ORDER

ORLANDO GARCIA, District Judge

On this date came on to be considered the report and recommendation of United States Magistrate Judge Pamela A. Mathy (Dkt. #16), and partial objections thereto (Dkt. #22). When a party objects to a report and recommendation, the Court is required to make a de novo determination of those portions of the report or proposed findings or recommendations to which objection is made. Kreimerman v. Casa Veerkamp, 22 F.3d 634, 646 (5th Cir. 1994); 28 U.S.C. § 636(b)(1)(C); FED. R. Civ. P. 72(b).

The Court has conducted an independent review of the entire record, a de novo review of the matters raised by the objections, and has reviewed the applicable law. The Court concludes that the objections lack merit, and they should be overruled. The Court further concludes that the Magistrate Judge's findings and conclusions are correct in all respects, and should be accepted.

Accordingly, it is ORDERED that Bexar Met's partial objections are OVERRULED, and the report and recommendation is ACCEPTED in its entirety, pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b). It is further ORDERED that Defendant's Motion to Dismiss (Dkt. #5) is GRANTED IN PART and DENIED IN PART for the reasons stated in the recommendation. Specifically, all claims for equitable or discretionary relief are DISMISSED without prejudice pursuant to Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) and its progeny, and all claims for money damages are STAYED for a period of at least sixty (60) days. Upon the expiration of sixty (60) days from the date below, the parties shall file a written advisory regarding the status of any proceedings at the state level or on appeal. The Court will then determine whether the stay should be extended or lifted. No status conference or hearing is necessary at this time.

REPORT AND RECOMMENDATION

PAMELA A. MATHY, United States Magistrate Judge.

TO: Honorable Orlando L. Garcia, United States District Judge

Pursuant to the Order of referral in the above-styled and numbered cause of action to the undersigned United States Magistrate Judge and consistent with the authority vested in United States Magistrate Judges under the provisions of 28 U.S.C. § 636(b)(i)(B) and rule 1(d) of the Local Rules for the Assignment of Duties to United States Magistrate Judges in the Western District of Texas, the following report is submitted for your review and consideration.

I. JURISDICTION

This Court has jurisdiction under 28 U.S.C. § 1331 and 42 U.S.C. § 1983.

II. PROCEDURAL HISTORY

Plaintiffs' complaint alleges six causes of action based on GCGCD's alleged wrongful denial of their applications. The first cause of action seeks a de novo review of GCGCD's denial of plaintiffs' second set of nine applications. The second cause of action is described as an "appeal of administrative denial" of the second set of nine applications. The third cause of action alleges violations of the Fifth Amendment of the United States Constitution and Article I, Section 17 of the Texas Constitution based on an uncompensated taking when each of plaintiffs' ten applications were denied. The fourth cause of action alleges violations of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution and Article I, Section III of the Texas Constitution based on a denial of equal protection when each of plaintiffs' ten applications were denied. The fifth cause of action alleges a violation of substantive due process in violation of the Fourteenth Amendment to the United States Constitution when each of plaintiffs' ten applications were denied. The sixth cause of action alleges a violation of Title 42, United States Code, Section 1983 concerning each of plaintiffs' ten applications, alleging a violation of the individual plaintiffs' previously alleged rights guaranteed by the Fifth and Fourteenth Amendments to the United States Constitution under color of state law. Plaintiffs request the issuance of a declaratory judgment to declare: "the administrative denial of Plaintiffs' well permit applications null and void;" "a violation of Plaintiffs' rights under the Fifth Amendment of the U.S. Constitution, and Art. I, Section 17 of the Texas Constitution;" "a violation of Plaintiffs' rights under the Fourteenth Amendment of the U.S. Constitution, and Art. I, Section III of the Texas Constitution;" "a violation of Plaintiffs' rights to substantive due process as guaranteed by the Fourteenth Amendment of the U.S. Constitution;" and "the rights of the parties by Final Decree." Plaintiffs also ask for a decision to "[r]everse the administrative denial of Plaintiffs' well permit applications and remand with instructions" and to "[f]ind a violation of 42 U.S.C. § 1983, acting under color of law." Plaintiffs request an "award of damages, attorneys' fees and costs of courts to Plaintiffs." Further, plaintiffs request "any further remedies and relief at law or in equity, to which Plaintiffs may show themselves entitled." Finally, plaintiffs request expedited consideration pursuant to Texas Water Code § 36.252 and demand a trial by jury.

