Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - ENTERGY TEXAS, INC. | a06509.htm |
| EX-8.1 - EXHIBIT 8.1 - ENTERGY TEXAS, INC. | a0650981.htm |
| EX-5.1 - EXHIBIT 5.1 - ENTERGY TEXAS, INC. | a0650951.htm |
| EX-99.5 - EXHIBIT 99.5 - ENTERGY TEXAS, INC. | a06509995.htm |
Exhibit
99.6
Clark,
Thomas & Winters
A
PROFESSIONAL CORPORATION
TELEPHONE
(512)
472-8800 POST
OFFICE BOX
1148 FAX
(512) 474-1129
AUSTIN,
TEXAS 78767
300
WEST 6th
STREET, 15TH
FLOOR
AUSTIN,
TEXAS 78701
November
6, 2009
Each of
the Addressees Listed on
Schedule
I Attached Hereto
|
Re:
|
Entergy
Texas Restoration Funding, LLC Senior Secured Transition
Bonds
|
Ladies and Gentlemen:
We have
acted as local Texas counsel to Entergy Texas, Inc., a Texas corporation
("ETI"), and Entergy Texas Restoration Funding, LLC, a Delaware limited
liability company (the "Issuer"), in connection with ETI's transfer of the
rights and interests of ETI under the Financing Order, including the right to
impose, collect, and receive transition charges, to the Issuer pursuant to that
certain Transition Property Purchase and Sale Agreement, dated as of November 6,
2009 (the "Sale Agreement"), between ETI and the Issuer and the related Bill of
Sale dated as of November 6, 2009 (the "Bill of Sale"). Unless the
context clearly indicates otherwise, capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Indenture
dated as of November 6, 2009 as supplemented by the Series Supplement dated as
of November 6, 2009 (as so supplemented, the "Indenture"), between the Issuer
and The Bank of New York Mellon, as Indenture Trustee (the "Indenture Trustee"),
including Appendix A attached thereto. This opinion is being
delivered pursuant to Section 9(i) of the Underwriting Agreement dated October
29, 2009 among ETI, Issuer and the Underwriters named therein.
We have reviewed the following
documents and any exhibits thereto for purposes of this opinion (collectively,
the "Relevant Documents"):
1. the Sale
Agreement and the Bill of Sale;
2. the
Servicing Agreement;
3. the
Indenture;
4. the
Underwriting Agreement;
5. the
Certificate of Formation;
6. the
Limited Liability Company ("LLC") Agreement;
7. the
Application;
8. the
September 11, 2009, Financing Order of the Public Utility Commission of Texas
("PUCT") in Docket No. 37247 ("the Financing Order"); and
9. that
certain Issuance Advice Letter (the "Issuance Advice Letter") filed with the
PUCT on October 30, 2009.
In connection with the issuance of
certain "transition bonds" within the meaning of Chapter 36, Subchapter I and
Chapter 39, Subchapter G of the Texas Public Utility Regulatory Act
("PURA"),1 ETI has requested that we deliver
certain opinions regarding potential challenges to PURA Chapter 36, Subchapter I
and Chapter 39, Subchapter G under the Texas Constitution.
I. STATUTORY
FRAMEWORK
The Texas Legislature ("Legislature")
enacted Senate Bill 7, effective September 1, 1999, for the purpose of
protecting "the public interest during the transition to and in the
establishment of a fully competitive electric power industry."2 This legislative effort
is primarily reflected in Chapter 39 of PURA. PURA § 39.001(b)
states, in pertinent part,
The legislature finds that it is in the
public interest to:
(1)
implement on January 1, 2002, a competitive retail electric market that allows
each retail customer to choose the customer's provider of electricity and that
encourages full and fair competition among all providers of
electricity;
(2) allow
utilities with uneconomic generation-related assets and purchased power
contracts to recover the reasonable excess costs over market of those assets and
purchased power contracts….
The
utility assets as to which the Legislature believed the public interest requires
recovery include both "stranded costs" ("the positive excess of the net book
value of generation assets over the market value of the assets")3 and "regulatory assets" (as
reported by the utility in its 1998 annual report on Securities and Exchange
Commission Form 10-K).4 The Legislature provided
several means for recovery of these assets, including "securitization financing"
per the requirements and procedures of PURA Chapter 39, Subchapter
G.
In
September 2005, Hurricane Rita struck the coastal areas of the region causing
catastrophic damage to ETI's (then Entergy Gulf States, Inc.) electric utility
system and leaving thousands of Texans without electricity. ETI
incurred substantial costs to repair and rebuild its utility infrastructure and
restore service. In response to concerns regarding the long-term
stability and reliability of electric service due to the reconstruction expense
ensuing from the disaster, the Legislature amended Chapter 39 of PURA during the
3rd Called Session of the 79th Legislature by enacting House Bill 163
providing for the "securitization" of hurricane reconstruction costs and their
recovery through the sale of bonds per the requirements and procedures of
Subchapter G. Securitization was "expected to result in significant
savings to customers, compared to the rates customers would pay if the Hurricane
Rita costs were recovered through conventional means, such as their inclusion in
a base rate proceeding."5
The 81st
Legislature generalized this approach to storm cost recovery when it enacted
Senate Bill 769 in 2009. Senate Bill 769 added Subchapter I to Chapter 36 of
PURA to enable any electric utility "to obtain timely recovery of system
restoration costs and to use securitization financing to recover these
costs."6 In its analysis of the bill, the
House Research Organization discussed the efficiencies and cost savings Senate
Bill 769 was intended to provide:
The
conventional method of recovering storm costs is for a utility to go through a
base rate proceeding at the PUC, which takes 185 days to complete and often is
costly due to litigation. Base rate proceedings cause significant delays in the
recovery of storm costs and place additional costs on the affected utilities,
which are passed on to customers, including both the cost of the proceeding and
high interest and finance charges. Currently, a utility must receive approval
from the Legislature through special legislation in order to recover system
restoration costs through securitization. For example, HB 163 by P. King,
enacted by 79th
Legislature during its 2006 third called session, allowed Entergy to use
securitization to recover costs resulting from Hurricane Rita in 2005. CSHB
13787 would authorize the PUC to approve
the use of securitization without the utility having to wait for a legislative
session to do so.8
Thus, Senate Bill 769
declared its intent that "securitization of system restoration costs will
be accomplished using the same procedures, standards, and protections for
securitization authorized under Subchapter G, Chapter 39."9 It defined
"system restoration costs" as:
reasonable
and necessary costs, including costs expensed, charged to self-insurance
reserves, deferred, capitalized, or otherwise financed, that are incurred by an
electric utility due to any activity or activities conducted by or on behalf of
the electric utility in connection with the restoration of service and
infrastructure associated with electric power outages affecting customers of the
electric utility as the result of any tropical storm or hurricane, ice or snow
storm, flood, or other weather-related event or natural disaster that occurred
in calendar year 2008 or thereafter. System restoration costs include
mobilization, staging, and construction, reconstruction, replacement, or repair
of electric generation, transmission, distribution, or general plant
facilities. System restoration costs shall include reasonable
estimates of the costs of an activity or activities conducted or expected to be
conducted by or on behalf of the electric utility in connection with the
restoration of service or infrastructure associated with electric power outages,
but such estimates shall be subject to true-up and reconciliation after the
actual costs are known.10
Senate Bill 769 also enacted
a new Section 36.403 that incorporates the procedures and standards of PURA
Chapter 39, Subchapter G. Section 36.403(d) amends
the definition of "qualified costs" to include "system restoration costs," as
follows:
(d) For
purposes of this subchapter, "qualified costs," as defined by Section 39.302 and
as used in Subchapter G, Chapter 39, includes 100 percent of the electric
utility's system restoration costs, net of any insurance proceeds, governmental
grants, or other source of funding that compensate the utility for system
restoration costs, received by the utility at the time it files an application
for a financing order. Qualified costs also include the costs of
issuing, supporting, and servicing transition bonds and any costs of retiring
and refunding existing debt and equity securities of an electric utility subject
to this subchapter in connection with the issuance of transition
bonds. For purposes of this subchapter, the term qualified costs also
includes:
(1) the
costs to the commission of acquiring professional services for the purpose of
evaluating proposed transactions under this subchapter; and
(2) costs
associated with ancillary agreements such as any bond insurance policy, letter
of credit, reserve account, surety bond, swap arrangement, hedging arrangement,
liquidity or credit support arrangement, or other financial arrangement entered
into in connection with the issuance or payment of transition
bonds.
Section
36.403(e) amends the definition of "transition bonds" in PURA § 39.302 to
include "transition bonds issued in association with the recovery of system
restoration costs" and states that "[t]ransition bonds issued to securitize
system restoration costs may be called "system restoration bonds."
Section 36.403(f) amends the definition
of "transition charges" in PURA § 39.302 to include:
nonbypassable
amounts to be charged for the use of electric services, approved by the
commission under a financing order to recover system restoration costs, that
shall be collected by an electric utility, its successors, an assignee, or other
collection agents as provided for in the financing order. Transition
charges approved by the commission under a financing order to recover system
restoration costs may be called "system restoration charges" or may be called by
any other name acceptable to the issuer and the underwriters of the transition
bonds.
PURA § 39.306
provides that "[a] financing order shall include terms ensuring that the
imposition and collection of transition charges authorized in the order shall be
nonbypassable." PURA § 36.404, added by Senate Bill 769, dovetails with this
requirement and states:
The
commission shall include terms in the financing order to ensure that the
imposition and collection of transition charges associated with the recovery of
system restoration costs are nonbypassable by imposing restrictions on
bypassability of the type provided for in Chapter 39 or by alternative means of
ensuring nonbypassability, as the commission considers appropriate, consistent
with the purposes of securitization.
The
rights and interests of a utility to receive transition charges become
"transition property" when "they are first transferred to
an assignee or pledged in connection with the issuance of transition
bonds."11 Section 39.304 further
provides:
(b) Transition property shall
constitute a present
property right
for purposes of contracts concerning the sale or pledge of property, even though
the imposition and collection of transition charges depends on further acts of
the utility or others that have
not yet occurred. The financing order shall
remain in effect and the property shall continue to exist for the same period as
the pledge of the state described in Section 39.310.
