Quadvest, L.P. and Woodland Oaks Utility, L.P. v. San Jacinto River Authority

In The

Court of Appeals

Ninth District of Texas at Beaumont

__________________

NO. 09-23-00167-CV
__________________

QUADVEST, L.P. AND WOODLAND OAKS UTILITY, L.P.,
Appellants

V.

SAN JACINTO RIVER AUTHORITY, Appellee

__________________________________________________________________

On Appeal from the 284th District Court
Montgomery County, Texas
Trial Cause No. 20-08-10189-CV
__________________________________________________________________

MEMORANDUM OPINION

In a permissive interlocutory appeal, Quadvest, L.P. and Woodland

Oaks Utility, L.P. (collectively, the Utilities) seek to reverse the trial

court’s ruling granting the San Jacinto River Authority’s Motion for

Partial Traditional Summary Judgment. In its ruling, the trial court

determined that the Utilities did not have the right to assert certain

affirmative defenses to the SJRA’s breach of contract claim for payment
1
under the decades-long contracts the parties executed in 2010, which the

SJRA used to secure the repayment of its debt in return for the sale of

seven series of outstanding bonds. In granting the SJRA’s motion, the

trial court concluded that, under the statutes that applied to the SJRA’s

bonds, the legislature made the validity of a local governmental entity’s

contracts pledged to secure a debt obligation and approved through the

process required by these statutes “incontestable in a court or other

forum.” 1

The Utilities appeal from that ruling and, in their brief, they raise

two appellate issues for our review. First, the Utilities argue that when

it passed the statutes applicable to the SJRA’s contracts and bonds, the

legislature did not intend to strip entities that execute contracts with

local governmental entities of their right to raise defenses that challenge

the validity or the enforceability of the contracts on which a local

governmental entity’s claims are based. Second, the Utilities argue that

by interpreting the statutes that apply to the SJRA’s bonds in a manner

that prevents them from defending against the SJRA’s breach of contract

1Tex. Gov’t Code Ann. §§ 1202(a); 1371.059(a) (Supp); Texas Water

Code Ann. § 49.184(b).
2
claim on the ground that their contracts with the Utilities should be set

aside as unenforceable or void, the trial court gave the statutes an

interpretation that violates their constitutional rights under the

separation of powers doctrine, the open courts provision, the due course

of law clause under the Texas Constitution, and the right to Due Process

under the United States Constitution. 2

The summary-judgment evidence established that the SJRA’s

contracts with the Utilities were submitted and approved by the Texas

Attorney General and registered with the Comptroller’s Office. That is

the process the legislature created to make contracts pledged by local

governmental entities incontestable according to their terms for contracts

that local governmental entities have pledged to secure the payment of

the debt on their bonds. Furthermore, the terms of the parties’ contracts

do not make the validity of the contracts contestable based on the

affirmative defenses that the Utilities raised to the SJRA’s claim for

payment that are the subject of the SJRA motion for summary judgment.

Rather, in the contracts the parties executed, they included specific

2Tex. Const. art. I, § 13 (Open Courts); Tex. Const. art. I, § 19 (Due

Course of Law); U.S. CONST. amend. XIV, § 1 (Due Process).
3
provisions setting out the remedies that were to be available to a party

should a party default on its obligations under its contract. Those

provisions don’t include a provision in which the Utilities reserved a right

to assert a claim that the contracts are either unenforceable or void.

The legislature made contracts pledged by local governmental units

“incontestable” once they were approved in the required statutory

authorization process, a process that no one disputes occurred here. The

terms of the contracts the Utilities signed also include no provisions

expressly reserving to the Utilities any right to assert a defense on the

theory that the contracts are unenforceable or void. For those reasons as

further explained below, we conclude the trial court did not err in

granting the SJRA’s motion.

Background

Simply put, this dispute is largely about the legislature’s intended

meaning of the term incontestable in the three statutes that the parties

point to in their brief, which all parties agree apply to the Utilities’ bonds

and their contracts. 3 In these statutes, the legislature didn’t specifically

3Tex. Gov’t Code Ann. § 1202.006 (Validity and Incontestability), §

137.059 (Validity and Incontestability); Tex. Water Code Ann. § 49.184(c)
4
define the meaning of the word incontestable. 4 Once we decide what that

term means, we must look to the terms of the contracts to determine

whether the defenses on which the trial court granted the SJRA’s motion

were reserved or waived.

For the purposes of this appeal, we will call the three statutes that

apply to the Utilities’ bonds and contracts the bond-approval statutes.5

In the trial court and on appeal, the Utilities argue that the bond-

approval statutes make the bonds incontestable by a local governmental

entity, but the statutes do not make the contracts pledged by the local

governmental entity to back its repayment of its debt on the bonds

incontestable as against those that signed the contracts that represent

the security for the SJRA’s repayment of its debt.

