Court Opinion

ID: 2987822
Source: CourtListenerOpinion
Date Created: 2015-09-23 00:57:01.307035+00
Date Added: 2024-06-11T18:01:10.052084
License: Public Domain

Affirmed and Opinion filed January 29, 2013.

                                              In The

                         Fourteenth Court of Appeals

                                      NO. 14-12-00496-CV

   HARRIS COUNTY FRESH WATER SUPPLY DISTRICT NO. 61, Appellant

                                                 V.

                          FWO DEVELOPMENT, LTD, Appellee

                          On Appeal from the 270th District Court
                                  Harris County, Texas
                            Trial Court Cause No. 2011-44925

                                        OPINION

       In this interlocutory appeal, Harris County Fresh Water Supply District No.
61 (the ―Water District‖) challenges the trial court’s denial of its jurisdictional
grounds for dismissal raised in a summary-judgment motion.1 Specifically, the

       1
          The trial court denied the Water District’s summary-judgment motion it its entirety; in
this interlocutory appeal, however, we consider only whether the trial court properly concluded
that it had jurisdiction over this case. See Tex. Civ. Prac. & Rem. Code § 51.014(a)(8)
(providing for an interlocutory appeal when a trial court denies a governmental unit’s challenge
to subject-matter jurisdiction). Additionally, the District filed a separate plea to the jurisdiction,
with its answer. Because it raised the same jurisdictional grounds as those raised in the its
Water District asserts that FWO Development, Ltd. (―FWO‖) failed to exhaust its
administrative remedies through an appeal to the Texas Commission on
Environmental Quality (the ―Commission‖), thus depriving the trial court of
subject-matter jurisdiction. It further argues that the Commission is vested with
exclusive jurisdiction to decide issues such as the amount of interest reimbursable
to a developer such as FWO, with the result that the trial court has no subject-
matter jurisdiction over FWO’s breach of contract claim for additional
reimbursement of this interest from the Water District. Because we conclude that
the trial court has subject-matter jurisdiction over FWO’s breach-of-contract claim
against the Water District, we affirm the trial court’s denial of the jurisdictional
issues raised in the Water District’s motion for summary judgment.

                                     BACKGROUND

       On July 20, 2005, the Water District2 and FWO entered into a contract,
pursuant to which FWO agreed to pay for and construct specific water facilities
necessary for development of property it owned and wished to develop within the
Water District. In return, the Water District agreed to issue bonds necessary to
reimburse FWO for certain costs associated with construction of the facilities. The
contract between the parties required the Water District to ―make its best efforts to
issue bonds (the ―Bonds‖) at the earliest time for the purpose of purchasing the
Facilities from [FWO], . . . together with interest thereon.‖ (emphasis added). In
exchange for reimbursement from the bond proceeds, FWO agreed to convey the
facilities to the Water District. FWO agreed to cooperate in transferring title to the

summary-judgment motion, the trial court’s denial of the motion operates as a denial of the plea
to the jurisdiction. See Thomas v. Long, 207 S.W.3d 334, 339–40 (Tex. 2006).
       2
         The Water District was converted to a municipal utility district subject to Chapters 49
and 54 of the Texas Water Code on July 23, 1975.

                                               2
facilities by ―executing such documents as necessary to memorialize title as the
Water District may require.‖

      Specifically, once FWO constructed the facilities, the Water District
promised to ―use its best efforts to issue, sell and deliver its bonds . . . on the best
available terms as soon as reasonably practical‖ in accordance with the other terms
of the contract. The Water District would then use the proceeds of the sale of the
bonds to pay the ―Reimbursable Share‖ incurred by FWO in the manner and
amount approved by the Commission. ―Reimbursable Share‖ is defined by the
contract as ―the maximum amount of reimbursement allowable for projects under
the Rules of the Commission and allowed and approved by the Commission,
together with interest thereon, calculated from the date of payment by [FWO] . . .
through the date of acquisition of the facilities,‖ with the interest rate equal to the
―net effective interest rate at which the bonds are sold.‖ The contract additionally
provides: ―Notwithstanding any other provisions of this Contract, [FWO] agrees
to waive any and all claims against other sources of revenues of the District, and to
look solely to the issuance of Bonds as the source of reimbursement for [FWO].‖

      In 2008, the Water District began preparing an application to the
Commission for approval of both various developers’ projects, including FWO’s
project, and the issuance of bonds to be used to reimburse these developers for the
cost of these projects. At an August 27, 2008 meeting of the Water District board
of directors, a representative from FWO raised several issues concerning
reimbursement to FWO under the 2008 bond application. One of the issues he
raised was the interest to be reimbursed under the bond application. The board’s
attorney informed him that ―all District preconstruction agreements with past and
current developers call for payment of no greater than two years interest on the

