Auqua Texas Exhibit to Opposition

EXHIBIT A

Case 1:09-bk-12032-MT Doc 85-1 Filed 10/12/10 Entered 10/12/10 16:49:39 Desc Exhibit A of 20

CAUSE NO. 07-09-09668-CV

AQUA UTILITIES, INC., d/b/a AQUATEXAS,INC.

Plaintiff,

v.

DROY PROPERTIES, LLC,SYNDICATE EXCHANGECORPoRATION, DOUBLE S

DE\rELOPMENT, LLC, DSD HOMES,LLC, AND DAVID SILBERSTEIN

Defendant

IN THE DISTRICT COIJRT OF'

MONTGOMERY COUNTY, TEXAS

359th DISTRICT COTIRT

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Pt¿ntrfi'Fts SncoND AMENunp ORrcnlAL Pnrlflo¡{

TO THE HONORABLE JUDGE OF SAID COURT:

NOW COMES Aqua Utilities, Inc. d/b/a AquaTexas, Inc. (hereinafter'?laintiff'or "Aqua

Texas"), complaining of and about Droy Properties, LLC ("Droy''), Syrdicate Exchange

Corporation, Double S Development, LLC ("Double S Development'), DSD Homes, LLC ('DSD

Homes") and David Silberstein ("Silberstein"), hereinafter called Defendants, and for cause of

actíon shows unto the Court the following:

I. DISCOVERY CONTROL PLAI\

1. This suit is governed by a Scheduling Order that was entered on February 10, 2009.

II. PARTIES

2. Plaintifl Aqua Utilities, Inc. (formerly known as AquaSource Utility, lnc. and now d/b/a

Aqua Texas, Inc.) is a Texas corporation doing business in Harris County, Texas at221l Louetta

Road, Spring, Texas 77388. Its princþal office is located at 1106 Clayton Lane, Suite 400'W,

Austin, Texas 7 8723 . Plaintiff is the owner of the "IJtility System" as that term is defined below.

On or about December 27,2000, AquaSource Utility, [rc. merged with numerous other aff,rliated

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Texas corporations, with AquaSource Utility,Inc. as the surviving entity ofthat merger- On January

16,2004, AquaSource Utility, Inc. changed its name to Aqua Utilities, Inc. On February 3,2004,

Aqua Utilities, Inc. began using the assurned n¿ttle, Aqua Texas, Inc.

3 . Defendant, Droy Properties, LLC, is a Texas corporation with its príncipal place of business

in Montgomery County, Texas and has made an appearance through counsel'

4. Defendant, Syndicate Exchange Corporation, is a Texas corporation doing business in

Montgomery County, Texas can be served through íts registered agent, Donnette Garcia at 12600

Melville Drive, Montgomery, Texas 77356.

5. Defendant, Double S Development, is a Texas corporation doing business in Montgomery

County, Texas and can be served through its regisiered agent, Donnette Garcia at 12600 Melville

Drive, Montgomery, Texas 77356. I

6. Defendant, DSD Homes, LLC, is aTexas corporation doingbusiness in Montgomery County, i

Texas and can be served through its registered agent, Donnette Garcia at 14001 'Walden Road #8, :

Montgornery, Texas 7 7 3 5 6.

7. Defendan! David Silberstein, is aresident of California doingbusiness in the State ofTexas

an{ as director and managing member of Droy Properties, LLC. lvft. Silberstein can be served at

his place ofresidence, 161,12 Meadowview Drive, Encino, Califomia 91436.

III. JURTSDICTION AND VEFI{TE

8. The zubject matter in controversy is within the jurisdictional limits of this court.

9. This court has jr.risdiction over the subject matter of the suit because it relates to title

ownership of real property located in the State of Texas. This court has personal jurisdiction over

the parties to this suit because Defendants Droy, Syndicate Exchange Corporatior¡ Double S

Development, and DSD Homes, are residents of the State of Texas. Additionally, any owner or

Pøge 2

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Plaintiffs' Second funended Petilíon


potential owner of real properly in the State of Texas is suirject to personal jurisdiction of the Texas

courts in matters relating to that real property.

I 0. Fursuant to Texas Civil P¡actice and Remedies Code Section 1 5.01 1 , venue is rnandatory in

Montgomery County, Texas because this zuit seeks to quiet title to real property located in

Montgomery County, Texas.

