Sunday, May 2, 2010

Water pipeline lawsuit dismissed--problem of eminent domain by non-profits fronting for profiteering remains

In November, 2009, we covered the new water pipeline of Cross County Water Supply Corp., which will bring water from Burleson County to the Manor area. The 52-mile pipeline was the subject of an American-Statesman article:

As we previously reported, Cross County is set up as a non-profit. However, behind Cross County are for-profit entities who hope to profit handsomely from selling water for development in the SH 130 area. Quoting the Statesman, “Cross County counts as its customer Blue Water Systems, run by Austin real estate investor Ross Cummings, which has developed wells in Burleson County, said Pat Reilly, a director of Cross County. Blue Water, in turn, has a deal to sell water to publicly traded Southwest Water Co., Reilly said.”

Burleson County landowners Terry and Linda Ausley would not give permission for Cross County to survey their land, Cross County sued them, and they counter-sued, saying that Cross County “was formed . . . as a Texas nonprofit corporation for the sole purpose of fraudulently providing a mechanism for obtaining easements below market rate via threat of condemnation for purposes of securing a pipeline location . . .”

Since the suits were filed, Cross County did not cross the Ausleys’ land, but went around it.

Ausleys’ lawsuit dismissed

Thanks to Madeleine Hensley for letting us know that the Ausleys’ case was dismissed and getting a copy of the opinion.

On April 16, Federal Judge Sam Sparks dismissed the Ausleys’ lawsuit. The case had been transferred to Federal Court because the Ausleys had alleged a violation of the federal Racketeer Influenced and Corrupt Organizations Act (RICO). Because Sparks found no RICO violation, he dismissed the case. Further, while not actually ruling on the matter, Sparks’ opinion recognized that Cross County DID have condemnation authority.

This brings us to the underlying problem in this situation: a for-profit water corporation can set up a non-profit corporation to condemn land and sell bonds for a water pipeline from which the principals will profit greatly.

This is a state law problem. The Legislature needs to change state law so that for-profit corporations cannot set up non-profit corporations as fronts to profit off of the water resources of the state. Water supplies, or lack thereof, are becoming a bigger and bigger issue. Some officials and legislators are already saying that the state needs to revamp its water policy, given the finite supply of groundwater and the increasing demands on it.

One of the major reforms that is needed is some way to keep rapacious water profiteers from stripping a region’s water resources and using eminent domain against property owners. This is an eminent domain abuse that the Legislature needs to put a stop to.

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