                                           3
eligible costs.‖3 The FWO representative informed the board that ―Commission
rules may permit additional interest to be paid under certain circumstances.‖ The
minutes from this meeting state, ―[T]he Board declined to extend any interest past
the two-year interest authorized by the District’s reimbursement agreement.‖
FWO did not appeal the Water District decision to request only two years
reimbursement of interest in its bond application to the Commission.4

       In January 2009, after the facilities were constructed, the Water District
applied to the Commission for approval of the projects and issuance of the bonds
for reimbursement. On September 18, 2009, the Commission issued its initial
order approving the projects and bond issuance, including interest reimbursement
of only two years for FWO as requested by the Water District. One of the other
developers challenged the Commission’s order, which had denied certain costs for
which the Water District had sought reimbursement. That challenge resulted in the
Commission’s issuing a revised order on February 9, 2010. This order also limited
FWO’s interest reimbursement to two years.

       That same developer asserted an administrative challenge to the revised
order, which was overruled.               The developer then unsuccessfully sued the
Commission.         Following the conclusion of these unsuccessful challenges, the
Water District began the process of issuing the bonds authorized by the
Commission’s revised order almost eighteen months later, in July 2011. The
minutes from a July 20, 2011 Water District Board Meeting indicate that FWO had
corresponded with the Water District on July 13 and July 15, 2011, requesting that

       3
           The contract contains no such limitation on interest reimbursement.
       4
         See Tex. Water Code § 54.239 (providing that a person aggrieved by a decision of a
board involving cost, purchase, or use of facilities may appeal to the Commission by filing a
petition with the Commission within thirty days after the date of the decision); 30 Tex. Admin.
Code § 293.180 (Tex. Comm’n on Envtl. Quality, Appeal of District Decisions) (same).

                                                 4
the District consider reimbursement of approximately $240,000.00 in additional
developer interest.    The minutes reflect that the Water District’s attorney
―confirmed the Board’s position that it will not be making any application to the
Commission to amend the bond order to pay additional interest to any party.‖ The
bond sale was tentatively scheduled for August 10, 2011.

      On July 22, 2011, the Water District responded in writing to FWO’s
correspondence of July 13 and 15, 2011. In this letter, the District stated:

      The District respectfully disagrees with FWO’s assertion that the
      District is required to pay additional interest above the two years
      authorized under the Commission staff memorandum dated February
      5, 2010 and Order dated February 9, 2010. The District will not be
      making an amended application for additional interest for any party.
                                         ...
      The District will require the execution of a release and a conveyance
      of facilities at the time reimbursement occurs. Any litigation filed by
      FWO will only complicate matters and result in a delay of
      reimbursement.

      FWO filed an original petition and application for a temporary restraining
order (―TRO‖) on July 29, 2011 against the Water District. It alleged that the
District had breached its contract with FWO, damaging it to the extent of up to
three years interest, or a maximum of almost $250,000.00. FWO sought specific
performance of the contract in the form of permanent injunctive relief compelling
the Water District to ―use its best efforts to apply to amend the Commission’s bond
order to include the additional interest owed to FWO.‖ It further sought a TRO
enjoining the Water District from issuing the bonds until the District used its best
efforts to obtain an amendment to the bond issuance order to include the maximum
amount of interest owed to FWO under Commission rules.

                                          5
      In response to FWO’s application for a TRO, the District successfully
obtained a declaratory judgment in a Travis County district court, pursuant to
section 1205.061(a) of the Texas Government Code. This declaratory judgment
authorized the Water District to issue the bonds, declared both the bonds and the
proceedings for issuing them legal and valid, and permanently enjoined ―institution
or prosecution by any person or entity of any new or existing action or proceeding
contesting the legality and validity of the Bonds. . . .‖

      FWO filed an amended petition on September 23, 2011, abandoning its
request for a TRO and injunctive relief, and modifying its breach of contract claim.
In its live pleadings, it alleged that the Water District had breached its contract
with FWO by failing to use its best efforts to apply for bonds providing the
maximum amount of interest reimbursement to which FWO was entitled under the
Commission’s rules. It sought damages for this breach in the amount of up to three
years of interest owed to it under the contract, or a maximum of $248,946.67, plus
pre- and post-judgment interest and costs.