On December 1, 2003, defendant GCGCD filed a motion to dismiss all claims against it.

In brief, GCGCD argues that plaintiffs' complaint should be dismissed on the following grounds: the Burford abstention doctrine applies; plaintiffs' "taking" claim is unripe; plaintiffs have not been denied equal protection of the laws; plaintiffs have not been deprived of property without due process of law; plaintiffs have failed to state a section 1983 claim; upon the dismissal of plaintiffs' other claims, plaintiffs' claim for declaratory relief must be dismissed for lack of jurisdiction; and upon the dismissal of plaintiffs' federal claims, the Court should decline to exercise supplemental jurisdiction over plaintiffs' state law claims.

On December 12, 2003, BexarMet filed its response to defendant's motion to dismiss. On December 16, 2003, the individual plaintiffs filed their combined response to defendant's motion to dismiss. In brief, the individual plaintiffs and BexarMet, who incorporate each other's responses, argue that: the Burford abstention doctrine is a rarely invoked and does not apply; any doctrine of equitable abstention is inapplicable to common law actions for monetary damages; the federal takings claims are ripe because Texas law prohibits condemnation of groundwater, the ripeness doctrine does not apply to takings for private use, and the ripeness doctrine does not apply to a "facial" claim for taking in violation of the Fifth Amendment. Further, plaintiffs re-assert that: they have been denied equal protection and due process; they have validly stated a claim under section 1983; a declaratory judgment should issue; and exercise of supplemental jurisdiction over state claims is appropriate. On February 2, 2004, the case was referred to the undersigned.

III. STATEMENTS OF FACTS

As noted, this lawsuit was precipitated by GCGCD's denial of plaintiffs' ground-water withdrawal permit applications which would have allowed plaintiffs to withdraw percolating groundwater from the Carrizo and Wilcox aquifers flowing below the surface of the Wells Ranch. More specifically, plaintiffs allege that in 1999, the individual plaintiffs entered into a contract with BexarMet through which, in sum, BexarMet obtained a surface and subsurface estate lease for drilling and producing groundwater from the Wells Ranch and exclusive title to all groundwater produced and, in exchange, the Williamsons received royalties and other consideration. During the later portions of 1999, the plaintiffs developed infrastructure on the Wells Ranch for this purpose.

Defendant GCGCD was created on or about November 2000 and became operational in January 2001. At that time, GCGCD adopted rules pursuant to Texas Water Code § 36.101 and a Management Plan pursuant to Texas Water Code § 36.1071. The GCGCD's rules, effective January 11, 2001, prohibited drilling, equipping or completing groundwater withdrawal wells within the District's geographic boundaries without a permit issued by GCGCD and which limited annual groundwater production based on tract size to an annual maximum of approximately two acre-feet of water per surface acre of land. Neither GCGCD's rules nor its Management Plan recognized or made reference to the property and contractual rights of plaintiffs upon the Wells Ranch. The Wells Ranch is situated in both Guadalupe and Gonzales Counties; only the portion of the Wells Ranch situated over Guadalupe County falls within the boundaries of the GCGCD.

On February 13, 2003, plaintiffs filed their first application for a water well permit with the GCGCD. On April 8, 2003, plaintiffs filed nine additional well permit applications which collectively sought permission to use nine groundwater withdrawal wells to withdraw a combined total of 6,000 acre-feet of percolating water from the portion of the Carrizo and Wilcox Aquifers situated beneath the Guadalupe County portion of the Wells Ranch. After plaintiffs submitted the second set of nine applications, on or about April 16, 2003, GCGCD revised its rules, including Rule 5.4, reducing groundwater production limits by ninety percent to a new annual withdrawal limit of 2/10 of an acre foot of water per acre of contiguous water rights.