(emphasis
added). The State Pledge referenced above is set forth in PURA § 39.310 and
provides as follows:
PLEDGE OF
STATE. Transition bonds are not a debt or obligation of the state and
are not a charge on its full faith and credit or taxing power. The
state pledges, however, for the benefit and protection of financing parties and
the electric utility, that it will not take or permit any action that would
impair the value of transition property, or, except as permitted by Section
39.307 [relating to true-up], reduce, alter, or impair the transition charges to
be imposed, collected, and remitted to financing parties, until the principal,
interest and premium, and any other charges incurred and contracts to be
performed in connection with the related transition bonds have been paid and
performed in full. Any party issuing transition bonds is authorized
to include this pledge in any documentation relating to those
bonds.
As
authorized by Section 39.310 and the Financing Order, the language of the State
Pledge has been included in the Transition Bonds and in the
Indenture. The Financing Order also explicitly provides that "the
State of Texas has pledged for the benefit and protection of all financing
parties and ETI, that it (including the Commission) will not take or permit any
action that would impair the value of transition property, or, except as
permitted by PURA § 39.307, reduce, alter or impair the transition charges
to be imposed, collected, and remitted to any financing parties, until the
principal, interest and premium, and any other charges incurred and contracts to
be performed in connection with the transition bonds have been paid and
performed in full."13
The
Transition Property at issue was created in favor of ETI, pursuant to the
Financing Order issued by the PUCT on September 11, 2009, in Docket
No. 37247; and the Transition Property was assigned to the Bond Issuer
pursuant to the provisions of the Sale Agreement in consideration for the
payment by the Issuer to ETI of the proceeds of the sale of the Transition
Bonds, net of certain issuance costs. The Transition Property
includes the right to impose and receive certain "non-bypassable" transition
charges described in the Financing Order (the "Transition
Charges"). The Financing Order provides that "this Financing Order,
together with the transition charges authorized by this Financing Order, is
irrevocable and not subject to reduction, impairment, or adjustment by further
act of the Commission, except for the true-up procedures approved in this
Financing Order, as required by PURA § 39.307."14 It further provides
that "[t]ransition property will constitute a present property right for
purposes of contracts concerning the sale or pledge of property, even though the
imposition and collection of the transition charges depend on further acts by
ETI or others that have not yet occurred, as provided by PURA
§ 39.304(b)"15 and "[u]pon the transfer by ETI of
the transition property to BondCo, BondCo will have all of the rights, title and
interest of ETI with respect to such transition property including the right to
impose, collect and receive the transition charges authorized by the Financing
Order."16 It also requires that
Transition Charges be adjusted at least annually to correct any overcollections
or undercollections in the preceding 12 months and that the servicer make
mandatory interim true-up adjustments semi-annually (or quarterly during the
period between the expected final maturity and the legal final maturity of the
last bond tranche or class) if the servicer forecasts that Transition Charge
collections will be insufficient to make all scheduled payments of principal,
interest and other amounts in respect of the transition bonds during the current
or next succeeding semi-annual or quarterly period (as applicable) and to
replenish any draws upon the capital subaccount. These adjustments
are intended to ensure the expected recovery of amounts sufficient to timely
provide all payments of debt service and other required amounts and charges in
connection with the transition bonds. Finally, the Financing Order
states that "[t]he Commission guarantees that it will act pursuant to this
Financing Order as expressly authorized by PURA to ensure that expected
transition charge revenues are sufficient to pay on a timely basis scheduled
principal and interest on the transition bonds issued pursuant to this Financing
Order and other costs, including fees and expenses, in connection with the
transition bonds."17
The
Financing Order was issued in response to an application for its issuance that
was filed by ETI with the PUCT pursuant to the provisions of
PURA. The Financing Order became final and not subject to further
appeal on September 28, 2009. ETI filed its Issuance Advice Letter
with the PUCT on October 30, 2009, as required by the Financing Order, and
Schedule SRC relating to the Transition Charges on November 3,
2009.
II. OPINIONS
REQUESTED
You have
requested our opinion on the following issues:
1. whether
Texas courts would uphold the validity of the State Pledge;
2. whether
the Texas Constitution permits Subchapter I of Chapter 36 and Subchapter G of
Chapter 39 of PURA to be amended or repealed by citizen initiative or
referendum;
3. (a)
whether the holders of the Bonds (the "Bondholders") or the Indenture Trustee
acting on their behalf could successfully challenge under the Texas Contract
Clause (as described below) the constitutionality of any legislation passed by
the Texas Legislature that repeals the State Pledge or limits, alters, impairs,
or reduces the value of the Transition Property or Transition Charges so as to
cause a substantial impairment of the terms of the Bond Indenture or the Bonds
or the rights and remedies of the Bondholders (or the Trustee acting on their
behalf) prior to the time that the Bonds are fully paid and discharged ("State
Impairment Legislation"); (b) whether Texas courts would conclude that a
substantial impairment of a legislative character by the PUCT ("PUCT Impairment
Action") would be treated in the same manner as State Impairment Legislation
under the Texas Contract Clause; and (c) whether preliminary and permanent
injunctive relief would be available under Texas law to the Bondholders to delay
or enjoin implementation of State Impairment Legislation or PUCT Impairment
Action; and
4. whether
a court applying Texas law would find a compensable taking under the Texas
Takings Clause (as described below) if the State, including its agencies and
instrumentalities, including the PUCT, takes action in violation of the State
Pledge that, without paying just compensation to the Bondholders,
(i) permanently appropriates the Transition Property or denies all
economically productive use of the Transition Property; (ii) destroys the
Transition Property, other than in response to emergency conditions; or (iii)
substantially reduces, alters or impairs the value of the Transition Property,
if the action unduly interferes with the Bondholders' reasonable
investment-backed expectations.
Based upon our review of relevant
judicial authority, as set forth in this letter, but subject to the
qualifications, limitations and assumptions set forth in this letter, it is our
opinion that a reviewing court, in a properly-prepared and presented
case:
1. would
uphold the validity of the State Pledge;
2. would
conclude that the Texas Constitution does not provide for the amendment or
repeal of Subchapter I of Chapter 36 and Subchapter G of Chapter 39 of PURA by
citizen initiative or referendum;
3. (a)
would conclude that the Bondholders (or the Indenture Trustee acting on their
behalf) could successfully challenge under the Texas Contract Clause the
constitutionality of State Impairment Legislation (other than a law passed by
the Legislature in the valid exercise of the State's police power necessary to
safeguard the public safety and welfare);
(b) would
conclude that PUCT Impairment Action would be treated in the same manner as
State Impairment Legislation under the Texas Takings Clause; and
(c)
should conclude that Bondholders are entitled to permanent injunctive relief
under state law to prevent implementation of State Impairment Legislation or
PUCT Impairment Action hereafter passed by the Legislature or otherwise taken in
violation of the Texas Contract Clause; and although sound and substantial
arguments support the granting of preliminary injunctive relief, the decision to
do so will be in the discretion of the court requested to take such action,
which will be exercised on the basis of the considerations discussed in subpart
(5) of Part III below; and
4. would
find a compensable taking under the Texas Takings Clause if (a) it concludes
that the Transition Property is property of a type protected by the Texas
Takings Clause and (b) the State takes action that, without paying just
compensation to the Bondholders (i) permanently appropriates the Transition
Property or denies all economically productive use of the Transition Property;
(ii) destroys the Transition Property, other than in response to emergency
conditions; or (iii) substantially reduces, alters or impairs the value of the
Transition Property, if the action unduly interferes with the Bondholders'
reasonable investment-backed expectations; provided that, the court's conclusion
that a compensable taking had occurred would depend upon its resolution of the
issues discussed in Part III below.
Our opinion in the immediately
preceding subparagraphs 1, 2, 3 and 4 and in our discussion below is based upon
our evaluation of existing judicial decisions and arguments related to the
factual circumstances likely to exist at the time of a Texas Contract Clause or
Texas Takings Clause challenge to State Impairment Legislation, or to PUCT
Impairment Action, or to other State action claimed to be a taking of the
Bondholders' property and is intended to express our belief as to the result
that should be obtainable through the proper application of existing judicial
decisions in a properly-prepared and presented case. Such precedents
and such circumstances could change materially from those discussed below in
this letter.
In addition, our opinion assumes that
any State Impairment Legislation or PUCT Impairment Action effects a substantial
impairment of (i) the terms of the Bond Indenture or the Bonds or (ii) the
rights and remedies of the Bondholders (or the Indenture Trustee acting on their
behalf) prior to
the time that the Bonds are fully paid and discharged (or such payment is
provided for), if it prevents payment of the Bonds or significantly affects the
security for the Bonds. The determination of whether particular
legislative action constitutes a substantial impairment of a particular contract
is a fact-specific analysis, and nothing in this letter expresses any opinion as
to how a court would resolve the issue of "substantial impairment" with respect
to the Financing Order, the Charges, the Transition Property, the Bond Indenture
or the Bonds vis-a-vis a particular legislative action.
III. CHALLENGES TO THE
CONSTITUTIONALITY OF SUBCHAPTER I OF CHAPTER 36 AND SUBCHAPTER G OF CHAPTER
39
A. Validity of the State
Pledge
While the Texas Supreme Court upheld
the constitutionality of Subchapter G of Chapter 39 of PURA in City of Corpus Christi v. Public
Utility Commission, 51 S.W.3d 231 (Tex. 2001), against various arguments
under Article I, Section 17 of the Texas Constitution (the "Texas Takings
Clause") and against a challenge under Article III, Section 51 of the Texas
Constitution (prohibiting grants of public money to individuals), we are not
aware of any case law ruling on the validity of the State Pledge found in
Subchapter G of Chapter 39 of PURA § 39.310.
The Texas Supreme Court upheld the
validity of a similar pledge in Lower Colorado River Authority v.