The Utilities are privately-owned companies that provide water to

customers in Montgomery County by selling them groundwater, which

they pump from the Gulf Coast Aquifer for a profit. 6 That said, the

Utilities are just two of the many large-volume groundwater users that

(providing that a contract pledged to the payment of a bond once
submitted and approved by the attorney general “shall be incontestable”).
4Id.
5Id.
6See Tex. Water Code Ann. § 36.002.

5
have historically relied on groundwater in Montgomery County for the

water they supply to their customers. As the population in Montgomery

County has grown, so have concerns about the extent to which large-

volume groundwater users have relied on groundwater drawn from the

Gulf Coast Aquifer for their supplies. In 2001, the legislature created the

Lone Star Groundwater Conservation District (the Conservation

District) to address that concern. 7 Under the Texas Water Code, the

legislature gave water conservation districts the power to “make and

enforce rules . . . to provide for conserving, preserving, protecting, and

recharging of the groundwater or of a groundwater reservoir . . . in order

to control subsidence, prevent degradation of water quality, or prevent

waste of groundwater and to carry out the powers and duties provided by

this chapter[,]” Texas Water Code Chapter 36. 8

Seven years after it was created, the Conservation District required

all large-volume groundwater users to develop and implement plans

designed to reduce their groundwater use. Yet under the Conservation

7See Act of May 28, 2001, 77th Leg., R.S., ch. 1321, 2001 Tex. Gen.

Laws 3246-3250; Tex. Water. Code Ann. §§ 36.001 (Definitions), 36.011
(Method of Creating District); see also City of Conroe v. San Jacinto River
Auth., 602 S.W.3d 444, 448 (Tex. 2020).
8Tex. Water Code Ann. § 36.101(a) (Rulemaking Power).

6
District’s plan, mandatory cutbacks in groundwater use were delayed

until January 2016. 9 Still, large groundwater users could either establish

plans of their own to reduce their groundwater use or they could join with

other large groundwater users to reduce their use as a combined group

to comply with the Groundwater District’s plan. The Groundwater

District’s plan didn’t immediately force large-volume groundwater users

to reduce the extent to which they were relying on their wells and water

from the Gulf Coast Aquifer since the Groundwater District’s plan didn’t

require mandatory cutbacks in groundwater use until 2016. But

beginning in 2016, the Groundwater District planned to assess penalties

should large-volume groundwater users fail to meet the cutbacks

required by its plan.

In Montgomery County, another local governmental entity created

by the legislature—the SJRA—has regulatory authority over the surface

water from the San Jacinto River. The legislature created the SJRA in

1937 to “control and coordinat[e] [] the regulation of the waters of the

watershed of the San Jacinto River and its tributaries.” After the

Groundwater District created its plan, the SJRA presented large-volume

9See City of Conroe, 602 S.W.3d at 448.

7
groundwater users with a possible solution to complying with the

Groundwater District’s regulatory plan by signing onto a project designed

to raise money to build treatment plants to treat surface water from Lake

Conroe (part of the San Jacinto River system) that were to be built with

funds from bonds sold by the SJRA secured by contracts signed by large-

volume water users like the Utilities. These contracts were called

Groundwater Reduction Planning Contracts (GRP Contracts).

Under their GRP Contracts, the Utilities were to receive

groundwater credits to offset their production of groundwater based on

the SJRA’s overall plan, which allowed the large-volume groundwater

users to reduce their groundwater use as a group. Additionally, the terms

of the GRP Contracts provide the Utilities with a right in the future to

purchase surface water treated in the treatment plant the SJRA was

planning to build, but only when and if the Utilities were connected to

the completed water treatment system.

In 2010, the Utilities had three main incentives for executing the

GRP Contracts. First, by joining with other large-volume groundwater

users to back the SJRA’s project, the Utilities and other large-volume

groundwater users enabled the SJRA to collateralize bonds so that it

8
could fund a project to build the infrastructure required to provide the

citizens of Montgomery County with an alternative to the Gulf Coast

Aquifer as a source of their water supply. Second, when the mandatory

groundwater cutbacks took effect in future years, the Utilities obtained a

right to receive groundwater credits that would offset obligations they

had to the Groundwater District under the Groundwater District’s

regulations to reduce their groundwater use. Third, by signing the GRP

Contracts, the Utilities were relieved of the obligation they otherwise

would have had to develop groundwater reduction plans of their own

under the Groundwater District’s plan. The GRP Contracts required the

Utilities to pay “pumpage fees,” and the pumpage fees were one of the

primary revenue streams that came from the contracts of the large-

volume groundwater users as a group that the SJRA relied on to support

the payments required to pay its debt on the bonds that were sold to fund

so that it could build the facilities needed for the water treatment project.

