated Area from encroachment by the City.
     Nevertheless, it would have been more prudent to limit the
injunction to the disputed areas, the particular portion of the
Utility’s service area at the heart of this litigation. As the
Commission was not a party to this litigation, we assume the
district court intended this injunction to apply only to these
parties and not to limit the Commissions’ power to regulate or
redraw the Certificated Area. Such an injunction, purporting to
control the actions of the Commission, a state regulatory body,
would create a considerably more difficult federalism question:
Namely, does § 1926(b) also preclude a state regulatory agency from
modifying the service area of a federally indebted utility. But,
we leave that issue for another day.
     28
          Rule 65(d) provides in pertinent part as follows:

     Every order granting an injunction and every restraining order
     shall set forth the reasons for its issuance; shall be
     specific in terms; shall describe in reasonable detail, and
     not by reference to the complaint or other document, the act
     or acts sought to be restrained . . .

                                    13
relatively complicated logistical task, requiring a coordinated

effort by both parties.        The burdens of any disruption in service

will fall more heavily on the residents than on the parties.                    With

an eye on these potential pitfalls, the district court instructed

the City to continue uninterrupted water service until the Utility

is prepared to commence service, then to cease providing water

service immediately upon commencement of service by the Utility.

Although this order does not choreograph every step, leap, turn,

and bow of the transition ballet, it specifies the end results

expected and allows the parties the flexibility to accomplish those

results.     Like the district court, we trust that, despite their

differences regarding the right to service the disputed areas, the

parties will work together to achieve a smooth transition with no

interruption in water service and a minimum of inconvenience to the

residents of the disputed areas.

      4.    Was the Judgment Properly Amended?

      The City argues that the district court lacked jurisdiction to

amend the Original Judgment and order the City to give the Utility

control of the water distribution infrastructures in the disputed

areas.     First, the City argues that the district court’s decision

to   construe   the   Motion    as   a   Rule    59(e)     motion   was   “clearly

erroneous.”      Although      the   City     cites   no   authority      for   this

conclusional proposition, it seems to be arguing that, as a matter

of law, a district court cannot construe a motion to amend the

complaint as a Rule 59(e) motion.              We have found no support for

this proposition.

                                         14
     As a general matter, the caption on a pleading does not

constrain the court’s treatment of a pleading.           For example, Rule

8(f) instructs district courts to construe all pleadings so as to

do substantial justice, while Rule 8(c) counsels that when a party

mistakenly designates a defense as a counter-claim or vice-versa

the court shall, if justice so requires, treat the pleading as

though it had the proper designation.29         Thus, the district court

could construe the motion as a Rule 59(e) motion so long as the

requirements of Rule 59(e) are met.

     Rule 59(e) requires that a motion call into question the

correctness of the judgment and be served within ten days after the

entry of the judgment.30        The City does not contest the first

element, but attempts to obfuscate the second by arguing that the

Utility failed to serve its motion within the ten day limitation

period.31    According to the district court’s docket sheet, the

Original    Judgment   was   entered     on   December   15,   1994.   The

limitations period under Rule 59(e) is less than 11 days, so under

Rule 6(a) the date on which the judgment was entered, weekends, and

federal holidays are not counted “in computing the period of time

prescribed or allowed by these rules.”32          Under this computation

method, the Utility had from December 15, 1994 until December 30,

     29
          See Fed.R.Civ.P. 8.
     30
          See Fed.R.Civ.P. 59(e).
     31
       See id. (“A motion to alter or amend the judgment shall be
served not later than 10 days after entry of the judgment.“).
     32
          See Fed.R.Civ.P. 6(a).

                                    15
1994 to serve a Rule 59(e) motion.33                    As the City avers that it

received a copy of the motion on December 29, 1994, the motion was

timely under Rule 59(e).               Accordingly, we hold that there was no

legal impediment to construing the Utility’s Motion as a Rule 59(e)

motion and that the motion was timely under Rule 59(e).

       5.         The Water Distribution Infrastructures

       The City argues that the district court abused its discretion

when        it    ordered    the     City   to    relinquish     the   water   service

infrastructures to the Utility because the relief was unrequested

and if granted would prejudiced the City.                       Citing International

Harvester Credit Corp. v. East Coast Truck,34 the City insists that

when the failure to demand the relief granted prejudices the

opposing party, the district court abuses its discretion.

       We         conclude    that     in    ordering     the     transfer     of   the

infrastructures to the Utility, the district court did not abuse

its discretion.              Rule 54(c) vests district courts with broad

discretion to fashion a remedy, even if the remedy awarded is not

specifically requested in the prayer for relief.35                       Although we

recognize that Harvester places some limits on the district court’s

discretion, those limits are modest indeed and clearly were not

       33
       Four weekend days and the Christmas holiday account for the
extra five days.
       34
                 547 F.2d 888, 891 (5th Cir. 1977).
       35
       Fed.R.Civ.P. 54(c) (“[E]very final judgment shall grant the
relief to which the party in whose favor it is rendered is
entitled, even if the party has not demanded such relief in the
party’s pleadings.”); see also International Harvester, 547 F.2d at
891.