McGraw, 125 Tex. 268, 83 S.W.2d 629 (1935). The court rejected
several challenges directed at the constitutionality of legislation creating the
Lower Colorado River Authority ("LCRA") and, more importantly, also rejected a
claim that the Legislature's pledge not to impair LCRA's ability to recover
revenue sufficient to pay the bondholders was an unconstitutional delegation of
legislative authority. The provision at issue stated, in pertinent
part:
Nothing
herein shall be construed as depriving the State of Texas of its power to
regulate and control fees and/or charges to be collected for the use of water,
water connections, power, electric energy, or
other service provided that
the State of Texas does hereby pledge to and agree with the purchasers and
successive holders of the bonds issued hereunder that the State will not limit
or alter the power hereby vested in the District to establish and collect such
fees and charges as will produce revenues sufficient to pay the items specified
in subparagraphs (a), (b), (c) and (d) of this Section 8, or in any way to
impair the rights or remedies of the holders of the bonds, or of any person in
their behalf, until the bonds, together with the interest thereon, with interest
on unpaid installments of interest and all costs and expenses in connection with
any action or proceedings by or on behalf of the bondholders and all other
obligations of the District in connection with such bonds are fully met and
discharged.18
The court
found that the Legislature had the authority to confer on the LCRA the right to
establish rates for its services and "had the power to guarantee the
continuation of such rates as long as the lawful obligations of the district are
outstanding."19 As the court observed,
"[i]f this were not so, bonds of the district, based on income, would be idle
and vain things."20
In a more recent case concerning the
scope of a city's regulatory authority over the LCRA, the Texas Supreme Court
reaffirmed its holding in McGraw concerning the
validity and efficacy of the State's pledge to not impair the rights of
bondholders to full recovery.21 The court
stated:
In our
opinion the statute means precisely what it says, i.e., that the LCRA Board will
establish rates and charges in the first instance, that its action in that
respect is subject at all times to the power of regulation reserved to the
State, and that this reserved power will not be exercised in a manner that will
prejudice bondholders or prevent the collection of revenues required for the
purposes designated in the four subparagraphs.22
Based on these authorities, we believe
that courts applying Texas law would uphold the validity of the state pledge in
PURA §
39.310.
B. Amendment or Repeal of
Legislation by Citizen Initiative or Referendum
The Texas
Constitution does not provide for citizen initiative or proposal of statewide
legislation leading to a popular referendum adopting such legislation.23 The Legislature has not
provided for citizen initiative and referendum in PURA with respect to the
matters governed therein.24 The Texas Constitution
provides that: "The Legislative power of this State shall be vested
in a Senate and House of Representatives, which together shall be styled ‘The
Legislature of the State of Texas.'"25 With the exception of
the specific delegations of authority noted in the footnotes, the Texas
Legislature exercises exclusive authority in the field of legislation in
Texas. We are of the opinion that Texas courts would conclude that
Texas law does not provide for citizen initiative or referendum with respect to
Subchapter I of Chapter 36 or Subchapter G of Chapter 39 of PURA.
C. Legislative or Regulatory
Impairment of Bondholders' Rights
It is our
opinion that Bondholders or the Indenture Trustee on their behalf could
successfully challenge under the Texas Contract Clause the constitutionality of
any legislation passed by the Texas Legislature or PUCT action that repeals the
State Pledge or limits, alters, impairs, or reduces the value of the transition
property, unless the law at issue was passed by the Legislature in the valid
exercise of the State's police power and is necessary to safeguard the public
safety and welfare.
(1) Impairment
Legislation
Article
I, Section 16 of the Texas Constitution (the "Texas Contract Clause") states, in
pertinent part: "No . .
. law impairing the obligation of contracts, shall be
made." In City of Aransas Pass v.
Keeling, 112 Tex. 339, 247 S.W. 818 (1923), the City of Aransas Pass sued
to compel the Texas Attorney General to approve bonds that had been issued by
the city pursuant to legislation that donated to the city for twenty
years eight-ninths of the net amount of the state ad valorem taxes due upon
property in San Patricio County, authorized the issuance of bonds by the city to
procure money to be used exclusively to construct and maintain sea walls,
breakwaters, and shore protections, and declared that the eight-ninths of the
state taxes donated to the city should be held in trust and applied to create a
sinking fund for the redemption of the bonds and to pay the interest
thereon. The Attorney General argued, among other things, "that
reasonable provision is wanting to redeem the bonds because the Legislature,
after the sale of the bonds, can repeal the donation of state taxes for 20
years."26 The court rejected this
argument, stating:
State and
federal authorities are uniform that, when an act of a state Legislature,
authorizing a bond issue, creates, or authorizes the creation of, a certain fund
for the bond's payment, such provision of the act enters into the contract
between the debtor and the holders of the bonds, so that it cannot be repealed
by subsequent legislation without the substitution of something of equal
efficacy. The subsequent legislation would impair the obligation of the
contract, and therefore come under constitutional condemnation.27
In City of Austin v. Cahill, 99 Tex. 172, 88 S.W.
542 (1905), the Texas Supreme Court had previously drawn the same conclusion
under the contract clause of the U.S. Constitution. In that case, the
City of Austin argued that the Legislature had amended the Charter of the City
of Austin by withdrawing its taxing power to repay certain previously issued or
unrefunded bonds. The court held that the adversely affected
bondholders had a contractual right to compel by mandamus a tax levy which
related back to the time when such taxes should have been levied in order for
the city to be able to meet its financial obligations under the
bonds. The court stated:
Much
strength is also imparted to this view by the consideration that the Legislature
must be presumed to have known that it was not within its constitutional power
to impair the contract with the holders of the unrefunded bonds by withdrawing
the taxing power which was a part of the obligation of the contract.28
These
precedents, while quite old, have continuing vitality with respect to the
principle that, when the state makes provision for and assurances of a revenue
source for the repayment of bonds, such assurances enter into the contract and
cannot later be impaired by legislative action.
In a different context, the
Texas Supreme Court later ruled that a Moratorium Law enacted during the Great
Depression to forestall suits to foreclose liens on real property deprived
lienholders "of the rights and remedies for which [they]
contracted."29 The court rejected the
property owner's argument that the state's police power authorized the
Moratorium legislation. Though it noted the similarities between the
contract clauses in the Texas Constitution and the United States
Constitution,30 the court reasoned that Section 29
of the Texas Constitution's Bill of Rights, which excepts from the general
powers of government all rights guaranteed by the Bill of Rights, "is an express
limitation on the police power which . . . plainly prohibits the enactment of
legislation the effect of which is to impair the obligation of contracts."31
More recently, the court
began to develop a more flexible approach to this analysis. In
Edgewood
Independent School District v. Meno, 917 S.W.2d 717 (Tex. 1995),
the court affirmed the vitality of the holding in Keeling that, when the
Legislature provides for the creation of a certain fund for the payment of a
bond issue, the provision "cannot be repealed by subsequent legislation without
the substitution of something of equal efficacy," but found that the rule "does
not prohibit every act affecting a bond-issuing entity's ability to repay its
obligations; rather, it proscribes the unmitigated repeal of a funding
source."32 The Edgewood
case challenged the school funding legislation that came to be known as Robin
Hood. Under that law, when a property-rich district failed to reduce
its taxable property to $280,000 per student, the Commissioner of Education was
required to detach property from the district and annex it to another
district. The school districts that challenged the law argued that
"the threat of this procedure creates a danger that insufficient funds will be
available to meet the district's outstanding bonded indebtedness. . .
. [and] impairs the district's ability to repay its obligations, in violation of
the Texas and United States Constitutions."
Citing two earlier decisions of the Texas Commission on Appeals, the court
stated:
As long
as the entity is clearly able to repay its obligations within statutory and
constitutional limitations, legislation reducing the entity's tax base does not
impair the obligation of contracts.33
The court
also noted that, in Determan
v. City of Irving, 609 S.W.2d 565 (Tex. Civ. App.—Dallas 1980, no writ),
the court of appeals had struck down "a six-percent limitation on a city's
annual tax increases, because such a limitation increased the likelihood that
the city's tax rate would be insufficient to meet its debt service
requirements."34 The court disapproved
any suggestion in Determan inconsistent with
its holding.
The
following year, in Barshop v.
Medina County Underground Water Conservation District, 925 S.W.2d 618
(Tex. 1996), the court considered a facial challenge to the constitutionality of
the Edwards Aquifer Act. The Act created the Edwards Aquifer
Authority to regulate groundwater withdrawals by well from the
aquifer. It placed certain limitations on withdrawals and, thus,
clashed with the common law rule of capture that a landowner's "right to
withdraw underground percolating water is not correlative, ‘but is
absolute.'"35 The plaintiffs who
brought the case, two county underground water conservation districts and three
private landowners, claimed that the Act, among other constitutional violations,
unconstitutionally impaired the obligation of contract.
Noting
that it had not considered the scope of the contract clause since its opinion in
Travelers' Ins. Co. v.
Marshall,
supra, where it determined
that the state's police power could never be used to justify an impairment of
contract, the court summarized developments in federal and Texas case law
inconsistent with the rule in Travelers'. The
court observed that two years after the Travelers' decision, the U.S.
Supreme Court ruled that Travelers' "only applied to
statutes specifically directed against the terms of a contract."36 The U.S. Supreme Court
had concluded that, under Texas law, police power regulations dealing with
physical things such as land or natural resources could have incidental effects
on contracts if the power was exercised in the interest of the public
welfare.37 The Texas Supreme Court
also cited several Texas cases that "have likewise concluded that the contract
clause may yield to statutes which are necessary to safeguard the public safety
and welfare."38 Based on these
authorities, the court departed from the rule of Travelers' and upheld the
Edwards Aquifer Act and the restrictions it placed on groundwater withdrawals
from the aquifer, stating:
Accordingly,
we determine that the Act is not invalid under the contract clause because it is
a valid exercise of the police power necessary to safeguard the public safety
and welfare.39
There are a number of earlier Texas
court of appeals decisions finding that the Legislature was justified in
impairing contractual rights when it exercised the police power to protect the
public safety and welfare. However, none of the cases involved
bondholders.40
In Trail Enterprises, Inc. v. City of Houston, supra, a
city ordinance restricted drilling within 100 feet of Lake Houston, a man-made
lake developed on land acquired by the city subject to the mineral rights
owner's pre-existing mineral leases. Although the court found that
the prohibition on drilling was a valid exercise of the city's police power that
justified the impairment of the contract, it also noted that "the City has not
acted in derogation of its contract with Wilson or the mineral reservation in
its deed. Both permitted drilling only if there was no pollution of
the Lake."41
Both
Texas State Teachers
Association v. State, supra, and Dovalina v. Albert, supra, involved
claims that legislation instituting testing requirements for teacher
certification, in the former, and polygraph examiner licensing, in the latter,
violated the contract clause. In Texas State Teachers Association v.