In 2010, the Utilities voluntarily executed the GRP Contracts with

the SJRA. After the contracts were executed, the SJRA submitted them

to the Attorney General pursuant to the bond-approval statutes for that

9
office’s approval. 10 After the bonds and the contracts were reviewed and

approved by that office, they were registered and certified by the Texas

Comptroller of Public Accounts.

This same process was followed with other large-volume water

users, including various cities and other utilities, which pump

groundwater from wells in Montgomery County. 11 In all, the SJRA issued

seven series of bonds between 2009 and 2016. The SJRA’s GRP Contracts

with around eighty large-volume grounder users were then used by the

SJRA to collateralize the seven series of bonds that were sold by the

SJRA to fund the project to build a treatment plant and systems related

to that plant, which no one disputes were then built with bond funds.

“For each bond series, the SJRA’s Board of Directors adopted a resolution

that authorized the bonds’ issuance and delivery and that specified the

bonds’ purpose and terms. The resolutions pledged revenues from GRP

water-sales and contracts to service the bond debt, maintain a bond

reserve fund, and cover operation and maintenance expenses for the GRP

10See Tex. Gov’t Code Ann. §§ 1202.003, .005-.006, 1371.057-.059;

Tex. Water Code Ann. § 49.184.
11The summary-judgment evidence shows that the SJRA executed

GRP Contracts with more than 80 entities including the cities of Conroe,
Magnolia, and Splendora.
10
project.” 12 As relevant here, the Utilities don’t dispute that the proceeds

from the sales of the bonds were used to build facilities that were then

used to treat surface water from the San Jacinto River or its tributaries.

There is also no dispute that the SJRA used the streams of revenue it

received from the GRP Contracts over the ensuing years to service the

debt on the bonds tied to the GRP Contracts.

In 2015, five years after they signed the GRP Contracts, the

Utilities sued the Groundwater District and challenged the validity of the

Groundwater District’s regulatory rules that limited the volume of

groundwater the Utilities could produce annually from their wells.13 In

September 2018, a judge sitting as a visiting judge in the 284th District

Court in Montgomery County signed an order granting a motion for

summary judgment in favor of the Utilities against the Groundwater

District. In its Order, the trial court found that the rules of the

Groundwater District limiting the Utilities’ annual production of

groundwater were created by the Groundwater District “without legal

authority and consequently are, and have been, unlawful, void, and

12City of Conroe, 602 S.W.3d at 448.
13See Lone Star Groundwater Conservation Dist. v. City of Conroe,

515 S.W.3d 406 (Tex. App.—Beaumont 2017, no pet.).
11
unenforceable.” The Groundwater District appealed from the Order, but

the Groundwater District, the Utilities, and the other parties to that case

(which didn’t include the SJRA) settled the suit. Following the

settlement, the parties then signed an agreed judgment. The agreed

judgment in the suit against that Groundwater District states that the

Groundwater District’s regulations requiring reductions in groundwater

usage “were adopted by [the Groundwater District] without legal

authority and consequently are, and have been, unlawful, void, and

unenforceable[.]” 14

In 2019, the two Utilities that are parties to this appeal and four

other privately owned water and sewer utility companies sued the SJRA,

alleging that the SJRA had breached their GRP Contracts with the

SJRA. 15 In the 2019 suit, the six utilities alleged that the SJRA derived

its revenues from the GRP Contracts from two sources: (1) “pumpage

14See Lone Star Groundwater Conservation Dist. v. City of Conroe,

No. 09-18-00383-CV, 2019 WL 611519 (Tex. App.—Beaumont Feb. 14,
2019, no pet.) (mem. op.) (dismissing an earlier appeal after the parties
announced that they had settled, and the Final Judgment containing the
language that we have quoted was signed by the trial court after the case
was remanded to the trial court to allow the parties to complete their
settlement).
15That suit was assigned Trial Court Cause Number 19-09-12611,

and the district clerk assigned it to the 284th Judicial District Court.
12
fees” that they pay to the SJRA under the GRP Contracts, which for each

utility is based on the amount of groundwater that each produces from

the Gulf Coast Aquifer, and (2) the revenue stream that stems from the

price the SJRA charges each utility for any surface water, if any, that the

SJRA delivers to each utility. The petition alleged that under the GRP

Contracts, the SJRA was required to set a pumpage fee at a rate that

included “a reasonable allowance [among each of the groups of

classifications the utilities plaintiffs were in for the] costs of operating

and maintaining their Wells[,]” but that the SJRA had not complied “with

its contractual obligation by making a reasonable allowance for those

costs.” By failing to calculate the pumpage fees properly, the Utilities

alleged that the SJRA had breached the GRP Contracts and charged

them rates that were not “just, reasonable, and non-discriminatory” in

violation of section 6.04(b) of their contracts.