On June 10, 2003, plaintiffs supplemented their second set of nine applications with supporting documentation. On June 12, 2003, the GCGCD conducted a hearing on the second set of nine applications; July 12 and July 28, 2003 meetings of the GCGCD also addressed the second set of nine applications; on July 28, 2003, the GCGCD denied the applications. On August 14, 2003, plaintiffs requested a rehearing which the GCGCD denied on October 9, 2003.

IV. ISSUE

V. STANDARDS

A. Rule 12(b)(6), Fed.R.Civ.P.

Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, plaintiffs must state a claim upon which relief can be granted or the complaint may be dismissed with prejudice as a matter of law. A motion to dismiss under Rule 12(b)(6) "is viewed with disfavor and is rarely granted." When considering a motion to dismiss for failure to state a claim, "all factual allegations in the complaint must be taken as true and construed favorably to the plaintiff." The United States Supreme Court has elaborated:

Nothing in Rule 12(b)(6) confines its sweep to claims of law which are obviously insupportable. On the contrary, if as a matter of law "it is clear that no relief could be proved consistent with the allegations," Hishon, supra, 467 U.S. at 73, 104 S.Ct. at 2232, a claim must be dismissed, without regard to whether it is based on an outlandish legal theory or on a close but ultimately unavailing one.

A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss. This is a rigorous standard, but subsumed within it is the requirement that a plaintiff state its case with enough clarity to enable the court and the opposing party to determine whether a claim is alleged.

In the event that matters outside the pleadings are considered, a motion to dismiss for failure to state a claim upon which relief can be granted must be treated as a motion for summary judgment.

B. The Nature of § 1983

Title 42, United States Code, section 1983 provides in relevant part:

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.

Section 1983 does not create any substantive rights, but instead provides a remedy for violations of federal statutory and constitutional rights. In order to state a cause of action under § 1983, the plaintiff's claim for relief must allege facts establishing that: (1) plaintiff has been deprived of a right secured by the Constitution or laws of the United States; and (2) defendant acted under color of state law. The Fifth Circuit has held that "section 1983 imposes liability for violations of rights secured by the Constitution, not violations of duties of care arising out of tort law."

VI. ARGUMENTS AND ANALYSIS

A. Abstention Summary of Arguments

Analysis

In Burford, Sun Oil brought suit against Burford and others to enjoin the enforcement of an order of the Texas Railroad Commission granting Burford a permit to drill four wells on a plot of land in the East Texas oil field. The Supreme Court held that the federal district court should have dismissed the case, because Texas had established a state regulatory system to deal with complicated issues involved in local oil drilling regulation. The Court further noted that Texas law provided for "a system of thorough judicial review by its own State courts" which concentrated "all direct review of the Commission's orders in the State district courts of Travis county," with further review by a branch of the Court of Civil Appeals and by the State Supreme Court "[t]o prevent the confusion of multiple review of the same general issues." Under such circumstances, federal courts could make a "small contribution" in becoming involved in inherently local matters involving the management of oil and gas fields, covered by a complex state regulatory scheme, with the inevitable product being "[d]elay, misunderstanding of local law, and needless federal conflict with the State policy." Accordingly, the Court held that federal courts should abstain from exercising federal question jurisdiction to adjudicate "colorable constitutional claims," and defer to a state's resolution of "difficult questions of state law bearing on policy problems of substantial import whose importance transcends the result in the case then at bar."