      The Water District issued and sold the bonds in August 2011. In late
September 2011, it prepared a conveyance and release for FWO’s facilities and
forwarded them to FWO for execution. The Water District also sent FWO a
document entitled ―Receipt of Bond Proceeds,‖ which provided as follows:

            FWO DEVELOPMENT, LTD., a Texas limited partnership,
      (the ―Developer‖), does hereby acknowledge receipt of the sum of
      $__________ from the proceeds of the sale of the $8,630,000 Harris
      County Fresh Water Supply District No. 61 Unlimited Tax Bonds,
      Series 2011 (the ―Series 2011 Bonds‖), which amount represents
      payment of all reimbursable amounts due to Developer under the
      Water, Sewer and Drainage Improvement Financing and Construction
      Contract by and between Harris County Fresh Water Supply District
      No. 61 and FWO DEVELOPMENT, LTD. a Texas limited
      partnership, dated July 20, 2005 (the ―Contract‖).

                                            6
            Further, the undersigned Developer hereby warrants and
      represents that Developer is due such sums and agrees to indemnify
      and hold harmless District, its Directors, and representatives from any
      and all liability with respect to any further reimbursement under the
      Contract. District shall have no duly or obligation to pay any further
      sums to Developer.

      FWO responded by stating that the documents provided by the Water
District attempted to extinguish its lawsuit and claims for additional interest and
that the contract did not require a ―receipt.‖ FWO returned both an executed
modified Conveyance and Receipt, which covered all matters not disputed by the
parties, and expressly carved out the additional interest being sought by FWO in
the pending litigation. The Water District replied that the proceeds from the bond
sale would be available to FWO only when the original forms of the documents
were signed by FWO and delivered to the District.

      On September 29, 2011, the Water District emailed FWO a ―Formal
Tender,‖ in which it stated:

             The District formally tenders the sum of $1,210,194.07 and
      requests that FWO accept that amount and sign the documents Sara
      Anderson [counsel for the District] prepared [and sent on September
      22]. Without such acceptance and signing, the District cannot, under
      the law, deliver the check to FWO.
             If FWO refuses to accept and sign, then it must forego receipt
      of the funds until it accepts and signs or obtains a judgment for more
      than such sum. The District’s tender relieves it of any obligation to
      pay any interest on the tendered amount.

FWO replied that it had provided signed documents to the Water District covering
the full undisputed sum, yet the District had refused to pay FWO what it
admittedly owed. FWO stated that the Water District should consider its response
a demand that the District pay FWO $1,210,194.07 in reimbursement of the
principal and first two years interest owed from the bond proceeds.
                                         7
       In January 2012, FWO supplemented its petition to add an additional breach
of contract claim, asserting that FWO had complied with the contract and met all
conditions precedent for payment, but the Water District had breached the contract
by refusing to pay FWO the undisputed principal and first two years’ interest
approved by the Commission, for which the District had sold bonds and received
proceeds. FWO sought damages in the amount of $1,210,194.07, plus pre- and
post-judgment interest and costs for this breach.

       On April 3, 2012, the Water District filed a motion for summary judgment,
in which it raised two jurisdictional issues. FWO responded to the Water District’s
summary-judgment motion on April 20. The trial court denied the District’s
motion on May 8, 2012. This accelerated appeal, in which only the jurisdictional
issues are challenged, was timely filed thereafter on May 18, 2011.5

                        SUBJECT-MATTER JURISDICTION

       The Water District challenges the trial court’s subject-matter jurisdiction in
two issues. First, it asserts that FWO failed to exhaust its administrative remedies
prior to filing suit.     Second, the District contends that Texas law vests the
Commission with exclusive jurisdiction to decide issues such as the amount of
reimbursable interest to developers like FWO.

       The Water District’s two issues are intertwined: as is applicable here, a
party is required to exhaust administrative remedies only when the legislature has
vested exclusive jurisdiction in an agency to make an initial determination in a
dispute. See Thomas v. Long, 207 S.W.3d 334, 340 (Tex. 2006). Thus, we address
these issues together and consider whether the Commission has the authority to
       5
          Regardless of the procedural vehicle, the legislature has provided for an accelerated
interlocutory appeal when a trial court denies a governmental unit’s challenge to subject-matter
jurisdiction. See Tex. Civ. Prac. & Rem. Code § 51.014(a)(8); see also Thomas v. Long, 207
S.W.3d 334, 339–40 (Tex. 2006).

                                               8
make an initial determination in a breach of contract dispute between a municipal
utility district and a developer.