IV. REAL PROPERTY THAT IS THE SUBJECT MATTER OF THE SUIT

I I . Plaintiff is the owner of certain real property constituting the Lake Conroe Village Utility

System (hereinafter the "Utility System') including easements and improvements thereon, located

in Montgomery County Texas andmore particularly described below as:

l. Fee Simple Ownership of 0.30 acres (19,501.91 S.F.) of land in the WilliamsAtkins Survey, Abstract No. 3 in Montgomery County, Texas, being part ofReserve

A and Reserve B of Lake Conroe Village per plat recorded in Cabinet F, Sheet 38-158 of the Map and Records of Montgomery county volume 489, Page 0230

MCDR, more coÍtmonly known as the Lake Conroe Village Water Plant and more

particularly described by the attached metes and bounds; and

Z- Fee Simple Ownership of land in the Williams Atkins Survey, Abstract No.

3 in Montgomery County, Texas, being all ofReserve A of Lake Comoe Village per

plat recorded in Cabinet F, Sheet 38-158 of the Map and Records of Montgomery

CountyVolume 489, Page 0230 MCDR; and

3. A buffer zone for the wastewater treatme,nt plant as described in TPDESpermit No. WQ0014018001 located in the Williams Atkins Survey, Abstract No. 3

in Montgomery County, Texas, being the entirety of Reserve A and portions of lots

24-31 ,BlockT of Lake Conroe Village per plat recorded in Cabinet F, Sheet 3B-1 5B

of the Map and Records of Montgomery CountyVolume 489, Page 0230 MCDR;

and

4. A 150 foot Sanitary Control Easement for Lake Conroe Village'Water Plant,

being 1.62 acres (70,650 S.F.) of land in the Williams Atkins Suwey, Abstract No.

3 in Montgomery County, Texas, being part of Reserve A and Reserve B of Lake

Conroe Viilage per plat recorded in Cabinet F, Sheet 3B-158 ofthe Map and Records

of Montgomery County Volume 489, Page 0230 MCDR, and more particularly

described by the atiached metes and bounds; and

5. Fee Simple Ownership of 0.0258 acres (1125 S.F.) of land in the Wüliams

Atkins Survey, Abshact No. 3 in Montgomery County, Texas, being part of Reserve

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Pløíntifs' Second Amended P etition


C of Lake Conroe Village per plat recorded in Cabinet F, Sheet 3B-158 of the Map

and Records of Montgomery corurty Volume 489, Page 0230 MCDR, more

commonly knoriln as Lift Station 1 and more particularly described by the attached

metes and bounds; and

6. A non-exclusive Access Easement to Lifr Station 1 from Lake Conroe Viilage

Boulevard across Reserve C in the Lake Conroe Village subdivision to the lift station

site; and

7. A non-exclusive Access Easement to the Lake Conroe Village V/ater Plant

found in the William Atkins Survey, Abstract No. 3, Montgomery County, Texas,

and Reserve A and Reserve B of Lake Conroe Village, per plat recorded in Cabinet

F, Sheet 3B-l58 of the Montgomery County Map Records, and more particularly

described bythe attached metes and bounds; and

8. Fee Simple Ownership of 0.0248 acres (1080 S.F.) of land in the Williams

Atkins Survey, Abstract No. 3 in Montgomery County, Texas, being part of Lots 6

andT,Block 25 of I-ake Conroe Village per plat recorded in Cabinet F, Sheet 3B-

1 5B ofthe Map and Records of Montgomery County, more conunonly known as LiftStation 2 and more particularly described by the attached metes and bounds; and

9. A non-exclusive Access Easement to Lift Station 2 frorn Eastchase, through

Lots 5 and 6, Block 25 to the lift station site and more particularly described by the

attached rretes and bounds; and

10. Fee Simple Ownershil of 0.0275 acres (1196 S.F.) of land in the WilliamsAtkins Survey AbstractNo. 3 inMontgomeryCounty, Texas, beingpart of Lots 56

and S7,Block 25 of Lake Conroe Village per plat recorded in Cabinet F, Sheet 3B-

1 5B ofthe Map and Records of Montgomery County, more colnmonly known as LiftSt¿tion 3 and more particularly described by the attached metes and bounds; and

I 1. A non-exclusive Access Easement to Lift Station 3 from Palmdale, tbrough

Lots 54, 55, and 56, Block 25 to the lift station site and more parficularly described

by the attached metes andbounds; and

12. Fee Sirrple Ownership of 0.0210 acres (913 S.F.) of land in the WilliamsAtkins Survey, Abstract No. 3 in Montgomery County, Texas, being part of Lots 8

and 9, Block 19 of Lake Conroe Viliage per plat recorded in Cabinet F, Sheet 38-1 5B ofthe Map and Records of Montgomery County, more cornmonly known as LiftStation 4 and more particularly described by the attached metes and bounds; and