A decision to abstain under Burford, must be "based on a careful consideration of the federal interests in retaining jurisdiction over the dispute" and ultimately represents a determination "that the State's interest are paramount and that [the] dispute would best be adjudicated in a state forum." Although there is no "formulaic test" for deciding whether the case at bar comes within the narrow exception of Burford, the Fifth Circuit has extracted five factors that should be considered: (1) "whether the cause of action arises under federal or state law;" (2) "whether the case requires inquiry into unsettled issues of state law;" (3) "the importance of the state interest involved;" (4) "the state's need for a coherent policy in that area;" and (5) "the presence of a special state forum for judicial review." Further, in Quackenbush, the United States Supreme Court clarified that "federal courts have the power to dismiss or remand cases based on abstention principles only where the relief being sought is equitable or otherwise discretionary," such as a request for declaratory judgment. A federal "court may not abstain under Burford when the plaintiff seeks only legal relief," such as an award of money damages. As recently explained by the Fifth Circuit:

In applying Burford abstention, the court does not necessarily consider whether the cause of action is based on state or federal law, but instead looks at whether the plaintiff's claim is entangled in an area of state law that must be untangled before the federal case can proceed. Sierra Club v. City of San Antonio, 112 F.3d 789, 795 (5th Cir. 1997). Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are difficult questions of state law bearing on policy problems of substantial import whose importance transcends the result in the case at bar; or (2) where the exercise of federal review of the questions in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.

Because plaintiffs request "equitable or discretionary relief" — that is, the several requests for declarations of federal and state constitutional and statutory rights, including a declaration that "the administrative denial of Plaintiffs' well permit applications null and void," a request for a determination to "[r]everse the administrative denial of Plaintiffs' well permit applications and remand with instructions," as well as a request for "any further remedies and relief at law or in equity, to which Plaintiffs may show themselves entitled" — the Court considers whether the Burford abstention doctrine otherwise favors abstention.

With respect to the first factor, plaintiffs' first two causes of action seek review of matters that arise under state law and appear to be tantamount to a request for judicial review of GCGCD's decision on the second set of nine applications — but in federal court rather than State court, as provided under the relevant provisions of the Texas Water Code. The remaining four causes of action allege violations of federal constitutional or statutory law related to alleged violations that occurred when GCGCD denied each of the ten applications. In NOPSI, the Supreme Court observed that although Burford itself involved federal and state claims, the federal constitutional issue was not substantial, and abstention otherwise not be appropriate when the case "does not involve a state-law claim." Here, state-law claims have been presented. Although federal question subject matter jurisdiction exists over the "colorable" federal claims alleged in the third through sixth causes of action, the existence of state law claims allows for Burford abstention to be applied. Further, as discussed further below, "Burford abstention does not so much turn on whether the plaintiffs cause of action is alleged under federal or state law, as it does on whether the plaintiff's claim may be `in any way entangled in a skein of state law that must be untangled before the federal case can proceed.'"

With respect to the second factor, it is clear that state law is inextricably linked to an evaluation of the lawfulness of GCGCD's decision to deny plaintiffs' ten applications. Plaintiffs' first cause of action is simply a request for "de novo review" of the administrative denial of plaintiffs' second set of nine groundwater applications, citing Texas State case law, provisions of the Texas Water Code, and GCGCD rules in support of their allegations. Plaintiffs' themselves characterize their second cause of action as an "appeal of [the] administrative denial" of the second set of nine applications, citing provisions of the Texas Water Code and GCGCD rules in support of their allegations. Plaintiffs' third through sixth causes of action, which allege in part or in whole violations of federal constitutional or statutory rights, also revolve around plaintiffs' challenge to the GCGCD's denial of plaintiffs' ten applications, and each cite Texas law, whether Texas cases, the Texas Water Code and/or GCGCD rule(s). More specifically, plaintiffs' third cause of action, captioned in part "uncompensated taking" in violation of the Fifth Amendment to the United States Constitution and Article I, Section 17 of the Texas Constitution, includes contentions that: GCGCD did not correctly apply the "rule of capture" recognized by Texas State courts; GCGCD "sought to force Plaintiffs to relinquish the statutory rights established by Texas Government Code § 245.002;" and GCGCD's denial of the ten applications constitute an impermissible regulatory taking, an impermissible taking without just compensation, and an impermissible taking of plaintiffs' private property for private use. Plaintiffs' fourth cause of action, captioned in part "equal protection" in violation of the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution and Article I, Section III of the Texas Constitution, includes contentions that: GCGCD has allowed Springs Hill Water Supply Corporation to produce for municipal use more ground-water per surface acre of land than is authorized by GCGCD rule 5.4(a) and indicated an intent to exempt Springs Hill from any production limitation from the Carrizo Aquifer, but classified plaintiffs' ten applications "into an identifiable group of out of district permit applications in contravention to Texas Water Code § 36.122(c)" all in violation of federal and state rights to equal protection under the law. Plaintiffs' fifth cause of action, captioned in part "substantive due process" in violation of the Fourteenth Amendment to the United States Constitution, includes contentions that: GCGCD's decision to promulgate new rules, apply the new rules to plaintiffs' ten applications and in a discriminatory fashion, was action beyond the scope of powers delegated to GCGCD by the Texas Legislature, arbitrary and capricious, and not rationally related to any legitimate governmental purpose; and GCGCD's decision to deny plaintiffs' ten applications denied plaintiffs' "rights . . . established through Texas law, including the `right of capture' of percolating groundwater, the right to contract for legal purposes, and the rights created by Texas Government Code § 245.002." Plaintiffs' sixth cause of action, premised on section 1983, alleges violations of the individual plaintiffs' previously alleged Fifth and Fourteenth Amendment federal constitutional rights under color of state law "under the auspices of Chapter 36 of the Texas Water Code" with respect to the denial of the ten applications.