In 2020, the SJRA sued the Utilities, and that suit was also

assigned to a visiting judge sitting in the 284th District Court. In its suit,

the SJRA alleged that the Utilities executed the GRP Contracts, and that

the bonds and contracts became incontestable under the bond-approval

statutes upon their approval of the Texas Attorney General and their

13
registration by the Texas Comptroller. According to the petition, the

Utilities were “more than 30 days past due on the GRP Contract fees for

the months of May and June 2020, and stated their intention to continue

breaching their GRP Contracts by refusing to pay any future amounts.”

In response to the SJRA’s suit, the Utilities filed a general denial,

counterclaims, and affirmative defenses. While the Utilities’ affirmative

defenses and counterclaims overlap, their pleadings assert seven

affirmative defenses, which claim the GRP Contracts: (1) lack

consideration; (2) failed for a lack of consideration; (3) were executed due

to a mutual mistake; (4) should be treated as illusory; (5) could not be

enforced due to the SJRA’s prior material breach; (6) should be rescinded

based on the Montgomery County District Court’s ruling against the

Groundwater District finding its regulatory plan void and unenforceable;

and (7) are avoidable because the contracts were fraudulently induced.16

Over two years after the SJRA sued the Utilities, it filed a Motion

for Partial Traditional Summary Judgment. In its motion, the SJRA

16The Utilities’ pleading also raises a claim that the contracts
violate the federal anti-trust laws, but they haven’t asked this Court to
decide that issue. Instead, they state in their brief that this issue must
“be first decided in the pending federal lawsuit between the parties.”
14
claimed that, as a matter of law, the GRP Contracts are “incontestable”

because the GRP Contracts were pledged by the SJRA as collateral to

back bonds that it issued under the bond-approval statutes. 17 The SJRA

argued that once the contracts and bonds were issued and approved

under the bond-authorization process, the GRP Contracts didn’t allow

the Utilities to raise defenses to their breach of payment claim because

the validity of the contracts became “incontestable in a court” under the

language of these statutes since the contracts became “valid and binding

obligations enforceable according to their terms.” 18 So under the GRP

Contracts the SJRA argued, the Utilities could not unilaterally terminate

the contracts “as a result of a default by either Party,” as the contracts

state they may be terminated only after the Utilities execute an

agreement “to pay [their] pro-rata share of the Bonds or other obligations

[the SJRA] issued or incurred in connection with the Project[,]” which

they did not do. Relying on the statute together with the language of the

GRP Contracts, the SJRA asked the trial court to grant its motion for

17See Tex. Water Code Ann. § 49.184(e); Tex. Gov’t Code Ann. §§

1202.006(a), 1371.059(a).
18Tex. Gov’t Code Ann. § 1371.059(a); see also id. § 1202.006(a); Tex.

Water Code Ann. § 49.184(e).
15
summary judgment against the Utilities’ as to the seven overlapping

defenses they raised against the SJRA’s breach of contract claim.

In response to the SJRA’s Motion for Partial Summary Judgment,

the Utilities argued the language in the bond-approval statutes doesn’t

preclude “contract defenses between contracting parties.” Instead, the

Utilities contend that these three statutes were intended to “function as

a means of protecting government bonds from invalidation due to errors

in their issuance or execution.” The Utilities also claimed that if the bond-

approval statutes operate as the SJRA’s claims, the statutes are

unconstitutional. 19 According to the Utilities, the SJRA’s construction of

the bond-approval statutes violates the separation of powers doctrine and

the open courts provision of the Texas Constitution, as well as the due

course of law clause and Due Process Clause of the Texas and United

States Constitutions. 20 The Utilities argued that under the separation of

powers doctrine, these statutes should not be interpreted in a way that

19We note that the SJRA does not argue that the bond-approval

statutes prevented the Utilities from negotiating terms in the GRP
Contracts that would have preserved one or more of the affirmative
defenses that it made the subject of its motion for summary judgment.
20Tex. Const. art. II, § 1; id. art. I, § 13; id. art. I, § 19; U.S. CONST.

amend. XIV, § 19.
16
allows the executive branch of government (through the Attorney

General) to resolve “controverted property rights” when the right to

resolve property rights is “vested in the judiciary.” And under the open

courts provision, the Utilities contended that these statutes should not

be interpreted to bar them “from raising affirmative defenses to a

contract claim.” Finally, they argued that the Attorney General never

gave them notice or an opportunity to participate in the statutory

authorization process, which resulted in the Attorney General’s

approving the SJRA’s bonds and contracts. Under the SJRA’s

interpretation of the bond-approval statutes, the Utilities conclude that

it is deprived of “the most basic concepts of due process” if these statutes

allow the Attorney General to adjudicate their property rights without

giving them any notice or the opportunity to be heard.