State, the court registered its doubt "that teachers' certificates are
the type of protected rights that fall within the meaning of Article I, Section
16" of the Texas Constitution but assumed that they did for purposes of the
opinion.42 After examining the
legislative duty to regulate public schools, the court upheld the statute,
reasoning as follows:
Because
regulation of the teaching profession and of the public education system is a
valid exercise of the police power, this Court has concluded that any impairment
of appellants' rights which has occurred is justified as an incident to the
valid exercise of the police power.43
In Dovalina v. Albert, an individual who
failed a newly enacted minimum standards test required for all operators of
polygraph equipment argued that the Act instituting the testing requirement
violated the contract clause. The court rejected the claim, noting
that "[h]ere as in Henderson [i.e., Henderson Co. v. Thompson,
supra] the statute challenged is not directed against any term of any
contract and its effect upon contracts is only incidental."44
Under these authorities, we are of the
opinion that in a properly-presented and argued challenge by the Bondholders (or
the Indenture Trustee acting on their behalf) a reviewing court would rule that
legislation impairing the rights of the Bondholders violates the Texas Contract
Clause. Legislation that repealed or significantly modified the State
Pledge in Section 39.310 of PURA or directly limited, altered, impaired, or
reduced the value of the Transition Property or the charges at issue would not
be considered "incidental," and would be held to be an unconstitutional
violation of the Texas Contract Clause unless the state could show that the
impairment was justified on the basis of a legitimate exercise of its police
powers necessary to safeguard the public safety and welfare.
(2) Impairment
by PUCT
The Texas
cases cited above have addressed impairments of contractual obligations by the
Legislature or a local governmental body. Nevertheless, if the PUCT
were to take action that limits, alters, impairs, or reduces the value of the
Transition Property or the Transition Charges, the Bondholders could also
challenge the PUCT under the Texas Contract Clause. Ratemaking by a regulatory
agency, such as the
PUCT, has been characterized as being a legislative activity.45 In addition, in
reviewing regulatory actions by the PUCT, Texas courts have applied the
constitutional prohibitions against ex post facto and retroactive laws.46 These prohibitions,
like the constitutional prohibition on impairment of contracts, are found in
Article I, § 16 of the Texas Constitution.
Thus, if
the PUCT were to exercise ratemaking or other legislative powers that
substantially impaired the Transition Property or Transition Charges created
under the Financing Order, such action would give rise to state claims, similar
to actions of the Legislature taken in derogation of the State Pledge. Section
39.304(b) of PURA states: "The financing order shall remain in effect and the
property shall continue to exist for the same period as the pledge of the state
described in Section 39.310." This statutory provision and the terms
of the Financing Order providing that the State of Texas and the PUCT "will not
take or permit any action that would impair the value of transition property,
or, except as permitted by PURA § 39.307, reduce, alter or impair the
transition charges to be imposed, collected, and remitted to any financing
parties, until the principal, interest and premium, and any other charges
incurred and contracts to be performed in connection with the transition bonds
have been paid and performed in full"47 support the conclusion that a
reviewing Texas state court likely would treat action by the PUCT repudiating
the pledge in the Financing Order not to impair the Transition Charges in a
manner similar to a repeal of the State Pledge by the Legislature.48 Texas state courts have
enjoined unconstitutional action by members of a state agency, as discussed
below.49
In
Conclusion of Law No. 40 of the Financing Order, the PUCT acknowledges that it
is bound by the State Pledge:
Pursuant
to PURA § 39.310, the State of Texas has pledged for the benefit and
protection of all financing parties and ETI, that it (including the Commission)
will not take or permit any action that would impair the value of transition
property, or, except as permitted by PURA § 39.307, reduce, alter or impair
the transition charges to be imposed, collected, and remitted to any financing
parties, until the principal, interest and premium, and any other charges
incurred and contracts to be performed in connection with the transition bonds
have been paid and performed in full. BondCo, in issuing transition
bonds, is authorized pursuant to PURA § 39.310 and this Financing Order to
include this pledge in any documentation relating to the transition
bonds.
The
statute and the Financing Order also contain language prohibiting the PUCT from
impairing the Financing Order and the Charges. Section 39.303(d) of PURA
states:
A
financing order shall become effective in accordance with its terms, and the
financing order, together with the transition charges authorized in the order,
shall thereafter be irrevocable and not subject to reduction, impairment, or
adjustment by further action of the commission, except as permitted by
Section 39.307 [relating to true ups].
This
statement is reiterated in Conclusion of Law No. 20 of the Financing
Order. In addition, Ordering Paragraph 54 of the Financing Order
states:
Further Commission Action. The
Commission guarantees that it will act pursuant to this Financing Order as
expressly authorized by PURA to ensure that expected transition charge revenues
are sufficient to pay on a timely basis scheduled principal and interest on the
transition bonds issued pursuant to this Financing Order and other costs, including fees and
expenses, in connection
with the transition bonds.
Therefore,
we are of the opinion that in a properly-presented and argued challenge by the
Bondholders (or the Indenture Trustee acting on their behalf), a reviewing court
applying Texas law would treat a substantial impairment of the Financing Order
or PURA by the PUCT in the same manner as, and subject to the same
qualifications as, State Impairment Legislation.
(3) Declaratory
Relief
Texas law provides that "a person . . .
whose rights . . . are affected by a statute . . . may have determined any
question of construction or validity arising under the . . . statute . . . and
obtain a declaration of rights . . . thereunder."50 The
constitutionality of legislation is a suitable matter for declaratory
relief.51 If a statute is
alleged to be unconstitutional, the attorney general of the State must also be
served with a copy of the proceeding and is entitled to be heard.52
A declaration that legislation
impairing the obligation of contract is unconstitutional will depend on the
matters discussed previously in this opinion. It would have to be
established that such legislation caused a substantive impairment that
significantly affects the security for the Bonds or prevents payments of the
Bonds and such impairment could not be justified by the State on the basis of a
legitimate exercise of its police powers to safeguard the public safety and
welfare.
(4) Permanent
Injunctive Relief
Texas law provides that a "writ of
injunction may be granted if: (1) the applicant is entitled to
the relief demanded and all or part of the relief requires the restraint of some
act prejudicial to the applicant . . . (3) the
applicant is entitled to a writ of injunction under the principles of equity and
the statutes of this state relating to injunctions . . . or (5) irreparable injury
to real or personal property is threatened, irrespective of any remedy at
law."53
Generally, a party requesting
injunctive relief must show "the existence of a wrongful act, the
existence of imminent harm, the existence of irreparable injury, and the absence
of an adequate remedy at law."54
If legislation were found to
unconstitutionally impair the obligation of contracts, then the Bondholders
could likely obtain an injunction prohibiting state officers from enforcing such
legislation.55 This is likely also true
if the PUCT were to take action found to impair the obligation of contracts in a
manner inconsistent with current statutory authorization. Texas
courts will grant injunctive relief when a government official acts in a way
that exceeds constitutional or statutory authority.56 "[A]n entity or person
whose rights have been violated by the unlawful action of a State official, may
bring suit to remedy the violation or prevent its occurrence, and
such suit is not a suit against the State requiring legislative or statutory
authorization."57
(a) Existence
of wrongful act
Texas courts would likely find that
unconstitutional legislation or governmental action that exceeds constitutional
or statutory authority would satisfy the requirement that a party seeking
injunctive relief demonstrate the existence of a wrongful act.58
(b) Existence
of imminent harm
Texas
courts would also likely find that unconstitutional legislation or governmental
action, including the threat of action, that exceeds constitutional or statutory
authority would satisfy the requirement that a party seeking injunctive relief
demonstrate the existence of imminent harm.59
(c) Existence
of irreparable harm
A showing
of irreparable harm is a prerequisite for one seeking injunctive relief.60 "An injury is
irreparable if the injured party cannot be adequately compensated in damages or
if the damages cannot be measured by any certain pecuniary standard."61 There is authority for
the contention that harm or injury caused by the violation of a constitutional
right is, as a matter of law, irreparable.62 This proposition was
echoed by the court in Operation Rescue-National v. Planned
Parenthood of Houston and Southeast Texas, Inc., 937 S.W.2d 60 (Tex.
App.—Houston [14th Dist] 1996), aff'd as modified on other
grounds, 975 S.W.2d 546 (Tex. 1998), in which the court recognized that
"[u]nder Texas law, a violation of a constitutionally guaranteed right inflicts
irreparable injury warranting injunctive relief."63 Of course, various
other types of injuries may be deemed irreparable. Disruption of
business, for instance, may constitute the type of harm for which an injunction
may issue.64
Based on these precedents, we are of
the opinion that an action by the government—either by (1) legislation
repealing the State pledge or (2) legislation or PUCT action reducing or
eliminating the recovery of Transition Property or Transition Charges—would
probably cause the type of injury required to support a finding of irreparable
harm. This is buttressed by the fact that such action would produce
an ongoing injury. The Transition Property at issue is limited in
time, and diverted funds may not be replaced. The continued existence
or enforcement of legislation or regulation that
effectuates diminution of the bonds' value is not a one-time occurrence but a
persistent threat to the Bondholders' rights. In State v. Texas Pet Foods,
Inc., 591 S.W.2d 800, 804 (Tex. 1979), the court held that when a
defendant has engaged in a settled course of conduct, a court may assume that
the conduct will continue,
absent clear proof to the contrary, and exercise its equitable powers to
issue an injunction, even if the defendant promises to cease and desist.65
(d) No
adequate remedy
A party requesting injunctive
relief must also show that it has no adequate remedy at law." It is a settled
principle that an "injured party is entitled to relief by injunction when there
is not clear, full and adequate relief at law."67 "A party
has no adequate remedy at law when damages are
incapable of calculation or the party to be enjoined is incapable of responding
in damages."68 At least one Texas
court has held that "an act in violation of a statute may be enjoined without a
showing that the legal remedy is inadequate."69
In this instance, it may be possible
that the Bondholders would not be able to quantify their losses or the
diminution in value of the bonds. In a similar situation, the United
States Supreme Court recognized the difficulty in assessing damages to
bondholders stemming from a repeal of a statutory pledge in U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1
(1977). In U.S. Trust Co., the states of New
York and New Jersey entered into a legislative compact with each other and with
holders of bonds that were issued by the Port Authority of New York and New
Jersey to finance the construction of the World Trade Center and the acquisition
of the Hudson & Manhattan Railroad.70 This compact included a
covenant that, so long as any bonds remained outstanding and unpaid, neither the
states nor the Port Authority would apply any of the revenues or reserves that
were then or would be in the future pledged as security for the bonds to any
railroad purposes other than certain enumerated purposes.71 The governors of both
states subsequently signed legislation effectively repealing the covenant, in
response to a national energy crisis.72 The Supreme Court held
that the repeals violated the contract clause of the Federal Constitution,
finding that the repeals impaired valid contracts between the states and the
bondholders.73
The
Supreme Court found significant evidence that the market price for the Port
Authority Bonds was adversely affected immediately after the covenant was
repealed.74 After establishing that
it could not ascertain with certainty that the fluctuations in market price were
caused by the repeal of the covenant, the court simply determined that "no one can be sure precisely how
much financial loss the bondholders suffered."75
Thus,
U.S. Trust Co. , involving the
repeal of a covenant analogous to the State Pledge, illustrates the potential
difficulty of ascertaining damages in this case. Even if such damages
could be assessed with certainty, the Bondholders may not have an adequate state
law vehicle to effectuate recovery. As a result, there may well be no
adequate remedy at law for the Bondholders, and it is likely that a substantial
impairment in this case would justify the granting of permanent injunctive
relief.
