Opinion ID: 786344
Heading Depth: 1
Heading Rank: 3

Heading: Eby's Breach-of-Contract Claim

Text: 12 Eby maintains that the district court erred by requiring it to exhaust DART's administrative dispute-resolution process before seeking relief for breach of contract in a court of law. It challenges both the district court's reliance on the parties' contract and the court's reliance on the dispute-resolution procedures promulgated by DART at the direction of the Texas Legislature. Defending the district court's judgment, DART primarily contends that the doctrine of exhaustion of administrative remedies requires Eby to submit its grievances to DART's administrative process before pursuing judicial review. Alternatively, DART relies on both its bid solicitation and the parties' contract in maintaining that Eby agreed to exhaust administrative remedies before seeking judicial review. 13 As DART asserts, Texas courts generally do require a party to exhaust its administrative remedies before seeking judicial review of the decision of a governmental entity. See Tex. Dep't of Transp. v. Jones Bros. Dirt & Paving Contractors, Inc., 92 S.W.3d 477, 484-85 (Tex.2002); Tex. Educ. Agency v. Cypress-Fairbanks I.S.D., 830 S.W.2d 88, 89-90 & n. 1 (Tex.1992); Tex. State Bd. of Exam'rs in Optometry v. Carp, 162 Tex. 1, 343 S.W.2d 242, 246-47 (1961); Firefighters' & Police Officers' Civil Serv. Comm'n v. Herrera, 981 S.W.2d 728, 732 (Tex.App. — Houston [1st Dist.] 1998, pet. denied); Caspary v. Corpus Christi Downtown Mgmt. Dist., 942 S.W.2d 223, 226 (Tex.App. — Corpus Christi 1997, writ denied); Bandera Downs, Inc. v. Alvarez, 824 S.W.2d 319, 321 (Tex.App. — San Antonio 1992, no writ); see also Glasscock Underground Water Conservation Dist. v. Pruit, 915 S.W.2d 577, 580 (Tex.App. — El Paso 1996, no writ) (In most instances, a party must exhaust available administrative remedies before resorting to the courts. (citing Webb County Appraisal Dist. v. New Laredo Hotel, Inc., 792 S.W.2d 952, 954 (Tex.1990))). But, as Eby notes, none of these cases is precisely on point; they all deal with administrative procedures codified in a statute. 6 DART's dispute-resolution process, by contrast, is found only in its own procurement regulations and in the parties' contract. Thus, this case presents a question of first impression in Texas — i.e., whether a contractor can sue a regional transportation authority for breach of contract without first submitting its claim to the authority's administrative process. As we explain below, we conclude that the Texas Supreme Court, if faced with this situation, would hold that Eby must first exhaust the administrative remedies provided in DART's regulations before pursuing a breach-of-contract action in a court of law. See, e.g., Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 406 (5th Cir.2004) (stating the general rule that, when faced with an unsettled question of substantive state law in a diversity case, a federal court must make an  Erie -guess as to how the state's highest court would answer the question). 14 Eby asserts that, because DART lacks governmental immunity from Eby's breach-of-contract claim, Eby has the right to sue without first exhausting administrative remedies. Eby argues that, under Texas law, DART waived its governmental immunity from Eby's breach-of-contract action by contracting with Eby. Eby is half right. In Texas, governmental immunity embraces two principles: immunity from suit and immunity from liability. Travis County v. Pelzel & Assocs., Inc., 77 S.W.3d 246, 248 (Tex.2002). Thus, although Eby is correct that DART waived immunity from liability by contracting with Eby, DART retains immunity from suit on the contract, unless that immunity has been expressly waived. Id. (When a governmental entity contracts with a private party... it is liable on its contracts as if it were a private party. But a governmental entity does not waive immunity from suit simply by contracting with a private party. Express consent is required to show that immunity from suit has been waived. (citations omitted)). 15 Eby maintains that DART's immunity from suit has been waived by the Texas Legislature. In Eby's view, the Legislature waived DART's governmental immunity from suit by declaring in DART's enabling legislation that it may sue and be sued. TEX. TRANSP. CODE ANN. § 452.054(b). Texas courts are divided, however, on whether such language is sufficiently clear and unambiguous to constitute a waiver of immunity. See, e.g., Satterfield & Pontikes Constr., Inc. v. Irving Indep. Sch. Dist., 123 S.W.3d 63, 65-68 (Tex.App. — Dallas 2003, no pet.) (disagreeing with several other Texas Courts of Appeals and holding that sue and be sued language does not waive a governmental entity's immunity). In any event, Eby's argument is beside the point. Even if DART lacks governmental immunity, as Eby argues, Eby would not be relieved of its obligation to exhaust administrative remedies. 