The trial court rejected all the Utilities’ arguments and decided that

“as a matter of law the SJRA’s GRP Contracts are incontestable, valid

and enforceable according to their terms.” The trial court also granted

the Utilities’ request for the trial court’s permission to file an

interlocutory appeal. 21 In its Order, the trial court identified three

21See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(d).

17
controlling questions of law on which there are substantial grounds for a

difference of opinion:

(1) Whether the GRP Contracts are incontestable, valid and
enforceable as a matter of law under Texas Government
Code Section 1202.006, and if so, the scope of that
incontestability.
(2) Whether the GRP Contracts are incontestable, valid and
enforceable as a matter of law under Texas Government
Code Section 1371.059, and if so, the scope of that
incontestability.
(3) Whether the GRP Contracts are incontestable, valid and
enforceable as a matter of law under Texas Water Code
Section 49.184, and if so, the scope of that incontestability.

We subsequently exercised our discretion and accepted the appeal. 22

Standard of Review

We review summary judgments de novo. 23 “To prevail on

a traditional motion for summary judgment, the movant must show no

material fact issues exist and that it is entitled to judgment as a matter

of law.” We take as true all evidence favorable to the party that opposes

the motion, and we indulge every reasonable inference and resolve any

doubts in favor of that party. 24

22Id. § 51.014(f); see also Tex. R. App. P. 28.3.
23Rosetta Res. Operating, LP v. Martin, 645 S.W.3d 212, 218 (Tex.

2022).
24Id., Tex. R. Civ. P. 166a(c).

18
When a party that moves for summary judgment provides

summary-judgment proof with its motion sufficient to establish that no

genuine issue of material fact exist on at least one element of the claim

on which it is seeking to obtain a summary judgment, “the burden shifts

to the nonmovant to raise a genuine issue of material fact precluding

summary judgment” on that claim. 25 Evidence raises a genuine issue of

material fact when reasonable and fair-minded jurors could differ in their

conclusions after considering the summary-judgment evidence properly

considered in the hearing. 26

A trial court’s interpretation of a statute is reviewed using a de novo

standard. 27 When construing statutes, courts must determine and give

effect to the legislature’s intent. 28 Moreover, on appeal, the court should

determine the intended meaning of a statute, if possible, from the

25Lujan v. Navistar, Inc., 555 S.W.3d 79, 84 (Tex. 2018).
26Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex.

2007).
27See Johnson v. City of Fort Worth, 774 S.W.2d 653, 655-56 (Tex.

1989).
28See Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex.

2000).
19
language in the statute being considered.29 If the statute is not

ambiguous, it is to be interpreted using its plain meaning. 30

The parties’ dispute centers on whether the legislature intended to

allow the contracts pledged by a state agency to secure the repayment of

its debt on a later date and after the bonds were sold and the contracts

approved declared void. When deciding what the legislature intended, we

read the words and phrases in a statute “in context and construe [them]

according to the rules of grammar and common usage.” 31 In construing

the language of a statute, we construe each word so that each part of the

statute has meaning and no part is left out. 32 We presume that each word

in a statute was chosen “for a purpose,” and that the legislature

“purposely omit[ted] words” that it chose not to include. 33 “[W]hen a

statute’s words are unambiguous and yield but one interpretation, the

29Id.
30See St. Luke’s Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex.

1997).
31Tex. Gov’t Code Ann. § 311.011.
32Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238,

256 (Tex. 2008) (“The Court must not interpret the statute in a manner
that renders any part of the statute meaningless or superfluous.”).
33TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439

(Tex. 2011).
20
judge’s inquiry is at an end.”34 When the legislature chose not to define a

word it used in a statue, we assume it intended for the courts to apply

the common meaning when interpreting what the word means. 35

Analysis

Did the trial court err in granting the SJRA’s motion?

Several facts were not disputed in the trial court, and they are

undisputed in the appeal. For example, the Utilities don’t dispute that

the SJRA was authorized to issue the bonds, and they don’t dispute that

the SJRA and the Utilities “validly executed the GRP Contracts.”

Instead, the Utilities argue that they should be allowed to avoid paying

the SJRA under their GRP Contracts because they aren’t receiving the

groundwater credits that they anticipated they would have received

when they signed the contracts because following a decision in the

Montgomery County District Court, the Groundwater District’s Plan

restricting their production of groundwater was declared void,

34Rodriguez v. Safeco Ins. Co. of Indiana, 684 S.W.3d 789, 793 (Tex.

2024) (cleaned up).
35See Tex. Gov’t Code Ann. § 1.002 (Construction of Code); id. §

311.011(a) (“Words phrases shall be read in context and construed
according to the rules of grammar and common usage.”).

21
eliminating their need for the groundwater credits that they thought they

might need when they signed the contracts in 2010.