(5) Temporary
Injunctive Relief
Temporary
injunctive relief is warranted when an applicant shows that it is entitled to
preserve the latest uncontested status quo of the subject matter of the suit
pending trial on the merits.76 A court "may restrain
the enforcement of administrative orders of State Boards and agencies for the
purpose of preserving the status quo pending trial on the merits of a suit to
set aside such order."77 To be entitled to
temporary injunctive relief, the Bondholders would be required to prove "(1) a
cause of action against the defendant; (2) a probable right to the relief
sought; and (3) a probable, imminent, and irreparable injury in the
interim." In the case of
regulation affecting the Transition Bonds, Bondholders may be required to show
that available administrative remedies, if any, would be an inadequate means of
redress.79
The Texas Supreme Court has stated that
to show entitlement to a temporary injunction, a litigant "needs only to plead a cause
of action," not prove that he will prevail.80 The requirement to show
a probable right to recovery could be satisfied by demonstrating that the
legislative or administrative action was unconstitutional. The
Bondholders would not be required to establish that they would ultimately
prevail but only that they are entitled to preservation of the status quo
pending trial on the merits.81
To
satisfy the requirement to show that they will suffer imminent and irreparable
harm and an absence of any adequate remedy at law in the interim period,
Bondholders would need to establish the possibility of harm such as suspended
payments, reduction in the market price of the Transition Bonds, and a possible
default by the Issuer of the Transition Bonds. Bondholders could
proffer a colorable argument that they would suffer irreparable harm if state
legislative or administrative action caused delays in payment and threats of
default on the Transition Bonds. For example, if the Transition
Charges or payments to the Issuer were halted or reduced, this could result in a
downgrade of the Transition Bond's ratings. This downgrade would
likely produce a loss of value in the Transition Bonds and could cause
Bondholders to sell their Transition Bonds at prices lower than they could have
sold them prior to any repeal. Delays in payment or non-payment of
interest or principal on the Transition Bonds could also result. Regardless, as noted by the U.S.
Supreme Court in U.S. Trust Co., it would be very
difficult to place a monetary valuation on any such damages.82 Further, any monetary
loss due the Bondholders because of a ratings downgrade and the resulting
decrease in market value of the Transition Bonds could probably not be recovered
from the State of Texas in a proceeding at law. "Our State does not
recognize a common law cause of action for damages to enforce constitutional
rights."83
Texas
courts might find that a delay of payments or non-payment until final judgment
is not the type of "irreparable harm" that a temporary injunction seeks to
prevent pending resolution of the matter, unless the delay resulted in the
insolvency of either party or in the destruction of a party's
business. For instance, in LeFaucheur v. Williams, 807 S.W.2d 20 (Tex.
App.—Austin 1991, no writ), the court refused to issue a temporary injunction in
part because the plaintiff failed to allege or prove that the defendant could
not satisfy a money judgment. A court's determination of the
appropriateness of a temporary injunction in this case will depend on the facts
and evidence presented to the court. If the court finds that the Bondholders
have demonstrated a probable right to recovery, as well as imminent and
irreparable harm for which there is no adequate remedy at law, the court will
issue a temporary injunction, restoring the status quo immediately preceding any
contested legislation or regulation.
Assuming
that the injunction is not adverse to the public interest,84 we are of the opinion that the
Bondholders would likely be entitled to temporary injunctive relief, pending the
outcome of a trial for declaratory or permanent injunctive relief. As
noted above, the Bondholders would not be required to prove that they would
prevail. Rather, they would be held to the burden of demonstrating a
meritorious, bona fide complaint and entitlement to preservation of the status
quo.85
D. State Action and the Takings
Clause
Alternatively, impairment of
bondholders' value could also be construed as a compensable
taking. Article I, Section 17 of the The Texas Constitution (the
"Texas Takings Clause") requires that no "person's property shall be taken,
damaged or destroyed for or applied to public use without adequate compensation
being made." The Texas Takings Clause does "not limit the government's
power to take private property for public use but
instead require[s] that a taking be compensated."86 Governmental
action or restriction that deprives the owner of "all economically viable use of
the property totally destroys the value of the property" and is a taking that
must be compensated.87 Texas courts
also recognize that, where governmental action falls short of a total taking or
complete destruction of the value of property, a claim for a "regulatory taking"
can be asserted where the government action has unreasonably interfered with an
owner's right to use and enjoy property.88
Furthermore,
the Texas Supreme Court has interpreted the Texas Takings Clause as providing
greater protection to owners of private property than the federal takings clause
because, unlike the language of the federal takings clause that refers only to
"taking," the Texas Takings Clause applies more broadly to "taking, ...
damaging," or "destroying" private property.89 Thus, the language of the Texas
Takings Clause would enable a court to determine that "damage" to the Transition
Property, short of a complete taking resulting in non-payment of the Transition
Bonds, constituted a violation of the Texas Takings Clause. In Steele v. City of Houston, 603 S.W.2d
786, 790 (Tex. 1980), the Texas Supreme Court noted:
The
government's duty to compensate for damaging property for public use after 1876
was not dependent upon the transfer of property rights.... To entitle
the party to compensation under our present constitution, it is not necessary
that his property shall be destroyed, nor is it necessary that it shall be even
taken. It is sufficient to entitle him to compensation that his property has
been damaged.
The Texas
Supreme Court stated that the purpose of the word "damage" was to prevent a
narrow construction of the word "taking."90 If a reviewing Texas
state court were willing to apply the Texas Takings Clause to the Transition
Property, governmental action that diminished but did not completely eliminate
the value of the Transition Property might also be found to violate the Texas
Takings Clause. For example, any legislation passed by the Texas
Legislature or PUCT action that repeals the State Pledge or limits, alters,
impairs, or reduces the value of the Transition Property or Transition Charges
and affects the market value of the Transition Bonds might constitute "damaging"
of property under the Texas Takings Clause, even if it does not rise to the
level of a "taking" under the federal takings clause.
To
establish a takings claim under the Texas Takings Clause, the Texas Supreme
Court has held that a plaintiff must demonstrate that: (i) the State
intentionally performed certain acts (ii) that took, damaged or destroyed
protected property (iii) for public use.91
1. Intentional
Act
The State
will be liable to compensate a private party for a taking of property only if
the State intended to perform the act that caused the taking.92 On the other hand, when the taking or damage
is merely the unintended result of the government's act, the act does not provide
any public benefit, and the property cannot be said to have been "taken or
damaged for public
use."93 Thus, negligence on the
part of the State or its agents that contributes to the destruction of private
property cannot support a taking claim and would be subject to a sovereign
immunity defense.94
The State
Pledge, the related provisions of Subchapter G of Chapter 39 of PURA, and the
Financing Order creating the Transition Property and Transition Charges are
intended to protect the Bondholders' interests. The purpose of the
statutory provisions and the Financing Order is to reduce costs to electricity
consumers in Texas of recovering stranded costs and regulatory assets, because
securitization financing will result in lower financing costs.95 The Legislature
intentionally enacted the State Pledge and the other provisions of Subchapter G
of Chapter 39 of PURA under which the issuance of the Transition Bonds has been
authorized.
While it
is not possible to anticipate the particular form that State action might take,
legislation enacted by the Legislature or an order adopted by the PUCT the
purpose of which would be to specifically limit, impair, or reduce the value of
the Transition Property and Transition Charges would be intentional acts of the
State. Therefore, a reviewing Texas state court likely would find the element of
intentional action by the State involved in connection with any State Impairment
Legislation or PUCT Impairment Action.
2. Protected
Property Interest
A valid
claim under the Texas Takings Clause requires proof of a taking, damage, or
destruction of a protected property interest.96 In this context, the
issue is whether the State Pledge, the Financing Order, and/or the Indenture
create a protected property interest.
The
Legislature plainly provided that the right to impose, collect, and receive
transition charges is a property right when pledged or assigned in connection
with the issuance of transition bonds.
(a) The
rights and interests of an electric utility or successor under a financing
order, including the right to impose, collect, and receive transition charges
authorized in the order shall be only contract rights until they are first transferred to
an assignee or pledged in connection with the issuance of transition bonds, at
which time they become "transition
property."
(b) Transition property shall constitute
a present property right for purposes of contracts concerning the sale or
pledge of property, even though the imposition and collection of transition
charges depends on further acts of the utility or others that have not yet
occurred.97
Accordingly,
as a matter of law, the right of the electric utility to impose, collect, and
receive transition charges, as authorized in the Financing Order, that is sold
by the electric utility to the Issuer becomes a property interest, as opposed to
a contractual right, when it is sold.
No Texas court has considered whether
the Transition Property at issue is protected by the Takings
Clause. While a few Texas court of appeals decisions have suggested
that the Takings Clause is limited to takings of real property or property
attendant thereto,98 the weight of authority has
recognized that the clause is not limited in application to real
property.