Although federal constitutional and statutory rights are implicated in four of the six causes of actions applicable to plaintiff's second set of nine applications (and each of the causes of action applicable to plaintiffs' first application), it is clear that the center of the dispute is the decision of GCGCD to impose limitations on ground water pumping, notwithstanding the "rule of capture" allegedly applicable under State law, and to disapprove plaintiffs' applications, in part pursuant to a GCGCD rule amended at the time the applications were pending. Decisions on the issuance of water pumping permits are uniquely local determinations in the first instance. Yet, plaintiffs have elected to file this action, presenting federal and state claims, rather than filing in State court in Guadalupe County, a court specified in state law for obtaining the expedited judicial review of GCGCD's actions.

With respect to the third and fourth factors, certainly groundwater regulation is a matter in which the State has a significant interest in maintaining a "coherent policy." Nonetheless, "[t]he mere existence of . . . [an administrative] . . . infrastructure, however, does not bring the case within Burford." "While Burford is concerned with protecting complex state administrative processes from undue federal influence, it does not require abstention whenever there exists such a process, or even in all cases where there is a `potential for conflict' with state regulatory law or policy." But, plaintiffs' claims in this case, at bottom, are claims that "a state agency has misapplied its lawful authority or has failed to take into consideration or properly weigh relevant state-law factors." The State has a significant interest in insuring that state law is correctly and uniformly applied. Even if the State's adherence to the "rule of capture" is settled, as plaintiffs contend, obviously the Texas Legislature, by providing for groundwater conservation districts, has set the stage for a court case to decide the permissibility of pumping limits. If this federal case proceeds first and addresses the question of whether GCGCD correctly followed State law when denying plaintiffs' applications, there is a "`serious threat of conflict between the adjudication of the federal claim presented . . . and the State's interest'" in establishing groundwater conservation districts. Further, the federal claims each involve an assessment of whether GCGCD correctly applied state law when denying each of plaintiffs' ten applications and, therefore, plaintiffs' federal claims are "`entangled in a skein of state law that must be untangled before the federal case can proceed.'" Finally, "a federal constitutional issue might be mooted or presented in a different posture by a state court determination of pertinent state law."

In support of its motion to dismiss, GCGCD notes that the Fifth Circuit has applied the Burford doctrine to groundwater regulation in Sierra Club. In Sierra Club, the Fifth Circuit vacated a preliminary injunction which limited the withdrawal of water from the Edwards Aquifer, finding that the Sierra Club had not demonstrated a likelihood of success on the merits "because abstention appears so manifestly warranted under Burford." In response, plaintiffs argue that Sierra Club is distinguishable because the sole issue on appeal concerned the propriety of the district court's preliminary injunction, obviously equitable relief, whereas plaintiffs in the instant case also seek monetary damages. Further, BexarMet argues that when the Fifth Circuit applied Burford it relied on two considerations not present in this case, namely the entirely intrastate nature of the Edwards Aquifer and the "unified management and decision making" regarding the Edwards Aquifer, which is "geographically, geologically and hydrologically dissimilar from the Edwards Aquifer in several respects, including size, location, water quality, rate of recharge and relative lack of use by municipal water purveyors."