13. Anon-exclusive Access Ease,ment to Lift Station 4 from Westchase, tlroughLots 8 and 9, Block 19 to the lift station site and more partícularly described by the

attached metes and bounds; and

14. Fee Simple Ownership of 0.02L7 acres (944 S.F.) of land in the \Milliams

Plaintiffs' Second Amended P etition Page 4

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Atkins Survey, Abstract No. 3 in Montgomery County, Texas, being part of Lots 9

and 10, Block 15 of l,ake Conroe Village per plat recorded in Cabinet F, Sheet 38-158 ofthe Map and Records of Montgomery County, more commonlyknown as LiftStation 5 and more parËicularly described by the attached metes and bounds; and

15. A non-exclusive Access Easement to Lift Station 5 from Westchase, through

Lots 9 and 10, Block 15 to the lift station site andmore particularlydescribedbytheattached metes and bounds; and

16. Fee Simple Ownership of 0.0092 acres (400 S.F.) of land in the WillíamsAtkins Surveg Abstract No. 3 in Montgomery CountS Texas, being part of Reserve

A of Lake Conroe Village per plat recorded in Cabinet F, Sheet 3B-158 of the Mapand Records of Montgomery County, more commonly known as Lift Station 6,

17 . A non-exclusive Access Easement to Lift Station 6 from State Highway 105,

through Reserve A in the Lake Corrroe Viliage subdivision to the lift station

site; and

18. Access easements for the water and wastewater pipelines that are used and

useful in the Utility System

72. Together, the Utitity System, including without limitation all pr:mps, wells, plants, pipes,

easements,liftstations, equipmenÇ andimprovementsthereon, isused andusefrrl inprovidingretail

water and sewer service to the Lake Conroe Village zubdivision under CCN Nos. I 11'57 and20453.

The Utility Systern is described by metes and bounds in Exhibit A.. See Exh¡bit A, Surveys and

Field Notes For l¿ke Conroe Village'Water Plant, Lift Stations, and Easements.

V. FACTUALBACKGROUND

13. Plaintift, Aqua Texas, is a water and wastewater company regulated by the Texas

Commission on Environmental Quality ("TCEQ"). Aqua Texas provides retail water and

wastewater services to residences and businesses throughout the state of Texas through various

Certificates of Convenience and Necessity (each certificate individually a "CCT'{"). Aqua Texas

specifically provides retail water and sewer services !o residents of the Lake Conroe Village

subdivision via the Utility System pursuant to CCN Numbers IlI57 and2}453. The CCNs require

Aqua Texas to provide "continuous and adequate service" to persons in its service areas wrder the

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Plaintffi ' Second Amended P etition


supervision of the TCEQ.

14. The Lake Conroe Village Utility System was previously operated by Aqua under CCN

Numbers l|zt)ggand 20689, and was commonlyknown as the Blanchard Systems, which included

other systems and property in addition to the Lake Conroe Village Utility System. The Blanchard

Syste,ms, like all retail water and sewer systems, include as assets real property þlant sites and

easements), personal property Qines, pumps, equipment, and inventories), and intangible property

(accounts, accounts receivable, and the CCNs). In accordance with a May 2002 TCEQ order, Aqua

Texas crrrently operates what was formerly known as the Blanchard Systems under CCN Numbers

lll57 and2Û453.

15. On or about April 19, i990, Tejas Financial Corporation acquired title to the Lake Conroe

Village subdivision, including the Utility System, from Texas Banc Savings, FSB via special

warranty deed.

16. On or about March 5,1997 , Tejas Financial Corporation entered into a conhact to sell the

Utility System to Arete Real Estate and Development Company ("Arete").

17. OnoraboutAugust2l, 1997, JOJAC/SEJAC, Ltd., aTexaslimitedpartnership,was formed

by Joe Fogarty and Richard Segal. Using JOJAC/SEJAC, Ltd., Fogarry agreed to facilitate the

assignment of Arete's rights to buy the Utility System from Arete to JOJAC/SEJAC, Ltd.; Segal

agreed to finance or obtain financing needed to consummate that fransaction.

18. In December 1997, through a series of instruments dated the same day and all of which are

recorded in the real property records, title to the Lake Conroe Village subdivision, íncluding the

Utility Systerr serving the subdivision, was transferred from Tejas Financial Corporatior¡ to Arete

Real Estate and Development Company, to JOJAC/SEJAC, Ltd.r Emmes Private Capital, LLC,

I This pr*"eding is focused on the Lake Con¡oe Village Utility System; ownership of the I¡ke Livingston Village

and Port AdveDture Utility S¡rstems is cunently the subject of separate proceedings in other jurisdictions' However,

Plaintffi ' Second,4mended P etition Page 6

Page l0


believed to be an affiliate of JOJAC/SEJAC, Ltd., provided financing, but no üen documents were

found in the real property records.