In a case finding that a municipality's
requirement that a developer construct and pay for offsite public improvements
as a condition to plat approval for subdivision development constituted a
compensable taking under the Texas Constitution, the court stated:
The Fifth
Amendment of the United States Constitution and article I, section 17 of the
Texas Constitution prohibit the taking of private property—both real and
personal, and including money—for public use without just compensation.99
Texas courts have found that a lender's
perfected security interest is a protected property interest under the Texas
Takings Clause.100 In MidFirst Bank, the Texas
Workforce Commission ("TWC") attempted to use a corporation's receivables to
satisfy statutory liens arising from the corporation's failure to pay former
employees' wage claims and unemployment taxes.101 However, the Austin
Court of Appeals concluded that the TWC's action, which deprived MidFirst Bank
of its security interest in the receivables, constituted a taking in violation
of the Texas Takings Clause. In so doing, the Austin Court of Appeals
expressly rejected TWC's argument that takings claims under the Texas
Constitution are confined to the taking of real property by eminent domain.102 Similarly, other courts of appeals
have extended the protections of the Texas Takings Clause to the rights of
secured lienholders in manufactured housing,103 to the property rights of patent
holders,104 and to the property rights of
franchisees.105
Based on the foregoing, it is our
opinion that it is likely that a Texas court would conclude that the Transition
Property, if "taken, damaged or destroyed for or applied to public use" by an
act of the Legislature or the PUCT, is a "cognizable property interest" entitled
to protection under the Takings Clause of the Texas Constitution.
3. Property
Taken for Public Use
The Texas
Takings Clause provides private citizens with compensation only if property is
"taken... for or applied to public use."106 The State is without
authority to take private property except for a public use. A court
will enjoin action by governmental officials to take property that benefits only
private individuals.107 The public use
requirement serves two objectives: (1) to ensure that, when the State must
compensate a private person for a taking, the public has received
some benefit; and (2) to distinguish a taking, which is the act of the
sovereign, from
those actions, such as tortious acts or takings for a private purpose, which are
the acts of individuals acting outside of their official capacities.108 When faced with a
takings claim, a
reviewing Texas state court must therefore analyze whether or not the state
action was for a public use. A reviewing Texas state court's analysis
of any state action would obviously depend upon the particular facts
involved.
While it
is not possible to anticipate what particular form state action might take,
presumably such action would be taken to provide relief to ratepayers subject to
the Transition Charges. However, the fact that the state action is
likely to be directed at protecting particular consumers of electricity should
not lead a reviewing Texas state court to decide the state action is not for a
public use or purpose. Texas judicial decisions indicate that a state
action that provides a direct benefit to only a select group of persons can
nevertheless be related to furtherance of a public purpose.109 In MidFirst Bank, the TWC was
seeking to collect from funds being held at MidFirst Bank, receivables of a
health care facility to satisfy tax liens and wage claims against the health
care facility. The money recovered for the wage claims would have
gone directly to individual claimants.110 In defending against a
takings claim by MidFirst Bank (which held a superior lien on the funds and was
attempting to collect the funds for itself), the TWC argued its actions in
attempting to collect the wage claims were not subject to the Texas Takings
Clause because those actions were not for a public purpose.111 The Austin Court of
Appeals held that the TWC, in enforcing the Texas Labor Code and obtaining funds
that were rightfully the property of MidFirst, was "acting in furtherance of a
public purpose" for purposes of a takings claim.112 The Austin Court of
Appeals stated "the fact that the benefit inures to a specific group of people
does not lessen the importance of enforcement of the labor code to the public at
large."113
Assuming
that the Legislature or the PUCT were to reduce the amount of Transition Charges
allowed in the Financing Order or similarly impair the Transition Property, the
purpose would likely be to protect the interests of electric
consumers. We believe it is likely that a reviewing Texas state court
would find that the public use requirement under the Texas Takings Clause would
be satisfied.
4. Valid
Exercise of Police Power
All
private property is held subject to the valid exercise of the State's police
power.114 The government will
not be required to make compensation "for losses occasioned by the proper and
reasonable exercise of its
police power."115 Nonetheless, the State
may not defend its actions merely by labeling them as an exercise of its police
power. As the Texas Supreme Court has stated: "Recognizing the
illusory nature of the problem, we have previously refused to establish a bright
line for distinguishing between an exercise of the police power which does
constitute a taking and one which does not."116
In order
for a governmental action to be a valid exercise of the state's police power,
not considered a taking, there are two requirements:
First,
the regulation must be adopted to accomplish a legitimate goal; it must be
"substantially related" to the health, safety, or general welfare of the
people. Second, the regulation must be reasonable; it cannot be
arbitrary.117
This
analysis, of necessity, is fact-intensive and each case stands on its own.118 As the court stated in
Sheffield:
[W]hether
regulation has gone "too far" and become too much like a physical taking for
which the constitution requires compensation requires a careful analysis of how
the regulation affects the balance between the public's interest and that of
private landowners.119
Factors
that are relevant in evaluating this balance between the public's interest and
the interest of private citizens are: "(1) ‘the economic impact
of the regulation on the claimant'; (2) ‘the extent to which the regulation
has interfered with distinct investment-backed expectations'; and (3) ‘the
character of the governmental action.'"120
Unlike more typical takings cases
dealing with issues such as zoning restrictions or land use exactions, a claim
in this case would arise from state action that would be extraordinary and
unusual. A repeal of the State Pledge or an impairment of the
Transition Property that the State has vowed not to impair should trigger close
scrutiny by a court of the state's justification for such action under the
police power. Moreover, such action, if significant, would negatively
impact a substantial investment-backed securitization financing arrangement that
has been sanctioned by the Legislature and specifically found by the Legislature
to provide "greater tangible and quantifiable benefits to ratepayers than would
have been achieved without the issuance of transition bonds."121 Moreover, impairment
of the Transition Property would ironically harm Bondholders who by their
investment have, in the Legislature's view, provided "tangible and quantifiable
benefits" to the public.
Accordingly,
based on the above, we are of the opinion that a reviewing Texas state court
would find a compensable taking under the Texas Takings Clause if (a) it
concludes that the Transition Property is property of a type protected by the
Texas Takings Clause and (b) the State takes action that, without paying just
compensation to the Bondholders, (i) permanently appropriates the Transition
Property or denies all economically productive use of the Transition Property;
or (ii) destroys the Transition Property, other than in response to emergency
conditions; or (iii) substantially reduces, alters or impairs the value of the
Transition Property, if the action unduly interferes with the Bondholders'
reasonable investment-backed expectations.
IV. QUALIFICATIONS
Our opinion is subject to the
qualifications set forth herein and, with respect to the claims discussed
herein, to the condition that such claims are properly-presented and argued, and
that the law is properly applied. We wish to note that we are not aware of any
decisions interpreting PURA Chapter 39, Subchapter G concerning the vesting,
creation or transfer of any transition property thereunder except for the City of Corpus Christi
decision or TXU Electric Co.
v. Public Utility Commission, 51 S.W.3d 275 (Tex. 2001).
All of the foregoing analyses and the
conclusions set forth herein are premised upon, and limited to, the documents
evidencing, and the law governing, the transactions described herein in effect
as of the date of this letter. Furthermore, we note that a court's
decision regarding matters upon which we opine herein will be based on the
court's own analysis and interpretation of the factual evidence before the court
and of applicable legal principles.
Our opinion is subject to the effect of
general principles of equity, including, without limitation, limitations on the
availability of equitable remedies and concepts of materiality, reasonableness,
good faith and fair dealing, and other similar doctrines affecting the
enforceability of agreements generally (regardless of whether considered in a
proceeding in equity or at law).
Our opinion is limited to the specific
opinion requested in Section II of this letter and is limited in all respects to
laws and facts existing on the date of this letter. We express no
opinions implicitly herein, and we assume no obligation to advise you with
respect to any issues not specifically addressed herein. The opinion
set forth above is given as of the date hereof and we disavow any undertaking or
obligation to advise you of any changes in law or any facts or circumstances
that may hereafter occur or come to our attention that could affect such
opinion. Furthermore, it is our and your understanding that the
foregoing opinion is not intended to be a guaranty as to what a particular court
would actually hold, but an opinion as to the decision a court would reach if
the issue were properly-presented to it and the court followed what we believe
to be the applicable legal principles.
This
opinion is solely for your benefit in connection with the transactions described
above and may not be relied upon or used by, circulated, quoted or referred to,
nor may copies hereof be delivered to, any other person for any purpose without
our prior written approval. We hereby consent to the filing of this
letter as an exhibit to the Securities and Exchange Commission Form 8-K and to
all references to our firm included in or made a part of the Form 8-K. In
giving the foregoing consents, we do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or the related rules and regulations of the Securities and Exchange
Commission.
We have assumed throughout this opinion
(i) that there has been no (and will not be any) fraud in connection with the
transactions described herein, and (ii) (a) the accuracy of the representations
and warranties set forth in the Relevant Documents as to factual matters and
(b) that the transactions contemplated by the Relevant Documents will not
be subject to avoidance as a fraudulent transfer. Our opinion is
limited to the presently effective laws of the State of Texas.
Very
truly yours,
/s/ Clark Thomas &
Winters
Schedule
I: Addressees of Opinion
|
13
|
Application of Entergy Texas,
Inc. for a Financing Order, Docket No. 37247, Financing Order at
Conclusion of Law No. 40.
|
|
23
|
The
Constitution does provide for popular referendum in certain specific
circumstances: (1) it authorizes elections on local option laws regarding
the sale of alcoholic beverages, Tex. Const. art. XVI,
§ 20; (2) it requires submission to the voters of salary
recommendations for certain elected officials, Tex. Const. art. III, §
24; (3) it requires that constitutional amendments be adopted by popular
referendum, Tex Const. art. XVII,
§ 1; and (4) it requires a statewide referendum on the question of
imposing an income tax on natural persons, Tex. Const. art.
VIII, § 24.
|
|
24
|
The
Legislature has made popular referendum, but not citizen initiative, part
of the adoption of certain local option laws in other instances,
including: local adoption by popular referendum is required for the
property tax exemption for organizations primarily engaged in charitable
activities, Tex.
Tax Code Ann. § 11.184 (Supp. 2006), and local adoption by popular
referendum is required to impose municipal sales and use taxes, Tex. Tax Code
Ann. § 321.101 (Vernon
2008).
|
|
27
|
Id. (citing City of Austin v.
Cahill, 99 Tex. 172, 88 S.W. 542 (1905); Bassett v. City of El
Paso, 88 Tex. 168, 30 S.W. 893 (1895); Morris & Cummings v.