A.    Standard of Review and Governing Law

      Whether the Commission has exclusive jurisdiction over this dispute is a
question of law that we review de novo.         Id.   A district court’s jurisdiction
―consists of exclusive, appellate, and original jurisdiction of all actions,
proceedings, and remedies, except in cases where exclusive, appellate, or original
jurisdiction may be conferred by this Constitution or other law on some other
court, tribunal, or administrative body.‖ Tex. Const. art. V, § 8. District courts are
courts of general jurisdiction and generally have subject matter jurisdiction absent
a showing to the contrary. Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 75 (Tex.
2000).

      In contrast, administrative bodies may exercise only those powers the law
confers upon them in clear and express statutory language and those reasonably
necessary to fulfill a function or perform a duty that the legislature has expressly
placed with the agency. Thomas, 207 S.W.3d at 340. When the legislature grants
an administrative body the sole authority to make an initial determination in a
dispute, that agency has exclusive jurisdiction over the dispute. Id. If an agency
has exclusive jurisdiction, a trial court lacks subject matter jurisdiction and must
dismiss any claim within the agency’s jurisdiction until that party has exhausted all
administrative remedies. Id.; see also United Residential Props., L.P. v. Thies, 378
S.W.3d 552, 560 (Tex. App.—Houston [14th Dist.] 2012, no pet.).

      Whether an agency has exclusive jurisdiction depends on statutory
construction. See Thomas, 207 S.W.3d at 340. Here, there is no express indication
of exclusive jurisdiction. Thus, we look to the relevant legislative scheme to

                                          9
determine if the legislature granted the Commission the sole authority to make an
initial determination in this dispute. Id.

B.    Analysis

      The legislature has tasked the Commission with the primary responsibility
for implementing the State’s public policy of conserving natural resources. See
Tex. Water Code § 5.012. The Commission has continuing supervisory authority
over fresh water districts, including the Water District. See id. § 5.013 (a)(2)
(providing the Commission with general jurisdiction over the continuing
supervision over districts created under article XVI, section 59(a) of the Texas
Constitution); id. § 54.024 (stating that rights, privileges, authority, and functions
of a utility district, including a fresh water district, are subject to the continuing
right of supervision by the State through the Commission). As is relevant here, the
Commission’s continuing right of supervision of the Water District includes, but is
not limited to, the authority to:

      (1) inquire into the competence, fitness, and reputation of the officers
          and directors of any district or authority;
      (2) require, on its own motion or on complaint by any person, audits,
          or other financial information, inspections, evaluations, and
          engineering reports;
      (3) issue subpoenas for witnesses to carry out its authority under this
          subsection;
      (4) institute investigations and hearings; [and]
      (5) issue rules necessary              to    supervise   the   districts   and
          authorities . . . .

Id. § 293.3

      The Commission has the authority to perform acts specifically authorized or
implied by the Texas Water Code or other law that are ―necessary and convenient
to the exercise of its jurisdiction and powers‖ provided by the Water Code and
                                              10
other laws. Id. § 5.102(a). To that end, the Legislature has vested the Commission
with rule making authority. Id. § 5.103. The purpose of the Commission’s rules
―is to implement the powers and duties of the commission under the Texas Water
Code, the Texas Health and Safety Code, and other laws, to establish the general
policies of the commission, and to set forth procedures to be followed in agency
proceedings.‖ See 30 Tex. Admin. Code § 1.1 (Tex. Comm’n on Envtl. Quality,
Purpose of Rules, General Provisions).

       Chapter 293 of Title 30 of the Texas Administrative Code contains the
Commission’s rules specifically regarding water districts. See id. §§ 293.1–.365
(Tex. Comm’n on Envtl. Quality, Water Dists.). However, ―[n]othing in this
chapter shall be construed to relieve a district of its legal duties, obligations, or
liabilities relative to its responsibilities as defined in the Texas Water Code.‖ Id. §
293.2. As is relevant here, under the Texas Water Code,

       [a] district is authorized to purchase, construct, acquire, own, operate,
       maintain, repair, improve, or extend inside and outside its boundaries
       any and all works, improvements, facilities, plants, equipment, and
       appliances necessary to accomplish the purposes of the district
       authorized by the constitution, this code, or other law, including all
       works, improvements, facilities, plants, equipment, and appliances
       incident, helpful, or necessary to . . . supply water for municipal uses,
       domestic uses, power, and commercial purposes and all other
       beneficial uses or controls . . . .
Tex. Water Code § 54.201.6

       Numerous Commission rules govern the issuance of bonds, including the
Commission’s approval of projects relating to the issuance and sale of bonds,7