19. On or about November 1, 1998, Aqua Texas entered into a purchase agreement with

JOJAC/SEJAC, Ltd. wherein Aqua Texas would acquire all of the assets of the Utility Systems

owned and operated by JOJAC/SEJAC, Ltd. The agreement also provided that Aqua Texas would

operate the Utility Systems on behalf of JOJAC/SEJAC, Ltd. until the sale was consummated and

closed. 20. On or about April 5,7999, JOJAC/SEJAC, Ltd. filed for Chapter 11 bankruptcy

protection in the United States Bani<ruptcy Court for the Southern District of Texas, Houston

Division (the'tsankn:ptcy Court'), under Case No. 99-33313-H3-11 (the "Bankruptcy Court

Proceedingl). Aqua Texas continued to operate the Utility System after the banlcruptcy filing.

ZI. On or about Decernber 10, 1999, pursuant to a joint motion filed by Aqua Texas and

JOJAC/SEJAC, Ltd., (the Debtor in Possession in the bankruptcyproceeding) the Bankruptcy Court

held hearings to determine the various parties' rights and responsibilities with respect to the Utility

System including Aqua Texas' continued operations of the Utility Systern. All parties claiming an

interest in the Utitity System including Aqua Texas, JOJAC/SEJAC, Ltd., Conroe Investors, Ltd.,

Emmes Private Capital, LLC, Arete, the TCEQ, and all other interest holders either particþated in

or had notice of and the opportunity to participate in the Bankruptcy Court hearings and the sale

process.

22. At the conclusion of the Bankruptcy Court hearings, Judge Letitia Z. Clatk signed an order

authorizing the sale of the Utility System to Aqua Texas on January 5, 2000. On January I 9, 2000,

The Henly Grogp, an affiliate ofJOJAC/SEJAC, f,rled a motion forrehearing, asking the Bankruptcy

Court not to authorize the sale of the Utility System to Plaintiff. Their motion for rehearing was

the Bankruptcy Court Order treats the th¡ee slatems collectively as the "Utility Systems."

Pløíntffi' Second Amended Petition Pøge 7

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denied on February 8, 2000. A copy of the Bankruptcy Court's Order and the Order denying the

Motion for Rehearing is attached as an exhibit to this Petition. ,S¿¿ Exhibit B, Jan. 5, 2000 Order

of the United States Bankruptcy Court for the Southern District of Texas, Houston Divisioru and

Exhibit C, February 8, 2000 Order Denying Henly Group, Inc.'s Motion for Reconsideration of

Order Authorizing Sale of Properly to AquaSource Utility, Inc.

23. Section 2 of the Bankruptcy Court's January 5, 2000 order broadly describes the assets

transferred to AquaTexas as follows: "The Utility Systems (includingwithaut límitatíon all pumps,

wells, planæ, pipes and other assets, easernents, rights and privileges that are used or useful in

providing water and sewer services pursuant to Certificates of Convenience and Necessity No.

12099 and No. 20659). . . " (emphasis added). Obviously included in this broad description is the

real estate which constitutes the'þlants" for the system.

24. Section 3 of the Bankruptcy Court's January 5, 2000 Order cuts off the claims of all other

parties claiming an interest in the Property as follows: "The sales are free of all liens, claíms,

encumbrances or ínterests of any person." (emphasis added). Such language clearly includes the

claims of ulllienholders and other interest holders existing at the time of the sale.

25. Section 10 of the Bankruptcy Court's January 5, 2000 Order requires that all other parties

execute appropriate documents needed for the transfer of the Utility System and its assets into the

name of AquaSource Utility, Inc. as follows: "All persons shall fuIIy cooperctte with the Texas

Nøtural Resources Conservatton Commissíon and AE nSource Utility, Inc. regarding the proposed

trønsfer. . . including executing such documents tts ctre necessary to transfer the Utility Systems,

wøterwells, lift stntíons, and all necessary sewerplant sites and easemenß - . . " (emphasis added).

26. PursuanttotheJanuary5,2000BankruptcyCourt Order,AquaTexas soughtTCEQ approval

to change the controll ing CCNs for the Utility System ftom I 2099 and 20689 to 1 1 1 57 and 20453 .

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Phintifs' Second Amended P etitíon


ln May 2002, the TCEQ ordered the transfer of CCN No. I 2099 to Aqua Texas so that Aqua Texas

could continue to provide retail water utility service using the Lake Conroe Village Utility System

under CCN No. lll57,and canceiled CCN Number 12099. Also in May2002,the TCEQ ordered

the hansfer of CCN No 20689 to Aqua Texas so that Aqua Texas could continue to provide retaü

sewer utility service using the Lake Conroe Village Utility System under CCN No. 20453, and

cancelled CCN Numb er20689. Aqua Texas continuously operated its retail water and sewer utility

service using the Lake Conroe Village Utility System before, during and after these two orders.