State, 62 Tex. 745 (1884); Fletcher v. Peck, 10
U.S. 87 (1810); and Seibert v. United
States, 122 U.S. 284
(1887)).
|
|
30
|
In
Travelers' Ins.
Co. v. Marshall,
the Texas Supreme Court noted that the contract clause in the Texas
Constitution adopted in 1876 was “derived from” the contract clause in the
U.S. Constitution, which is nearly identical in wording. Id. at 1012. The court
reasoned that the interpretation of the Federal Contract Clause by the
federal courts is of critical importance in understanding the meaning of
the Texas Contract Clause at the time it was adopted. Thus, in considering
challenges to State legislation or action which impairs an existing
contract, Texas courts have traditionally looked to and applied federal
law developed under the Federal Contract Clause, as well as applying their
own analyses of the Texas Contract Clause. Lester v. First Am. Bank, Bryan, Tex., 866
S.W.2d 361, 365-66 (Tex. App.—Waco 1993, writ
denied).
|
|
32
|
Edgewood
Indep. Sch.
Dist v.
Meno, 917
S.W.2d 717, 742 (Tex. 1995) (emphasis in original) (quoting City of Aransas Pass v.
Keeling, 112 Tex.
339, 347-48, 247 S.W. 818, 821 (1923)).
|
|
33
|
Id. (citing Lyford Indep. Sch. Dist. v.
Willamar Indep. Sch. Dist., 34 S.W.2d 854, 856 (Tex. Comm'n App.
1931, judgm't adopted) and El Dorado Indep. Sch. Dist. v.
Tisdale, 3 S.W.2d 420, 422 (Tex. Comm'n App. 1928, judgm't
adopted)).
|
|
34
|
Id. at 742 (citing
Determan v. City of
Irving, Tex, 609 S.W.2d 565,
570 (Tex. Civ. App.—Dallas 1980, no
writ).
|
|
35
|
Barshop v. Medina County
Underground Water Conservation Dist., 925 S.W.2d 618, 625 (Tex. 1996)
(quoting Houston &
T.C. Ry. Co. v. East, 98 Tex. 146, 81 S.W. 279
(1904)).
|
|
40
|
See, e.g., Trail Enters., Inc.
v. City of Houston, 957
S.W.2d 625 (Tex. App.—Houston [14th Dist.] 1997, pet. denied) (drilling
restrictions); Tex.
State Teachers Ass'n v. State, 711 S.W.2d 421,
425 (Tex. App.—Austin 1986, writ ref'd n.r.e.) (teacher testing); State Bd. of Registration for Prof'l
Eng'rs v. Wichita
Eng'g Co.,
504 S.W.2d 606, 608 (Tex. Civ. App.—Fort Worth 1973, writ ref'd n.r.e.)
(restricting use of the term “engineering” in name of Co.); Dovalina v. Albert, 409 S.W.2d 616, 619
(Tex. Civ. App.—Amarillo 1966, writ ref'd n.r.e.) (test for licensing of
polygraph operators); Biddle v. Bd. of Adjustment, 316
S.W.2d 437, 440-441 (Tex. Civ. App.—Houston 1958, writ ref'd n.r.e.)
(zoning ordinance).
|
|
44
|
Dovalina, 409 S.W.2d at 619;
see also Biddle,
316 S.W.2d at 440-441 (concluding that
although the zoning ordinance at issue may have incidentally affected
appellants' contract, it did not unconstitutionally impair its
obligation).
|
|
45
|
R.R. Comm'n v. Houston Natural Gas
Corp., 289 S.W.2d 559, 562 (Tex. 1956); Cent. Power and Light
Co. v.
Pub. Util. Comm'n of Tex.,
36 S.W.3d 547, 554 (Tex. App.—Austin 2001, pet.
denied).
|
|
46
|
Southwestern Bell Tel.
Co.v. Pub. Util. Comm'n, 615
S.W.2d 947, 956-57 (Tex. Civ. App.—Austin 1981), writ ref. n.r.e. per curiam
622 S.W.2d 82 (Tex. 1981); Cent. Power and Light,
36 S.W.3d at 554.
|
|
49
|
State Bd. of Ins. v. Prof'l
& Bus. Men's Ins. Co., 359 S.W.2d 312, 315 (Tex. Civ.
App.—Austin 1962, writ ref'd
n.r.e.).
|
|
54
|
See Tex.
Health Care Info. Council v. Seton Health Plan, Inc., 94 S.W.3d 841, 853
(Tex. App.—Austin 2002, pet. denied). Additionally, courts generally
balance equities to determine whether granting an injunction is proper.
Thus, if the public interest is involved, courts will determine
whether granting a writ will cause harm to the public disproportionate to
the harm to the private litigant seeking protection of
the injunction. Storey
v. Cent. Hide
& Rendering Co., 148 Tex. 509, 226 S.W.2d 615 (1950); Hooks Tel. Co. v. Leafy, 352 S.W.2d 755
(Tex. Civ. App.—Texarkana 1961, no
writ). If damage to private individuals outweighs the benefit
accruing to the public, the injunction will be granted. Mitchell v. City of Temple, 152
S.W.2d 1116, 1117 (Tex. Civ. App.—Austin 1941, writ ref'd w.o.m.)
(discussing a temporary injunction). Here, for the state
officials to claim that the legislative or administrative action is
warranted, they will most likely argue that there is a public interest to
be protected by such action. In Mitchell, for example,
the court held that the harm to the 15,000 residents of Temple by
enjoining the operation of a sewage plant outweighed the harm to
individual citizens claiming injury from continued operation of the plant.
Conversely, in Burrow
v. Davis,
226 S.W.2d 199 (Tex.
Civ. App.—Amarillo 1949,
writ ref'd n.r.e.), the court refused to enjoin completion of
construction of a building or require that structure to be torn down even
though it slightly inconvenienced the public because it encroached upon
two public streets, since on balancing the equities, the harm to the
individual owners of destroying their property was greater than the harm
to the adjacent property
owners.
|
|
55
|
City of Beaumont v.
Bouillion, 896 S.W.2d 143, 148-149 (Tex. 1995) (equitable relief,
such as injunction, is available as remedy for violation of constitutional
right guaranteed in article I of the Texas Constitution.); State v. Ferguson, 133
Tex. 60, 125 S.W.2d 272 (1939) (“It is a generally accepted rule that
injunctive relief may be granted to prevent the enforcement of an
unconstitutional statute when its enforcement will result in irreparable
injury to property
rights.”).
|
|
56
|
Bexar County v. North East
Indep. Sch. Dist., 802 S.W.2d 854, 860 (Tex. App.—San Antonio 1990,
writ denied).
|
|
57
|
Dir. of Dept. of Agriculture
and Env't v. Printing Indus. Ass'n of Am., 600 S.W.2d 264, 265-266
(Tex. 1980) (citing Tex.
Highway Comm'n v. Tex. Ass'n of Steel Importers, Inc., 372 S.W.2d
525 (Tex. 1963); Cobb v.
Harrington, 144 Tex. 360, 190 S.W.2d 709 (1945); W. D. Haden Co. v.
Dodgen, 158 Tex. 74, 308 S.W.2d 838 (1958); State v. Epperson, 121
Tex. 80, 42 S.W.2d 228 (1931); see also Marshall, 76
S.W.2d at 1008 (enjoining the enforcement of an unconstitutional
Moratorium Law passed during the Great Depression); Tex. Workers' Comp.
Comm'n v. Horton, 187 S.W.3d 282,
285 (Tex. App.—Beaumont 2006, no pet.) (“[A] suit for injunctive relief
against a state agency is maintainable only if the pleadings, together
with the relevant evidence, show that the agency's activity is unlawful
because it lacks statutory
authorization.”).
|
|
58
|
Edwards Aquifer Auth.
v. Chemical Lime, Ltd., 212 S.W.3d
683, n.12 (Tex. App.—Austin 2006) rev'd on other grounds,
291
S.W.3d 392 (Tex. 2009) (“[T]he district court's final judgment
declaring the EAA Act unconstitutional . . . placed outside the powers of
government (i.e., rendered void) its
enforcement.”); Printing
Indus. Ass'n of Am., 600 S.W.2d at 265-266 (finding that printers
were able to maintain their suit to enjoin state agencies from engaging in
printing activities if such activities were not authorized by the
Constitution).
|
|
59
|
Mo., K & T. Ry. Co. of
Tex. v. Shannon, 100 Tex. 379, 100 S.W. 138 (1907) (“The
principle . . . is that the courts have no power to enjoin the officers of
a state from taking action under a statute claimed to be unconstitutional
and deemed to be prejudicial to the complainants, unless the officers are
about to do some act which, if not authorized by a valid law, constitutes
an unlawful interference with their rights.”); State v. Morales, 869
S.W.2d 941, 946 (Tex. 1994) (holding that “an injunction will not issue
unless it is shown that the respondent will engage in the activity
enjoined”); see also
Frey v. DeCordova Bend Estates Owners Ass'n, 647 S.W.2d 246, 248
(Tex. 1983) (holding that the fear or apprehension of the possibility of
injury is not a basis for injunctive
relief).
|
|
62
|
See S.W. Newspapers Corp. v.
Curtis, 584 S.W.2d 362, 368 (Tex. Civ. App.—Amarillo 1979, no
pet.) (“The publisher has plead [sic] and shown by
nonconflicting evidence the denial of a constitutionally guaranteed right
which, as a matter of law, inflicts an irreparable
injury.”).
|
|
64
|
Liberty Mut. Ins. Co. v.
Mustang Tractor & Equip. Co., 812 S.W.2d 663, 666 (Tex.
App.—Houston [14th Dist.] 1991, no
writ).
|
|
65
|
An
unconstitutional government action negatively affecting the value or
payment of Transition Bonds would, in all likelihood, amount to the type
of ongoing, irreparable harm necessary to support the issuance of a
permanent injunction. In many cases, courts have concluded that injunctive
relief was appropriate to prevent the improper expenditure of funds by
government officials. For example, courts have held that an injunction is
appropriate to enjoin government officials from diverting public funds
from a statutorily-required use to an unauthorized use. See City of Dallas v. Mosely, 286 S.W. 497,
499 (Tex. Civ. App.—Dallas 1926), aff'd, 17 S.W.2d 36 (Tex.