       6
           This statutory provision provides the authority for the Water District’s contract with
FWO.
       7
          The Commission’s approval of FWO’s project came well after the District had
contracted with FWO. Our record reflects that the District entered into the subject contract in
2005 and submitted its application to the Commission for project approval and bond issuance in
                                                11
submission of district applications for bonds to the Commission, bond application
requirements, and rules for developer interest reimbursement. See 30 Tex. Admin.
Code §§ 293.41, .42, .43, 50. The rules for developer interest reimbursement
provide that a developer may be reimbursed by a district for up to two years of
accrued interest, or if requested by a district, for up to five years if the Commission
deems the extra reimbursement feasible and certain other conditions are met. See
id. § 293.50.

        There is an appeal process defined in the rules: ―A person aggrieved by a
decision of a board of directors of a Municipal Utility District operating under the
Water Code, Chapter 54 may appeal a decision that involves the cost, purchase, or
use of improvements constructed by a developer for the district to the
commission.‖ Id. § 293.180. Similarly, the Texas Water Code provides, ―A
person aggrieved by a decision of a board involving the cost, purchase, or use of
facilities may appeal the decision to the Commission by filing a petition with the
Commission seeking appropriate relief within 30 days after the date of the
decision.‖ Tex. Water Code § 54.239.8

2009.
        8
          The District cites several cases for the proposition that the use of ―may‖ in this type of
appeal provision means that an appeal must be taken. The cases cited by the Water District in
which the permissive ―may‖ is used to describe a mandatory administrative appeal involve
situations in which the grievance or dispute at issue falls within the scope of the agency’s or
administrative body’s review powers. See, e.g., Schroeder v. Tex. Iron Works, Inc., 813 S.W.2d
483, 487-88 (Tex. 1991), overruled on other grounds, In re United Servs. Auto. Ass'n, 307
S.W.3d 299 (Tex. 2010) (explaining that Commission on Human Rights Act created a
comprehensive administrative review system under which the plaintiff’s unlawful employment
grievance fell); Jones v. Clarksville Indep. Sch. Dist., 46 S.W.3d 467, 470–71 (Tex. App.—
Texarkana 2001, no pet.) (―[D]espite the seemingly clear [permissive] language of the [appeal]
statute, it has historically been explained as actually meaning that an aggrieved person may
appeal, and if an appeal is taken, it must be to the commissioner [of education] if the matter is
one within the scope of the agency’s review powers.‖ (third emphasis ours)). As discussed
above, administrative bodies may exercise only those powers that the law confers upon them in
clear and express statutory language and those reasonably necessary to fulfill a function or
                                                12
         However, the Water District has not directed us to, nor has our research
revealed, any Commission rule requiring the Commission to make an initial
determination regarding a contract dispute between a district and a developer. See
Thomas, 207 S.W.3d at 340. FWO sued the District for breaching their contract—
specifically, for failing to use its best efforts to apply for or obtain the maximum
reimbursable share for FWO permissible under the Commission’s rules and for
failing to pay FWO even though all conditions precedent to payment had been met.
As noted above, the Commission only has those powers conferred on it by clear
and express statutory language or implied powers reasonably necessary to fulfill a
function or perform a duty the legislature has expressly placed with it. Thomas,
207 S.W.3d at 340. Our review of the relevant statutory scheme does not indicate
that the legislature has expressly conferred on the Commission the power or duty
to determine whether the Water District breached its contract with FWO. Indeed,
the Commission’s rules explicitly provide that they shall not be construed to
relieve a district of its legal duties, obligations, or liabilities relative to its
responsibilities as defined in the Texas Water Code. 30 Tex. Admin. Code §
293.2.

         We conclude that the Commission has not been vested with exclusive
jurisdiction to determine this contract dispute, and FWO was not required to
exhaust its administrative remedies before filing suit. Accordingly, we overrule
the District’s challenges to the trial court’s subject-matter jurisdiction.

perform a duty that the legislature has expressly placed with the agency. Thomas, 207 S.W.3d at
340. As discussed supra, the District has not cited, nor have we found, anything indicating that
contract disputes between districts and developers fall within the Commission’s review powers.
                                              13
                                CONCLUSION

      For the foregoing reasons, we overrule the Water District’s issues and affirm
the trial court’s order denying the jurisdictional issues raised in the District’s
summary-judgment motion.

                               /s/           Adele Hedges
                                             Chief Justice

Panel consists of Chief Justice Hedges and Justices Brown and Busby.

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