27. On or about January 19, 7999, less than three months before filing for Banlcruptcy,

JOJACiSEJAC, Ltd. attempted to transfer title to the Lake Comoe Village subdivision, including

the Utility System, to Conroe Investors, Ltd., an affrliated entity. In this transaction, Contoe

Investors, Ltd. issued aDeed ofTrust to the International Bank of Commerce in exchange for aloan.

Aqua Texas continued to operate the Utility System after this attenrpted tansfer. This attempted sale

is void as to the Utility System and the CCì,Is, as the Bankruptcy Court detemrined that the Utilify

System was part of the Banlcuptcy Estate and ordered it conveyed to Aqua Texas. Furthermore,

Section 13.251Water Code specifically prohibits sale or transfer of CCNs without the approval of

the TCEQ. As the attempted hansfer to Conroe Investors was void, Conroe Investors could give no

lien to a third parfy on the Utitity System and/or CCNs and thus any foreclosure by any alleged lien

holder and/or subseque,lrt sale or hansfer to Droy as to the Utility Systern and the CCNs is void.

28- In spite of the January 5, 2000 Order conveying the Utility System to Aqua Texas, Conroe

fnvestors conveyed lots in Lake Conroe Village by Warranty Deed dated December 23,2002 to

Double S Development,LLC, anentityowned andmanagedbyDavid SilbersteinandRichard Segal'

In 2004 the Intemational Bank of Commerce sold the Deed of Trust to S¡mdicate Exchange

Corporation, an affrliated entity ofDavid Silberstein. Subsequently, Syndicate foreclosed on Conroe

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Plaíntffi' Second Amended Petilion


Investors and Doubie S Development and purported to convey a General V/arranty Deed to Droy,

yet another affi.liated entity of David Silberstein. Concurrently, Double S Development purported

to convey properties in Lake Conroe Village to another entity owned by David Silberstein, DSD

Homes, LLC, which in turn conveyed the properties to Droy. The Order precludes these

transactions, which are void as to the Lake Conroe Village Utility System and the CCNs that are

owned by Plaintiff. Defendants are collaterally estopped from asserting the validity of these

transactions. Furthennore, Section 13.25I Water Code specifically prohibits sale or transfer of

CCNs without the approval of the TCEQ. The sale of the Deed of Trust, foreclosure by any lien

holder, and subsequent conveyance to Droy of any of the Lake Conroe Utility Village System and/or

the CCNs under which the Utility System serves the Lake Conroe Village subdivision are void.

29- During the deposition of Mr, David Silberstein, which occurred on Nov. 13,2008, Plaintiff

learned that various e¡rtities owned and controlled by Mr. Silberstein, including Double S

Development, DSD Homes, and Syndicate Exchange Corporation, in addition to Droy, may continue

to assert ownership interests in properly within Lake Conroe Village that are conffary to the

ownership and operation of the Utility Systerr by Aqua Texas. Droy has not made clear the

ownership interests of these entities or the numerous transactions that have occurred between them,

and Aqua Texas has only recently learned of these purported ownership interests. Syrdicate

Exchange Corporation, Double S Developrnent, DSD Homes, and David Silberstein are necessary

parties in order that any and all interests they may assert in the Utility System be extinguished in this

proceeding.

30. Mr. Silberstein personally held, and may still hold" a security interest in the Utility System

that is purportedly owned by his affrliated entity, Droy. It is unclear whether Mr. Silberstein

continues to hold a purported security interest in the Utility System. Mr. Silberstein is a necessary

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Pløintifs' Second Amended Petítion


parfy in order that any such security interest can be extinguished and remdved from PlaintifPs title

in this proceeding.

31. Aqua Texas has owned and operated the Utility System since the Bankruptcy Court Order

and has also openly, continuously, exclusively, and notoriously occupied the real property as the

owner and operator of the Utility System under title or color of title since the Court's Order. The

Property has bee,n fenced in and used to provide safe, adequate water and wastewater service for

many years. Since January 2000, Aqua Texas has regularly provided reports to the TCEQ, rendered

bills to its customers, and has been ganerally conspicuous and present on the real properly that is the

Utility Systern.

32. Defendants have had actual knowledge that AquaTexas owns and operates the Utilþ System

since long before Droy's purportedpurchase of the Property on September 2I,2005. Ríchard Segal,

a partner of JOJAC/SEJAC, as well as several of Silberstein's ventures had full knowledge of and

participation in the Bankruptcy Proceeding, which conveyed the Utility System to Aqua Texas by

its Order of January 5, 2000. Double S Development, an entity controlled by David Silberstein and

Richard Segal, purchased numerous lots in Lake Conroe Village in Decernber of 2002 that received

retail water and sewer ufility service from Aqua Texas. Syndicate Exchange Corporation, another

entify controlled by David Silberstein, also was aware of Aqua Texas' ownership, operation oî and

interest in the Utility System prior to foreclosing on its lien and prior to its purported conveyance

to Droy.