Comm'n. App. 1929) (“A writ of injunction will properly issue to restrain
the diversion of public funds intrusted to public officers for special
use.”). Courts have also enjoined the illegal expenditure of public funds.
See Osborne v.
Keith, 142 Tex.
262, 177 S.W.2d 198, 200 (1944) (recognizing the right of courts to enjoin
public officials to spend funds pursuant to an illegal contract); Bexar County v. Wentworth, 378 S.W.2d
126, 129 (Tex. Civ. App.—San Antonio 1964, writ ref'd. n.r.e.)
(upholding the grant of a temporary injunction restraining a government
official from spending money on goods for the government under a contract
in which he had an interest). Furthermore, as noted by the
Texas Supreme Court in Calvert v. Hull, 475 S.W.2d 907
(Tex. 1972),
private citizens may sue public officials (i.e., the comptroller) to
enjoin the expenditure of appropriated funds. Id. at
908.
|
|
66
|
Tex.
Health Care Info. Council v. Seton Health Plan, Inc., 94 S.W.3d 841, 853
(Tex. App.—Austin 2002, pet.
denied).
|
67 Brazos River Conservation &
Reclamation Dist. v. Allen, 141 Tex. 208, 171 S.W.2d 842, 846
(1943).
|
68
|
Montfort v. Trek Res.,
Inc., 198 S.W.3d 344, 353 (Tex. App.—Eastland 2006, no pet.); Synergy Ctr., Ltd.
v. Lone Star Franchising,
Inc., 63 S.W.3d 561, 567 (Tex. App.—Austin 2001, no pet.); Recon Exploration, Inc. v.
Hodges, 798 S.W.2d 848, 851 (Tex. App.—Dallas 1990, no writ); see also Wright v. Sport Supply Group,
Inc., 137 S.W.3d 289, 294 (Tex. App.—Beaumont 2004, no pet.)
(citing Butnaru v. Ford
Motor Co., 84 S.W.3d 198, 204 (Tex. 2002)) (stating that the
requirements of “irreparable injury” and “no adequate remedy” are
“inextricably intertwined” under Texas
law).
|
|
69
|
Bexar County v. North East
Indep. Sch. Dist., 802 S.W.2d 854 (Tex. App.—San Antonio 1990, writ
denied) (citing Furr v.
Hall, 553 S.W.2d 666, 672 (Tex. Civ. App.—Amarillo 1977, writ ref'd
n.r.e.)).
|
|
76
|
Butnaru v. Ford Motor
Co., 84 S.W.3d 198, 204 (Tex. 2002); Walling v. Metcalfe,
863 S.W.2d 56, 57 (Tex.
1993).
|
|
77
|
State Bd. of Ins. v. Prof'l & Business
Men's Ins. Co., 359 S.W.2d 312 (Tex.
Civ. App.—Austin 1962,
writ ref'd n.r.e.) (citing Tex. R.R. Comm'n v.
Shell Oil Co.,
146 Tex. 286, 206 S.W.2d 235, 242
(1947)).
|
|
79
|
Tex. State Bd. of Pharmacy v. Walgreen Tex. Co., 520 S.W.2d 845 (Tex.
Civ. App.—Austin 1975, writ
ref'd n.r.e.).
|
|
81
|
Universal
Health Servs. v.
Thompson, 24 S.W.3d 570,
576 (Tex.
App.—Austin 2000, no pet.); Walling,
863 S.W.2d at
58.
|
|
82
|
U.S. Trust Co., 431 U.S. at
19; Walling v.
Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993) (citing Roland Mach. Co. v. Dresser Indus., 749 F.2d. 380, 386
(7th Cir. 1984) where the Seventh Circuit said that temporary injunctive
relief was particularly appropriate when “the nature of the plaintiff's
loss may make damages very difficult to
calculate”).
|
|
84
|
As in the case of permanent
injunctions,
a court considering
whether to issue a temporary injunction will balance the equities between
the parties to determine whether an injunction should issue. Lower Colo.
River Auth. v. McGraw, 125 Tex. 268, 83 S.W.2d 629
(1935).
|
|
87
|
Mayhew
v. Town of Sunnyvale, 964 S.W.2d 922, 935
(Tex. 1998); Sheffield
Dev. Co.,
140 S.W.3d at 669.
|
|
92
|
Little-Tex, 39 S.W.3d at 598;
State v. Holland, 161 S.W.3d
227, 232 (Tex. App.—Corpus Christi 2005, no pet.) rev'd on other grounds,
221 S.W.3d 639 (2007).
|
|
93
|
City of Dallas v.
Jennings, 142 S.W.3d at 313-14
(emphasis in original) (quoting Tex. Highway Dept. v.
Weber, 219 S.W.2d
70, 71 (Tex. 1949)).
|
|
94
|
City of Tyler v. Likes, 962 S.W.2d 489,
505 (Tex. 1997) (no taking where city action to unclog sewer backup caused
a sewage flood that damaged plaintiff's property). The Texas
Supreme Court has ruled that the State does not have the requisite intent
when money or property is taken or withheld in the context of a
contractual dispute with an entity that has contracted to provide a good
or service to the State. Little-Tex, 39 S.W.3d
at 598-99. The Court reasoned that, when the State is acting under
colorable contractual rights, it does not have the requisite intent to
take property under any eminent domain powers. Id. To the extent the
State Pledge, the related provisions of Subchapter G of Chapter 39 of
PURA, and the Financing Order creating the Transition Property and
Transition Charges effectively create a contract between the State and the
Bondholders, such a “contract” is distinguishable from a typical goods or
services contract with the State. Accordingly, it is not apparent that in
enacting State Impairment Legislation or taking PUCT Impairment Action,
the State would be “acting within a color of right to take or withhold
property in a contractual situation” within the meaning of Little-Tex. Id.
|
|
96
|
Hallco Tex., Inc. v. McMullen
County, 221 S.W. 3d 50, 56 (Tex. 2006) (“Absent a cognizable
property interest, a claimant is not entitled to compensation under
article I, section 17.”).
|
|
98
|
DeMino v. Sheridan, 176 S.W.3d
359 (Tex. App.—Houston [lst Dist.] 2004, no pet.); City of Houston v.
North Mun. Util. Dist. No. 1, 73 S.W.3d 304,
310-11 (Tex. App.—Houston [1st Dist.] 2001, pet. denied); Tex. State Technical
Coll., 983 S.W.2d 821, 826 (Tex. App.—Waco 1998, pet.
denied).
|
|
99
|
Town of Flower Mound v.
Stafford Estates Ltd. P'ship, 71 S.W.3d 18, 28 (Tex. App.—Fort
Worth 2002), aff'd, 135 S.W.3d 620
(Tex. 2004); see also Lone Star Gas Co.
v. City of Fort Worth, 98
S.W.2d 799 (Tex. Comm. App. 1936) (recognizing that where a city acquires
a gas distribution system as a going concern through eminent domain, items
that enter into arriving at the compensation award include intangible
property, such as contract
rights).
|
|
100
|
Tex. Workforce Comm'n
v. MidFirst
Bank, 40 S.W.3d 690, 696 (Tex. App.—Austin 2001, pet.
denied).
|
102 Id. at 697 (“[W]e will not
limit takings-clause actions to situations involving eminent
domain.”).
|
103
|
See County of Burleson
v. Gen. Elec.
Capital Corp., 831 S.W.2d 54, 60 (Tex. App.—Houston
[14th Dist.] 1992, writ denied); Hunt County v. Green Tree
Servicing Corp., No. 05-0500940-CV, 2006 WL 242349, at *2 (Tex. App.—Dallas Feb. 2,
2006, no. pet.) (mem. op., not designated for
publication).
|
|
105
|
State/Operating Contractors
ABS Emissions, Inc. v. Operating
Contractors/State, 985 S.W.2d 646, 653 (Tex. App.—Austin 1999, pet.
denied) (“[u]nder Texas case law, a franchise impresses its owner with
vested rights” and “generally take[s] the form of utilities, or other
monopolies, created to further the public interest”); Brazosport Sav.
& Loan Ass'n
v. Am.
Sav. & Loan
Ass'n, 342 S.W.2d 747, 750 (Tex. 1961) (“[i]n character and nature
a franchise is essentially in all respects property, and is governed by
the same rules as to its enjoyment and protection and is regarded by the
law precisely as other
property”).
|
|
106
|
Tarrant Reg'l Water Dist.
v. Gragg,
151 S.W.3d 546,
554-55 (Tex. 2004); Steele v. City of Houston, 603
S.W.2d 786, 790 (Tex.
1980).
|
|
107
|
See Maher v. Lasater, 354 S.W.2d
923, 924-25 (Tex.
1962) (enjoining county commissioners court from declaring a private road
across claimants' property to be a public highway); Marrs v. R.R. Comm'n, 142 Tex. 293,
177 S.W.2d 941, 948-49 (1944) (enjoining Railroad Commission proration
orders where effect of orders would allow oil from petitioner's land to
flow onto and accumulate on neighboring
land).
|
|
120
|
Id. at 672 (citing
Connolly v. Pension
Benefits Guar. Corp., 475 U.S. 211, 225 (1986) (quoting Penn Cent. Transp. Co. v. City
of New York, 438 U.S. 104, 124
(1978)).
|
SCHEDULE
I
Fitch
Ratings
One State
Street Plaza
New York,
New York 10004
Moody's
Investors Service, Inc.
7 World
Trade Center at 250 Greenwich Street
New York,
New York 10007
Standard
& Poor's Ratings Services
a
Standard & Poor's Financial Services LLC business
55 Water
Street, 41st
Floor
New York,
New York 10041
Morgan
Stanley & Co. Incorporated
1585
Broadway
New York,
New York 10036
Citigroup
Global Markets Inc.
388
Greenwich Street
New York,
New York 10013
Goldman,
Sachs & Co.
1 New
York Plaza
New York,
New York 10004
RBS
Securities Inc.
600
Washington Boulevard
Stamford,
Connecticut 06901
Loop
Capital Markets, LLC
200 West
Jackson
Chicago,
Illinois 60606
Entergy
Texas, Inc.
350 Pine
Street
Beaumont,
Texas 77701
Entergy
Texas Restoration Funding, LLC
Capital
Center
919
Congress Avenue, Suite 840-C
Austin,
Texas 78701
The Bank
of New York Mellon
101
Barclay Street, Floor 4W
New York,
New York 10286
Schedule
I