The bond-approval statutes make both the bonds and the contracts

pledged to secure them “incontestable” once they are approved by the

Attorney General and registered with the Comptroller. 36 Texas

Government Code section 1202.006(a) provides that:

A public security and any contract the proceeds of which are
pledged to the payment of the public security are valid and
incontestable in a court or other forum and are binding obligations
for all purposes according to their terms:

(1) after the public security is approved by the attorney
general and registered by the comptroller; and

(2) on issuance of the public security. 37

Texas Government Code section 1371.059(a) provides:

If proceedings to authorize an obligation or credit agreement
are approved by the attorney general and registered by the
comptroller, each obligation or credit agreement, as applicable, or a
contract providing revenue or security included in or executed and
delivered according to the authorizing proceedings is incontestable
in a court or other forum and is valid, binding, and enforceable
according to its terms. 38

Finally, Texas Water Code section 49.184(e) provides:

36See Tex. Gov’t Code Ann. §§ 1202.006(a), 1371.059(a); Tex. Water

Code Ann. § 49.184(e).
37Tex. Gov’t Code Ann. § 1202.006(a).
38Id. § 1371.059(a).

22
A contract or lease in which the proceeds of the contract
or lease are pledged to the payment of a bond may be
submitted to the attorney general along with the bond
records, and, if submitted, the approval by the attorney
general of the bonds shall constitute an approval of the
contract or lease and the contract or lease shall be
incontestable. A contract or lease, other than a contract or
lease in which the proceeds of the contract or lease are pledged
to the payment of a bond, may be submitted to the attorney
general along with the bond records, and, if reviewed and
approved by the attorney general, the approval of the bonds
shall constitute an approval of the contract or lease and the
contract or lease shall be incontestable. 39

The Utilities argue that the term incontestable doesn’t apply to all

the parties to the contracts that the Attorney General approved, but only

prevents the local governmental entity from challenging the validity of

the contract that it signed. According to the Utilities, the legislature

could not have intended to give incontestable a meaning that would strip

those that execute contracts with local governmental entities that signed

contracts approved under the bond-approval statutes of their affirmative

defenses to a local governmental entities’ breach of contract claim.

According to the Utilities, the bond-approval statutes “address whether

39Tex. Water Code Ann. § 49.184.

23
the bond and related documents were validly executed” and were not

intended to address “future contractual disputes.”

The Legislature didn’t specifically define the adjective incontestable

in sections 1202.006(a) and 1371.059(a) of the Government Code, or in

section 49.184(e) of the Water Code. 40 Webster’s Dictionary defines

incontestable as something “not subject to being disputed, called into

question or controverted <~evidence> offering no grounds for doubt[.]”41

The Utilities’ argument is inconsistent with the plain meaning of the

word incontestable. Clearly, if a contract could be challenged by one of

the parties to the contract as invalid, the contract’s validity would be in

doubt.

The structure of the statutes reveal that the legislature intended

the adjective incontestable to apply to both the contacts and the bonds. In

sections 1202.006(a) and 1371.0059(a), the first subject of the sentences

in these statutes refers to a debt instrument, referring to it as either a

“public security,” an “obligation,” or a “credit agreement.” 42 The second of

40Tex. Gov’t Code Ann. §§ 1202.006(a), 1371.059; Tex. Water Code

Ann. § 49.184(d).
41Incontestable, WEBSTER’S THIRD N EW INTERNATIONAL DICTIONARY

1145 (2002).
42Tex. Gov’t Code Ann. §§ 12002.006(a), 1371.059(a).

24
the two subjects describes the contracts, referring to them as “any

contract the proceeds of which are pledged to the payment of the public

security” or as “contract[s] providing revenue or security included in or

executed and delivered according to the authorizing proceedings.” 43 Thus,

when we ask what the legislature made incontestable, these two statutes

make the validity of both local governmental entities’ bonds and

contracts things that cannot be disputed once they are approved.

The structure of Water Code section 49.184(e) differs only slightly,

as that statute makes a contract or lease, pledged by a local governmental

entity to repay a debt, incontestable. 44 A separate subsection, subsection

(d) of the Water Code, makes the bonds incontestable once they are

approved by the Attorney General. 45 Thus under all three statutes, the

bonds and the contracts are incontestable.

So we know what things are incontestable, but is it just the local

governmental entity that cannot contest them as the Utilities argue, or

both the local governmental entity and the party to a contract approved

by the Attorney General that secured the local governmental entity’s

43Id.
44Tex. Water Code Ann. § 49.184(e).
45Id. § 49.184(d), (e).