Although it is true that there is no allegation that GCGCD has "unified management and decision making" authority over the Carrizo or Wilcox Aquifers, as the Edwards Aquifer Authority has authority over the Edwards Aquifer regardless of county lines, and even if it is true, as defendants contend, that portions of the Carrizo and Wilcox Aquifers are not regulated by any groundwater conservation district, the State regulatory scheme allows for counties to form water conservation districts. Merely because the State has established a policy to require counties, in the first instance to make necessary decisions to manage, conserve, preserve, and protect water resources does not mean that the regulation of water resources is not a matter of great State concern or that the "`exercise of federal review of the question in the case and in similar cases would [not] be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.'" There is no reason to reject the Texas Legislature's determination that a supra-county regulatory authority is merited for the large and significant Edwards Aquifer but that a county-based conservation district is appropriate for Guadalupe County.

With respect to the fifth factor, the applicable provisions of the Texas Water Code address judicial review "in a court of competent jurisdiction in any county in which the district or any part of the district is located." Unlike the situation addressed in Burford, which deferred to the consolidated judicial review of decisions of the Texas Railroad Commission in Travis County, any State court of competent jurisdiction in the county in which the groundwater conservation district is located is proper court for suit. Plaintiffs argue that the decentralization of judicial review mandates against applying Burford. But, that the Texas Legislature chose to allow county-based conservation districts to make the decisions on permits, subject to review by a local State court of competent jurisdiction, a regional civil Court of Appeals, and the Texas Supreme Court, would appear to underline the strong State preference for local decisionmaking.

Finally, plaintiffs seek an award of money damages as well as declaratory relief and injunctive relief. In accordance with precedent, this Court lacks the authority to dismiss claims for which monetary relief is sought.

In sum, pursuant to Burford, it is recommended that the District Court grant in part GCGCD's motion to dismiss and dismiss without prejudice all aspects of plaintiffs' complaint which seek discretionary relief — causes of action and one and two which seek review of the administrative decision to deny the second set of nine applications, each of the requests for declaratory relief, the request for any "any further . . . relief . . . in equity" to which plaintiffs may be entitled, and plaintiffs' request for expedited consideration pursuant to the Texas Water Code. As the record does not indicate that plaintiffs have filed a complaint in a State court of competent jurisdiction, the District Court should dismiss the above-noted claims without prejudice. Additionally, plaintiffs' remaining federal constitutional and statutory claims and state constitutional claims for money damages should be stayed for a period of sixty days, or such further period as the Court may order, to allow plaintiffs' the opportunity to file a state case including the claims seeking discretionary relief. If, within that time period, a state case is initiated, then this case should be further stayed and administratively closed, pending the resolution in State court of the state claims, as the State court's determination as to the appropriateness of GCGCD's actions is relevant to the federal claims, may moot the federal constitutional claims, the section 1983 claim, and the request for declaratory relief. On the other hand, if, within that time period, plaintiffs do not commence an action in State court, then the prosecution of plaintiffs' remaining claims for damages should proceed in this Court. At the appropriate time — when ordering a further stay, when lifting the stay in this Court, or at such other time as the parties may suggest — the Court can address whether the Court should decline to exercise supplemental jurisdiction over plaintiff's remaining state claims for damages.

B. Ripeness of Plaintiffs' "Taking" Claim Summary of Arguments

Analysis

FifthI17

In sum, the portion of GCGCD's motion to dismiss that seeks dismissal of plaintiffs' third cause of action for uncompensated taking on the ground the claim is not ripe should be denied.

C. Equal Protection Summary of Arguments

Analysis

Fourteenth

In sum, the portion of GCGCD's motion to dismiss that seeks dismissal of plaintiffs' fourth cause of action alleging a denial of equal protection should be denied.