33. Aqua Texas' ownership claims related to the Properry are specificalty limited to the real

property sites and ease,ments used or useful in providing water and sewer service purzuant to the

CCNs.

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P laìnti.ffs' Second Amended Pe¡itipn


\rI. TRESPASS TO TRY TITLE

34. On September 7,2007, Droy sent Plaintiff a notice and demand to vacate. Such

correspondence is an unlawful attempt by Droy to dispossess Plaintiff of both ownership and

possession of the Uiitify System, contrary to applicable state and federal law, TCEQ rules and

regulations, the Bankruptcy Court's January 5, 2000 Order, equity, and PlaintifPs continuous

possession, operation and ownership of the Utilify System. ,S¿e Exhibit D, September 7, 20t7

Notice and Demand to Vacate letter.

35. Plaintiffrespectfullyrequests that, baseduponthe facts presented and the applicable law, this

Court find that Plaintiffis the rightful occupier and owner in fee simple of the Utility System, and

that the claims of all others who assert or could assert a contrary interest in the Utilify Syste,n are

null and void. Plaintiff firrther requests that this court order Defendants to cease and desist all

attempts to exercise dominion and/or control over the Utility System.

YII. REMOVE CLOI]D ON TITLE

36. As stated above, Plaintiff is the rightful owner in fee simple of the Utility System" having

acquired its interest in the Utility System througþ a United States Bankruptcy Court Order issued

January 5, 2000. That Order specifically provides that PlaintifPs ownershiF is free and clear of all

other lie,ns and claims of any other parby.

37. TheBanlaruptcy Court's Order conclusiveþand exclusivelyvested titletotheUtility System

in Aqua Texas, free and clear of all liens, claìms, and encumbrances. Any document that purports

to transfer the Utility System and/or the CCNs owned by Aqua Texas is null and void, and contrary

to state and federal law. Accordingly, a1l instuments and contrary ownership claims are

extinguished and are null and void as a result of the Court's findings and rulings.

3 8. Various deeds of trust, assignments, and renewals executed by Conroe Investors, Ltd. and/or

their lenders were filed after the Bankruptcy Court's January 5, 2000 Order, includingbut not limited

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Plaíntffs' Second Arnmded Petition


to those recorded in the Montgomery County Real Property Records at 2001-17590, 2001 -038964,

2002-037431,2002-098995, and 2004-119266. Each instrument attempts to grant or assert some

type of interest in the Utility System contrary to the ownership of Aqua Texas, thereby constituting

a cloud on Aqua Texas' title. Each document is void insofar as it claims an ownership interest in

the Utility System and the CCNs which are property of Aqua Texas.

39. Further, instruments recorded at2004-124000, 2004-134673, and2004-143056 purport to

effectuate a foreclosure on the Utility System. Defendants have asserted to Plaintiff and to others

that these instruments give Defendants ownership ofthe Utility System, further establishing a cloud

on AquaTexas'title. Each document is void insofar as it claims an ownership ínterest in theUtilþ

System and the CCNs which are property of Aqua Texas.

40. On September 7,2007, Droy sent Plaintiffa notice and de,rnand to vacate. See Exhibit D.

Suchcorrespondenceis an assertionbyDroyof acontraryclaim ofownership in theUtilitySystem,

conkary to applicable law and contrary to PlaintifPs rights and ownership in fee simple, and

constitutes a cloud on PlaintifPs title to the Utility System.

41. As aresultoftheBankruptcy Court's Order, the liens and claims related to theUtility System

which might constitute a cloud on Plaintiff s title were specifically extinguished, including those

contained in the instruments described above. AccordinglS at the time of the purporled foreclosure,

the Trustee could not include the Utility System, as that portion of the lien had been extinguished.

Since the Utility System could not be foreclosed upon, Defendants could not take title to the Utility

Systemthroughthe conveyance. Thus, Defendants' claimregardingtheUtilitySystem is invalid and

unenforceable.

42. AquaTexas'ownership claimsrelated to theUtilitySystemare specificallylimitedtothereal

properly sites and easements used or useful in providing retail water and sewer service pursuant to

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Plníntiffs' Second Amentled Petitíon


Aqua Texas' CCNs described in paragraphs I I and 12, and Exhibit A.

43 - If this Court does not find that the Utilify Systan is owned in fee simple by Aqua Texas, the

residents ofl¿ke Conroe Village subdivision could find themselves without water and sewer service.