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repayment of its debt? In our opinion, Government Code sections

1202.006(a) and 1371.059(a) answer that question. These statutes

provide that the contracts “are binding obligations for all purposes

according to their terms.” 46 The Water Code, however, simply makes the

contracts “incontestable” upon the attorney general’s approval. 47

We turn next to the language in the GRP Contracts to determine if

the terms of the GRP Contracts reserved the affirmative defenses that

were the subject of the SJRA’s motion for summary judgment. The

language in the agreements reveals that the Utilities knew that the

contracts they were signing would be used by the SJRA to collateralize a

series of bonds, which would be submitted by the SJRA for approval

through the statutory process before selling them to the public. For

instance, the language in the GRP Contracts the Utilities executed with

the SJRA provides that the Utilities authorized the SJRA “to pledge,

create one or more liens on, or assign all or any portion of the payments

to be made by [that Utility] hereunder . . . to the payment and security

46Tex. Gov’t Code Ann. § 1202.006(a), 1371.059(a).
47Tex. Water Code Ann. § 49.184(e). That said, the Water Code
makes the bonds incontestable “in accordance with their terms for all
purposes.” Id. § 49.184(d).
26
for the Bonds issue by the Authority in order to finance or refinance the

development of the GRP and/or the design, permitting, construction,

operation, maintenance, or administration of the Project.” The GRP

Contracts include a force majeure clause, and that clause reflects that

while the parties anticipated the possibility that a judicial action might

suspend a parties’ obligation under a GRP Contract, even a judicial action

wouldn’t suspend a party’s obligation for the “payment of money.” And

last, the GRP Contracts include provisions that state: “This Contract may

not be terminated as a result of a default by either party.” 48 Thus, the

terms of the contract reflect that the remedies that are ordinarily

available in contract cases were unavailable to the parties under these

contracts.

48Even though the contract is not subject to termination and even

though the Utilities’ obligations for payment under the agreements are
enforceable as a matter of law, the GRP Contracts provide the Utilities
with the right to sue the SJRA for damages they suffer to their streets,
building, lights, trees, landscaping, etc. if those damages are caused by
the SJRA or its contractors and for any “act or omission relating to the
Authority’s performance under this Contract[.]” In its brief, the SJRA
refers to these as performance breach claims. As we understand the
parties’ arguments and in its motion for summary judgment, its motion
and the trial court’s ruling granting its motion doesn’t include any claims
reserved to the Utilities under the language in Article XI of the GRP
Contracts.
27
That said, the parties included provisions in the GRP Contracts

that provide express remedies in the case of a party’s default. Under

those provisions, the Utilities reserved some remedies, but not the

defenses that are at issue in this appeal. For example, the Utilities

reserved their right to sue the SJRA for damages should the SJRA or its

contractors damage the Utilities’ property when constructing any

infrastructure on the Project. The Utilities also reserved their right to

sue the SJRA for specific performance. The trial court’s ruling on the

SJRA’s motion doesn’t include these claims, which the SJRA’s motion for

summary judgment didn’t raise. Moreover, nothing in the trial court’s

order prevents the Utilities from proving that they did not breach their

contractual obligations to the SJRA.

In our opinion, the plain language of the bond-approval statutes

and the structure of statutes reflects that their purpose was to assure

that the purchasers of the bonds could rely on courts to enforce the

contracts according to their terms against all parties to the contracts

while at the same time preventing challenges being made to the

underlying validity of the contracts themselves. By eliminating

uncertainty, local governmental entities could sell bonds to the public at

28
lower rates than they would otherwise have obtained in a market without

guaranteed contracts while gaining a benefit to the public in lower

interest rates being charged to the local governmental entity for

borrowing the funds.

To be clear, the trial court’s ruling on the SJRA’s motion for

summary judgment didn’t establish that the Utilities have breached their

obligations under their GRP Contracts with the SJRA, nor does the trial

court’s ruling prevent the Utilities from presenting evidence in a trial to

establish that the SJRA breached its obligations under the GRP

Contracts to the Utilities by incorrectly calculating what the Utilities

owe. All seven defenses addressed in the trial court’s Order granting the

SJRA’s motion concern issues that involve defenses tied to whether the

parties formed a valid contract or whether they signed GRP Contracts

they knew the legislature made incontestable once approved by the

Attorney General when the parties to the contracts did not include any

language in their agreements reserving defenses to the underlying

validity or enforceability of the contracts that they made. Because the

SJRA established as a matter of law that the seven defenses that it made

the subject of its Motion for Partial Summary Judgment lacked merit, we

29
conclude the trial court properly granted the motion. The Utilities’ first

issue is overruled.

Are the bond-approval statutes unconstitutional?

In its second issue, the Utilities argue that the construction the trial

court placed on the bond-approval statutes renders the statutes

unconstitutional. According to the Utilities, the SJRA’s interpretation of

the bond-approval statutes violates the separation of powers doctrine, a

doctrine that prevents one branch of government from exercising a power

belonging inherently to another. 49 As the Utilities see it, the state-agency

bond-approval statutes take away the power that district courts have

always had to adjudicate a party’s common law defenses to breach of

contract claims. They also argue that the statutes violate the open courts

provision of the Texas Constitution and violate their rights to due

process.