16 Eby cites no authority for the proposition that a plaintiff is only required to exhaust administrative remedies against a defendant who enjoys governmental immunity. 7 Cf. State v. Fid. & Deposit Co. of Md., 127 S.W.3d 339, 345-47 (Tex.App. — Austin 2004, no pet.) (holding that the State waived its sovereign immunity from the defendant's counterclaims by filing suit, and then separately analyzing whether the defendant's counterclaims must nonetheless be dismissed for failure to exhaust statutorily prescribed administrative remedies). On the contrary, since DART's administrative process culminates in the opportunity for judicial review, it makes little sense to say that the process is enforceable only if DART is immune from suit in a court of law. Further, while Eby focuses heavily on the apparent waiver of governmental immunity in DART's enabling legislation, it ignores the fact that the very same legislation also explicitly delegated to DART the power to adopt and enforce  dispute-resolution procedures, TEX. TRANSP. CODE ANN. § 452.106(a)(2)(C) (emphasis added), strongly suggesting that participation in those procedures is not merely voluntary. Put another way, the Legislature's waiver of DART's governmental immunity does not equate to permission for contractors to sue DART without first submitting their claims to the statutorily authorized administrative process. Although the Legislature may have intended to waive DART's governmental immunity, it also seems to have intended to require contractors to submit their claims to DART's administrative process before bringing suit. To conclude otherwise would fail to give effect to the language of Section 452.106(a)(2)(C). See, e.g., Perkins v. State, 367 S.W.2d 140, 146 (Tex.1963) ([I]t is settled that every word in a statute is presumed to have been used for a purpose; and a cardinal rule of statutory construction is that each sentence, clause and word is to be given effect if reasonable and possible.). 17 In addition, Eby — both by submitting a bid and by entering into the contract — agreed to submit its claims to DART's administrative process. 8 Nevertheless, Eby contends that DART cannot enforce Eby's agreement to submit its disputes with DART to DART's administrative process because Eby has alleged material breach. Eby correctly states the general rule that, when a party materially breaches a contract, the nonbreaching party can cease performance and sue. But the cases cited by Eby all involve appeals from a verdict against the breaching party. See Graco Robotics, Inc. v. Oaklawn Bank, 914 S.W.2d 633, 637 (Tex.App. — Texarkana 1995, no writ); Tribble & Stephens Co. v. Consol. Servs., Inc., 744 S.W.2d 945, 947 (Tex.App. — San Antonio 1987, writ denied); Shintech Inc. v. Group Constructors, Inc., 688 S.W.2d 144, 147 (Tex.App. — Houston [14th Dist.] 1985, no writ); see also Brown & Root U.S.A., Inc. v. J.I. Ramirez Constructors, Inc., No. 04-95-00200-CV, 1997 WL 61488, at  (Tex.App. — San Antonio Feb.12, 1997, no writ) (not designated for publication) ( Once a breach by Brown & Root was established, the contractual conditions to seeking further relief were dispensed with or relinquished by Brown & Root.... (emphasis added)). None addresses a motion to dismiss for failure to exhaust administrative remedies. Eby provides no authority for the proposition that, merely by alleging material breach, it can avoid its obligation to exhaust administrative remedies before pursuing its breach-of-contract claim in court. 18 As we have said in the context of determining whether a plaintiff has stated an actionable claim for relief, [w]hile the district court must accept as true all factual allegations in the complaint, it need not resolve unclear questions of law in favor of the plaintiff. Kansa Reins. Co. v. Cong. Mortgage Corp. of Tex., 20 F.3d 1362, 1366 (5th Cir.1994) (citation omitted). Similarly, we believe (contrary to Eby's assertion) that the district court, in adjudicating DART's Rule 12(b)(6) motion to dismiss for failure to exhaust administrative remedies, was not required to treat the contract between DART and Eby as having been materially breached and therefore rescinded. Accordingly, we conclude that Eby's allegation of material breach does not prevent enforcement of its promise to exhaust DART's administrative dispute-resolution process before filing suit. 9 19 In sum, the Texas Legislature has delegated to DART the authority to adopt and to enforce administrative procedures for resolving disputes with its contractors, and Eby has agreed to submit its contractual disputes with DART to DART's administrative process. Having failed to exhaust its administrative remedies, Eby nonetheless seeks to proceed with this suit. We conclude that, if the Texas Supreme Court were to confront this situation, it would hold that Eby must exhaust the administrative remedies provided in DART's dispute-resolution procedures before seeking relief on the parties' contract in a court of law.