Additionally, Defendants could find themselves in the position of operating the water and sewer

systems without a CCN, in direct violation of applicable state law and TCEQ rules and regulations.

Texas Water Code $ 13.242 prohibits private companies from operating water and sewer facilities

without a CCN. The standard practice in the industry is that the CCN and other assets used to

provide services areinextricablylinkedand are alwaystransferredtogether, unless specificallystated

otherwise. Further, if this court does not find that the Utility System is owned by Aqua Texas, then

the intent of the Bankruptcy Court will be thwarted. Thus, the equities of this situation must be

considered to prevent an order and circumstances that immediatelyput the parties in violation of the

law.

44. Without waiving any other claims or possible claims, and pursuant to applicable law and

equrty, Plaintiff respectfirlly requests that this court find that the deed of trust inshuments, the

foreclosure instn:ments, and the conveyance instruments are null, void, and unenforceable as related

to the Utility System and not to the remainder of the land described in those inskuments, thereby

removing the cloud from Plaintiff s title.

VIII. QUIET TITLE

45. On September 7,20A7, Droy sent Plaintiff a notice and demand to vacate. Such

correspondence is an assertion by Droy of a contrary claim of ownership in the Utility System,

contrary to applicable law and contrary to PlaintifPs rigþts and ownership. See Exhibit D.

46. 'Without waiving any other claims or possible clairns, Plaintiff respectfully requests that,

based upon the facts presented a¡d the applicable law, this Court quiet title to the Utility Systern in

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Plaintiffs' Second Anended Petition


Plaintiff, finding that Plaintiff is the rightful owner and occupier of the Utility System, and that the

claims of all others who assert or could assert a contrary interest in it are null and void and without

rnerit.

IX. AD\rERSE POSSESSION

47 - Plaintifftook possession of the Utitity System under title or color of title and under a claim

of right that is hostile to that of Defendants. Plaintiffacquired the Utility System as a result of the

January 5, 2000 Bankruptcy Court Order which conveyed the Utility System to Plaintiff.

48. Plaintiffhas held the Utility System in peaceable and adverse possession from January 5,

2000 until present under title or color of title. Aqua Texas has had a visible appropriation and

possession ofthe land sufficient to give notice to Defendants of its possession. This peaceable and

adverse possession has thus continued for more than th¡ee ye¿rs, so that the Plaintiffnow owns fee

simple title to the Property under Texas CMI Practice and Rernedies Code Sections 16.024 and

16.030.

X. EXPRESS EASEMEI.TT

49- The Bankruptry Court Order ofJanuary 5,2000 ordered that'the Utility Systems (including

without limitation all pumps, wells, plants, pipes and other assets, easements, rights andprivileges

thatareused oruseful inprovidingwaterand sewersgfvices pursuantto Certificates of Convenience

and Necessþ No. 12099 and No. 20689) . . ." be conveyed to Aqua Texas. The Plaintiff asks the

court to declare the existence and validþ of the easements created by the Order described above.

50. Withoutwaivinganyotherclaims orpossibleclaims,PlaintiffrespectfullyrequeststheCourt

declarethattheOrderhas created anexpress easementforuse oftheUtilitySysteminfavorof Aqua

Texas. As such, the Plaintiffis entitled to use of and accqss to the Utility SysteffI on which the

easement lies to continue providing retail water and sewer services pursuant to the Order of the

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Page 19

Plaíntffi ' Second Amended Petítíon


Bankruptcy Court and its CCNs. It is these rights that Plaintiff asks to be confirmed, enforced, and

protected by the Courl's judgment.

51. On September '1,20O7, Droy sent Plaintiff a notice and demand to vacate. This action

interferes with and prevør-ts the Plaintiff s righfful use of its express easement. Plaintiffrespectfully

requests that the court enjoin Defendants' interference with PlaintifPs rigbts under the easement.

XI. EASEMENT BY ESTOPPEL

52- Aqua Texas has continuously owned and operated the Lake Conroe Viliage Utility System

since the Bankruptcy Court's January 5, 2000 Order conveyed the Properly to Aqua Texas.

53. Aqua Texas has operated the Utility System in good faith in reliance upon the Bankruptcy

Court Order.

54. Defendants and their predecessors in title were aware ofAqua Texas' operation of the Utility

System and yet made no objection of any kind to this use of the Utility System until its notice and

demand to vacate of September 7,2007.

55. Aqua Texas' use of the Utility Systøn is and has been so open and adverse as to indicate

clearly to any reasonable person that the user was doing so under a claim ofright to an easement and

property interest.

56. From January 5, 2000 forward, Plaintiffhas continuously accessed and operated its Utility

System in an open and obvious manner for the purposes stated, andhas made imptovements to the

Utihty System with theunderstanding and belief that its use of the land was so open and adverse as

to indicate clearly to a reasonable person that the user was doing so under a claim of right to an

easement and property interest.

