In a new federal lawsuit filed Tuesday, two East Texas real estate entities owned by Dallas hedge fund operator Kyle Bass accuse the Neches and Trinity Valleys Groundwater Conservation District of violating the constitution by effectively “taking” property without compensation.
The federal takings lawsuit, filed in the Tyler Division of the U.S. District Court for the Eastern District of Texas, alleges the conservation district has “effectively confiscated” the Bass entities’ real property rights by instituting a moratorium May 21 preventing them from exercising their groundwater rights. The lawsuit was filed by Bass’ Redtown Ranch Holdings, a 7,221-acre ranch in Anderson County, and Pine Bliss, his 4,355-acre family ranch in Henderson County. The two ranches are about 50 miles apart.
The moratorium, which the plaintiffs call “pretextual” in the lawsuit, hits pause on “processing and permitting new non-exempt drilling, operating and transfer/transport permit applications.” The lawsuit accuses the district of waging a “deliberate, targeting and escalating campaign to strip plaintiffs of their constitutionally protected property rights in the groundwater beneath their own land.”
“Defendants know that plaintiffs own this groundwater,” the lawsuit reads. “The moratorium is the mechanism by which defendants seek to seize it. By eliminating any pathway for plaintiffs to obtain the permits necessary to explore and develop the groundwater beneath their own land, the moratorium does not merely ‘regulate’ plaintiffs’ property; it confiscates it, transferring the practical value of plaintiffs’ groundwater estate from plaintiffs to the district and, ultimately, to whomever the district later chooses to favor with access to that water.”
Counsel for Redtown Ranch Holdings and Pine Bliss, Mollie Mallory of Tillotson Patton, issued a statement to The Lawbook Tuesday, saying in part that the suit is intended to “hold the District accountable.”
“Our clients have spent years lawfully pursuing their property rights, only to face a targeted and indefinite regulatory roadblock,” she said. “This moratorium prevents them from accessing the groundwater beneath their own land. The government cannot weaponize its regulatory power to strip Texas landowners of their property rights.”
In addition to the water conservation district, the lawsuit names as defendants seven individuals who are members of its board of directors. The lawsuit is seeking a declaration that the moratorium is, in effect, an unconstitutional taking for which the Bass entities must be compensated. It also alleges that the district’s directors acted outside their authority by implementing the moratorium “not because they mistakenly exceeded their authority, but because they knowingly and deliberately abused the regulatory power entrusted to them in order to target plaintiffs’ property for appropriation.”
Bass is the founder and chief investment officer of Dallas-based Hayman Capital Management, which gained widespread recognition for its accurate predictions of subprime mortgage failures during the financial crisis that led to the Great Recession.
This dispute is rooted in actions Bass took in May 2024, when he applied for exploratory drilling permits with the district seeking to drill a total of 43 wells across the two ranches, according to the lawsuit.
“Plaintiffs invested substantial resources in preparing and filing the applications, including filing fees, professional hydrogeological studies, engineering analyses, and legal costs, all in reliance on the existing regulatory framework established by Chapter 36 of the Texas Water Code and the District’s then-existing Rules,” the federal lawsuit alleges.
The district greenlit the applications to proceed through its permitting process May 15, 2025, and advanced the applications again June 19, 2025, for a hearing before the State Office of Administrative Hearings.
Things came to a head Oct. 23, 2025, when a trial court judge in Anderson County signed off on a settlement in a declaratory judgment action brought against the district by poultry producer Sanderson Farms that effectively indefinitely shelved the Bass entities’ application to conduct the exploratory drilling.
After that judge denied the Bass entities’ motion to intervene in the suit, they appealed to the Twelfth Court of Appeals. Redtown Ranch and Pine Bliss filed its opening brief in the appeal July 1.
Redtown Ranch and Pine Bliss then filed suit against the District in Cherokee County, alleging its directors had violated its rights “under color of state law by their rogue, unlawful, and ultra vires actions in preventing the District from acting on [the] applications.”
On Jan. 28, the trial court granted the district’s motion to toss that suit on jurisdictional grounds.
Redtown Ranch and Pine Bliss again appealed to the Twelfth Court of Appeals, and on May 27 filed an opening brief.
In the 27-page lawsuit filed Tuesday, Redtown Ranch and Pine Bliss told the court the district’s “pattern is unmistakeable.”
“At every turn, the District has subordinated its statutory obligations, and plaintiffs’ constitutional rights, to the demands of a politically connected coalition of local commercial interests that want plaintiffs’ water for themselves,” the lawsuit alleges. “The Sanderson Farms plaintiffs and their allies do not want a fair permitting process. They want no process at all — at least not for plaintiffs. And the District has been only too willing to oblige.”
The case has been assigned to U.S. District Judge Jeremy D. Kernodle.
Redtown Ranch and Pine Bliss are also represented by Jeff Tillotson and Edmond R. McCarthy Jr. and Edmond R. McCarthy III of McCarthy & McCarthy.
Counsel for the defendants had not filed an appearance as of Tuesday. A message sent to the lawyers representing the District in the state court appeals was not immediately returned Tuesday evening.
The case number for the newly filed lawsuit is 6:26-cv-00328. The case numbers on appeal are 12-26-00043-CV and 12-26-00067-CV.
Mark Curriden contributed to this report.