We disagree. The statutes simply make the contracts enforceable

according to their terms. In the GRP Contracts, the Utilities didn’t

reserve their right to raise the defenses the SJRA challenged in its

49See Tex. Const. art. I, § 1, see also Gen. Serv. Comm’n v. Little-Tex.

Insulation Co., 39 S.W.3d 591, 600 (Tex. 2001); Tex. Ass’n Bus. v. Tex. Air
Control Bd., 852 S.W.2d 440, 444 (Tex. 1993).
30
motion for summary judgment. The language in the statutes making the

contracts incontestable was part of the law when the parties signed the

contracts. So under Texas law, those statues “form a part of [the

contracts], as if they were expressly referred to or incorporated in their

terms.” 50 Consequently, after the contracts were executed, the Utilities

are deemed to have agreed they would not contest the validity of the

contracts in a court once the contracts were approved by the Attorney

General and registered with the Comptroller.

Moreover, when the Utilities signed the GRP Contracts, they knew

that the regulations of the Groundwater District, which governed their

use of groundwater, were subject to change and subject to legal

challenges. Yet they signed contracts that were incontestable without

reserving the right to raise contract formation defenses or claim the

contracts were void in the contracts they signed. For those reasons, the

Utilities cannot now contest the validity of the GRP contracts regardless

of whether the Groundwater District’s regulations were later challenged

in court, changed by the Groundwater District, or declared void.

50City of Houston v. Williams, 353 S.W.3d 128, 141 (2011) (cleaned

up).
31
Even in their contracts, the Utilities recognized the possibility that

through court action, the Groundwater District’s regulations could be

changed. 51 Yet in the section of the contracts recognizing that possibility,

the Utilities gave the SJRA “the right, but not the obligation, to

terminate the GRP Contracts.” 52 The GRP Contracts do not include a

corresponding provision allowing the Utilities a right to terminate the

contracts should a regulation be changed. Instead, the GRP Contracts

provide: “Except as provided above in this section, this Contract may only

be terminated prior to the expiration of the contract Term by mutual,

written agreement of the Parties.” No party claims that an agreement to

terminate the GRP Contracts has occurred.

Under Texas law, parties may “contract as they see fit as long as

their agreement does not violate the law or public policy.” 53 In their brief,

the Utilities haven’t cited any authority and did not argue that the

agreements violate Texas law or public policy. In our opinion, it doesn’t

51Section 12.02(b) of the GRP Contracts (“Accordingly, in the event

of a change in any such law, rule, or regulation that would provide [the
Utilities] Original Jurisdiction” over the raw water rates or reservation
fees established by the SJRA”]).
52Id.
53In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 (Tex. 2004)

(orig. proceeding).
32
violate public policy for a company to execute a contract to purchase

groundwater credits to avoid the prospect of facing future penalties under

a prospective regulatory scheme, even if that regulatory scheme is later

challenged or changed by a regulatory authority or by a court.

By enacting Government Code sections 12.02.006(a), 1371.059(a),

and Texas Water Code section 49.184(e), the legislature did not delegate

to the Attorney General the power to adjudicate claims. Rather, the

legislature gave the parties the right to reserve whatever they wanted to

reserve in their agreements, but absent that made the validity of the

contracts incontestable. Thus, by signing incontestable contracts and

without reserving the defenses they raised to the SJRA’s suit, the

Utilities cannot challenge the validity of the GRP Contracts. If the

Utilities had wanted to reserve that right, they could have negotiated for

the right to do so in the GRP Contracts or chosen not to sign them. We

overrule the Utilities’ second issue.

Conclusion

To sum it up: First, we hold the trial court did not err in granting

SJRA’s motion for partial summary judgment because the

incontestability statutes expressly foreclose the right the Utilities’ have

33
under the terms of their contracts to assert the seven categories of

affirmative defenses that they raised. These seven defenses challenge the

validity of the GRP Contracts but do so in violation of the incontestability

provisions and under contracts that do not contain a provision reserving

their right to raise a validity defense to the contract or a claim that the

contract is void as a defense to a claim for payment. Second, we hold the

Utilities have not established their claims that the bond-approval

statutes violate the separation of powers doctrine, the open courts

provision, the due course of law clause under the Texas Constitution, or

the Due Process Clause. 54

Accordingly, the trial court’s Order Granting the Partial

Traditional Summary Judgment is

AFFIRMED.

HOLLIS HORTON
Justice

Submitted on February 20, 2024
Opinion Delivered May 9, 2024

Before Golemon, C.J., Horton and Johnson, JJ.

54Tex. Const. art. I, § 13; id. art. I, § 19; U.S. CONST. amend. XIV, §

1.
34