57 . 'lVithout waiving any other claims or possible claims, Plaintiffrespectfullyrequests that the i

Court find that it holds an easement by estoppel for use of the Utility System and any easements

necessary to the operation of the Utility System.

Plaíntiffs' Secon¿l Amsnded Petítíon Page 16

Page 20


)üI. PRESCRIPTTVE EASEMENT

58. Plaintiff has been using the Utility System under a claim of right adverse to that of

Defendants since on or about January 5, 2000. The use of the Utility System has been open,

notorious, peaceable, and continuous.

59. PlaintifPs use of the Utitity System is and always has been to the exclusion of all others,

including the Defendants and the Defendants' predecessors in title, and carried out in a manner such

that the Defendants knew or should have known that the use of the Utility System was adverse,

hostile, and under a claim of right.

60. Without waiving any other claims or possible claims, Plaintiff requests the Court to

determine and declare that it holds a prescriptive easement over the Utility System under whích it

may access and use the Utility System, and any easements necessary to the operation of that system,

to continue to provide retail water and sewer utility service.

XItr. EASEMENT IMPLIED F.ROM }IECESSITY

61. Plaintiff operates the Utility System to provide retail water and sewer service pursuant to

Certificates of Convenience and NecessityNo. 1 115? and No. 20453,and has done so continuously

since on or about January 5, 2000.

62 An easement for use of the Utility System is necessary so that Plaintiff can continue to

operate the retail water and sewer utility service that it is required to provide pursuant to its CCNs.

'Without waiving any other claims or possible claims, Plaintiff respectñrlly requests the Court to

determine and declare an easement implied from necessity to the Utility System in favor of the

Plaintiffso that it may continue to access and use the Utility System, and any easements necessary

to the operation of that system, to continue to provide retail water and sewer utility service.

)ilV. DECLARATORY JUDGMENT

63 Pursuant to Texas Civil Practice and Remedies Code Section

Plaintiffs' Second Amended Petítion

37.001, Plaintiff seeks a

Page 17

Page2l


declaratory juclgment from the Court decreeing that Plaintiffhas title to and a fee simple interest in

the Property based on these express harms. Plaintiff further seeks a judicial declaration that Plaintiff

is the rightful owner of the Utility System, and that any documents purporting to convey theUtility

System and associated CCNs to any party outside of Plaintiffs chain be declared void. ln the

altemative, if the Court declines to issue a declaration that Plaintiffholds title to the Utility System

in fee simple, Plaintiff seeks a declaratory judgment from the Court that it holds easements to the

Utility System as described above.

XV. ATTOR}IEY'S FEES

64. Plaintiffengaged the undersigned attorney to prosecute this action and to protect PlaintifPs

rights. PwsuanttoTexas Civil Practice and Remedies Code Section 16.034, Plaintiffrequests that

it be awmded reasonable attorney's fees and costs. All conditions precedent to the recovery of such

attorney's fees and costs have occurred or have been performed. Further, purzuant to Texas Civil

Practice and Rernedies Code Section 37 .009,P\atntiff seeks an award of its reasonable and necessary

attorney's fees incr.r¡red herein in an arnount to be established at trial.

XYI. PRAYER

WHEREFORE, PREMISES CONSIDERED, Plaintiff requests that Defendants be cited to

appear and answer herein and that upon hearing Plaintiff be awarded the following:

judgment for fee simple titfe and possession of the Utility System,

judgment that title to the Properlyhas been quieted in Utility System,

dissolution of all clouds on Plaintiffls title to the Utility System,

a declaration that Plaintiff is the rightfirl owner of the Utility System,

in the alternative, a declaration that the Plaintiff holds an easement or

easements to the Utility Systern, including necessary access and sanitary

confrol easements,

u

b.

c.

d.

Page 18

Page22

P I ø in üfß' S ec o nd Amend ed P etition


CBnrrrrc¿.rt op Snnvrcu

I hereby CERTIFY that on May 7,2A09, a true and complete copy of the above was sent

by facsimile to cowrsel of record at the following addresses:

Michael P. FlemingJack MormanFleming & Palermo, P.C.10333 Richmond, Suite 110

Houston, TX,77042

Arronxsvs FoR DRoy PRornRrms, LLC,

vía fax to: (713) 978-6451

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Plaintiffs' S econd Anended Petítíon

Case 1:09-bk-12032-MT Doc 85-1 Filed 10/12/10 Entered 10/12/10 16:49:39 Desc Exhibit A Page 20 of 20

Auqua Texas Exhibit to Opposition

Documents

Transcript of Auqua Texas Exhibit to Opposition