                                             16
exceeded here.        The law gives the Utility the exclusive right to

provide water service to and within the disputed areas.                We are

under the impression that the developers of the subdivisions

installed the infrastructures and ceded them to the City without

charge.    The infrastructures are indispensable to providing water

service    to   the    residents   of   the    subdivisions    now   that    the

development is complete.           Thus, unless the infrastructures are

transferred, the Utility would not be able to provide efficient and

economical water service, and the rights of the Utility that are

validated here would be useless.

      We are, however, concerned that the City may not receive just

and    adequate   compensation       for     those   items    comprising     the

infrastructures, if any, that the City may have furnished. We have

been unable to determine precisely how the City obtained the

infrastructures or any portions thereof other than a suggestion

that they received them gratuitously from the developers.36                 Thus,

      36
       We do not know from the record or the briefs of the parties
by what means or for what prices, the City came into possession of
the infrastructures in the disputed areas.      In Public Utility
Comm’n of Tx. v. Southwest Water Serv., Inc., 636 S.W.2d 262, 263
n.1 (Tex.Ct.App.--Austin 1982, writ ref’d n.r.e.), the practices of
the Texas water and sewer utility industry were described as
follows:

      Water and sewer utilities serving suburban or rural areas
      acquire their facilities, particularly the water and
      sewer pipe mains and their connections to individual
      houses or businesses, from the developer of a
      subdivision.    The developer will normally incur the
      original cost of installing the pipe and setting up the
      system. More often than not, the developer will recoup
      the cost of installation of the system when he sells
      houses in the subdivision.      For federal income tax
      purposes, the developer is also allowed to deduct the
      cost of the system from the income he receives from the

                                        17
we remand only this sub-issue to the district court for it to

determine (1) whether the City paid for the infrastructures or any

portions thereof, and (2) if so, the amount of just and adequate

compensation that should be paid to the City for its reasonable

costs and expenses in that regard.

     6.    Are The Applications Preempted by § 1926(b)?

     The   district   court   enjoined   the   City    from   pursuing    the

Applications with the Commission. The City argues that this aspect

of the district court’s injunction impermissibly interferes with

the legitimate exercise of the State of Texas’ regulatory powers.

Amicus Texas Rural Water Association urges that the district

court’s injunction would be impermissible only if it functioned as

a limitation or prohibition of the power of the State of Texas to

enforce the minimum requirements for the protection of public

     sale of the lots or houses. The developer will then sell
     or donate the in-place water and sewer system to a newly
     created utility company. Often, this utility company will
     be one of several affiliate companies owned by the
     developer or the development company. Later, when the
     utility company is operating and seeks to increase the
     rates it charges its customers, the company will seek to
     include this property in its rate base as invested
     capital. Of course, inclusion of this property in the
     rate base will expand the rate base and increase the
     amount of return on the invested capital the utility is
     entitled to receive in the form of increased rates.
     Customers of the utility often complain that they are
     charged twice for the same property-once when they buy
     the house or lot (and the developer has computed the cost
     of the system into the purchase price) and second when
     the utility is allowed an increased return on invested
     capital because the property is included in the rate
     base.

Be that as it may, we do not know              which    if    any   of   these
generalizations apply in this case.

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health and safety.    We hold that these issues were rendered moot by

the Commission’s Order.

     As discussed above, § 1926(b) grants broad protection to

federally indebted utilities.    In this case, we need not probe the

outer limits of that grant.      Instead, we decide only the issues

presented in this appeal: (1) whether the City, by providing water

service to the disputed areas, has violated § 1926(b); and (2) if

so, what is the appropriate remedy in response to that particular

violation.     The district court held, as both a factual and legal

matter, that the Utility has the exclusive right to provide water

service to the disputed areas.         The Commission, in a ruling

congruent with that of the district court, declared that the

Utility had the exclusive right to provide water service to the

disputed areas.    With that order, the Applications--which sought a

ruling from the Commission that the Utility did not have the

exclusive right to provide water service to the disputed areas--

became moot.    Accordingly, we need not address that issue here.

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                                 III

                            CONCLUSION

     We affirm the district court’s judgment that the City violated

§ 1926(b).   We also affirm that court’s injunction except as to

that part which omits a determination of possible repayment of

costs and expenses, if any, incurred by the City in acquiring or

improving the infrastructures.    In that limited respect only, we

remand for the district court to consider and, if necessary, to

modify its injunction consistent with this opinion.

AFFIRMED, in part, and REMANDED, in part.

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