D. Substantive Due Process Summary of Arguments

GCGCD has moved to dismiss plaintiffs' fifth cause of action which alleges a violation of substantive due process in violation of the Fourteenth Amendment to the United States Constitution. In brief, GCGCD argues that "placing reasonable limits on the extraction of groundwater" demonstrates the "rational basis" for GCGCD's actions in denying plaintiffs' permits. Plaintiffs oppose dismissal, arguing, in sum, that they have stated a claim for relief, most particularly based on GCGCD's allegedly "irrational" action to deny plaintiffs' applications to withdraw any groundwater whatsoever, rather than, for example, merely limiting the ground-water withdrawal to the limits imposed by GCGCD rule 5.4(a) in effect at the time of the filing of plaintiffs' first application. Analysis

As discussed in Section V above, the well-pleaded allegations of plaintiffs' complaint are accepted as true and construed in plaintiffs' favor when considering a motion to dismiss for failure to state a claim. After careful review of plaintiffs' fifth cause of action and the applicable case law, the Court cannot conclude that plaintiffs' have not stated a claim for relief. Again, the Court expresses no opinion on whether plaintiffs will prevail, but does determine that plaintiffs' have stated a claim. Among other things, plaintiffs have alleged that GCGCD's treatment of plaintiffs' applications cannot be justified on the important interest of groundwater conservation because GCGCD denied plaintiffs the right to withdraw any groundwater in any amount, an action that amounts to "absolute preservation" of groundwater, in contravention of state procedure which allows for applications to be issued and plaintiffs' "right of capture" of percolating groundwater, right to contract, and rights created by Texas Government Code section 245.002. Plaintiffs deny they seek, or ever sought, permission to extract groundwater in excess of the limitations imposed by GCGCD rules. Whether, on the facts, there is a legitimate state interest and/or rational basis for GCGCD's rules will be determined at a later time, but plaintiffs' have sufficiently alleged a claim for relief.

In sum, the portion of GCGCD's motion to dismiss that seeks dismissal of plaintiffs' fifth cause of action alleging a denial of federal substantive due process should be denied.

E. Section 1983 Summary of Arguments

Analysis

In sum, the portion of GCGCD's motion to dismiss that seeks dismissal of plaintiffs' sixth cause of action alleging a section 1983 cause of action should be denied.

F. Declaratory Relief and Supplemental Jurisdiction Over Plaintiffs' State Law Claims Summary of Arguments

Analysis

With respect to the exercise of supplemental jurisdiction over plaintiffs' state law claims, as discussed in connection with the recommendation of a partial dismissal and partial stay of this action based on Burford abstention, at the time of ordering any further stay in the disposition of the remaining claims for damages or lifting the limited stay, the parties can brief and the Court can address whether the District Court should decline to exercise supplemental jurisdiction over plaintiffs' state claims. The federal statute providing for supplemental jurisdiction acknowledges that a district court may decline to exercise supplemental jurisdiction over state claims if, among other grounds, a state claim raises a novel or complex issue of state law, or if the state claims substantially predominate over the federal claims, or if, in exceptional circumstances, there are other compelling reasons for declining federal jurisdiction. Although GCGCD does argue that state law issues predominate over the federal issues and that the state issues involve groundwater regulation issues in which "[f]ederal courts have consistently been reluctant to become involved," the final determination on whether the District Court should exercise supplemental jurisdiction over the state law claims might be better determined after the District Judge has entered its final ruling on the matters addressed in this report (following time for objections from the parties) and after plaintiffs have determined whether they elect to file a state case and whether they elect to include voluntarily the state claims that may remain in this suit.

In sum, the portion of GCGCD's motion to dismiss that seeks dismissal of plaintiffs' request for issuance of a federal declaratory judgment and plaintiff's pendant state law claims should be denied at this time.

VII. RECOMMENDATION

VIII. INSTRUCTIONS FOR SERVICE AND NOTICE OF RIGHT TO OBJECT/APPEAL

March 18, 2004.