Aqua Water Supply Corporation v. City of Elgin, 1:11-cv-00885

Background

Aqua Water Supply Corp. (Aqua) holds a Texas Certificate of Convenience and Necessity (CCN). Austin Community College (ACC) petitioned the Texas Commission on Environmental Quality (TCEQ) to remove ACC property from Aqua’s CCN; TCEQ granted the petition.
Aqua sued in federal court alleging Texas Water Code § 13.254 is preempted by federal law (7 U.S.C. § 1926(b)) and asserted claims under the Supremacy Clause, the Declaratory Judgment Act, and 42 U.S.C. § 1983; Aqua also sought attorney’s fees under 42 U.S.C. § 1988.
Aqua settled with ACC; the state court later entered an agreed order vacating the TCEQ decertification. The federal preemption claim was found moot and final judgment entered after Aqua’s remaining settlement with Elgin was approved.
TCEQ moved for $250,000 in attorney’s fees for defending both the federal suit and the related state administrative appeal, filed after entry of final judgment but without the detailed fee documentation required by the district’s local rule.
The magistrate judge recommended denial of TCEQ’s fee motion, concluding (1) TCEQ failed to comply with local fee motion requirements; (2) Aqua’s § 1983 and preemption litigation was not frivolous, unreasonable, or groundless; and (3) TCEQ cannot recover fees for the state administrative appeal (and the state order expressly allocated each party to bear its own fees).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Timeliness and sufficiency of fee filing	Aqua: TCEQ must follow local Rule CV-7(j) with detailed time records and meet-and-confer; failure warrants denial.	TCEQ: Rule 54(d)(2) allows filing within 14 days without full evidentiary support; can submit proof later.	Denied — TCEQ failed to comply with local rule (no meet-and-confer, no supported time/affidavit), so fees should be denied.
Whether Aqua’s § 1983 claim was frivolous (entitling TCEQ to § 1988 fees)	Aqua: Complaint adequately pleaded a § 1983 claim (deprivation of federal right under color of state law); claim not dismissed for failure to state a claim.	TCEQ: Claim was legally baseless because § 1926(b) (Spending Clause) does not automatically preempt state law, so suit was groundless.	Held — Not frivolous. Pleadings met basic standards; Spending Clause/preemption argument was novel and not plainly dispositive, so post-hoc fee award inappropriate.
Whether Aqua’s continuation after settling with ACC made litigation frivolous	Aqua: Settlement with ACC alone did not moot federal suit until TCEQ’s order was vacated; Aqua reasonably pursued resolution until vacatur.	TCEQ: Settlement left no case or controversy; Aqua should have ceased litigation and fees after settlement.	Held — Not frivolous. The case became moot only after TCEQ’s decertification order was vacated; continued litigation before vacatur was reasonable.
Entitlement to fees for related state administrative appeal	Aqua: State order settling appeal allocated fees to each party; state court resolved fees. Fees in state proceeding are not recoverable here.	TCEQ: Fees in state administrative appeal were incurred because of the litigation and should be recoverable under § 1988 as related costs.	Held — Denied. State order provided each party bears its own fees; even absent that, state appeal was not sufficiently an outgrowth of the federal § 1983 claim to permit recovery.

Key Cases Cited

Christiansburg Garment Co. v. E.E.O.C., 434 U.S. 412 (1978) (standard for awarding defendant attorney’s fees under § 1988: only for frivolous, unreasonable, or groundless claims)
Myers v. City of W. Monroe, 211 F.3d 289 (5th Cir. 2000) (factors for assessing frivolousness in § 1988 context)
Gomez v. Toledo, 446 U.S. 635 (1980) (pleading requirements to state a claim under § 1983)
Hughes v. Rowe, 449 U.S. 5 (1980) (merely losing is not enough to show a claim was groundless)
Exeter-West Greenwich Reg’l Sch. Dist. v. Pontarelli, 788 F.2d 47 (1st Cir. 1986) (fee award in federal case for costs tied to related state proceedings where state proceedings were a direct outgrowth)
Bartholomew v. Watson, 665 F.2d 910 (9th Cir. 1982) (awarding fees for related state litigation when state action was pursued solely because of federal § 1983 filing)
Barnes v. Gorman, 536 U.S. 181 (2002) (characterizing Spending Clause legislation as contractual in nature)