Court Opinion

ID: 3107257
Source: CourtListenerOpinion
Date Created: 2015-10-16 06:12:19.084793+00
Date Added: 2024-06-11T11:52:05.809121
License: Public Domain

COURT OF APPEALS
                          SECOND DISTRICT OF TEXAS
                               FORT WORTH

                                NO. 02-12-00032-CV

Mustang Special Utility District          §    From the 393rd District Court

                                          §    of Denton County (2011-60876-393)
v.
                                          §    December 21, 2012

Providence Village                        §    Opinion by Justice Meier

                        JUDGMENT ON REHEARING

      After considering Appellee Providence Village‘s motion for rehearing and

motion for en banc reconsideration of our opinion issued September 27, 2012,

we deny both motions, withdraw our opinion and judgment dated September 27,

2012, and substitute the following.

      This court has again considered the record on appeal in this case and

holds that there was error in the trial court‘s orders. It is ordered that the orders

of the trial court are reversed and the case is remanded for further proceedings

consistent with this opinion.
      It is further ordered that Appellant Mustang Special Utility District shall pay

all costs of this appeal, for which let execution issue.

                                      SECOND DISTRICT COURT OF APPEALS

                                      By_________________________________
                                        Justice Bill Meier

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                         COURT OF APPEALS
                          SECOND DISTRICT OF TEXAS
                               FORT WORTH

                                NO. 02-12-00032-CV

MUSTANG SPECIAL UTILITY                                           APPELLANT
DISTRICT

                                        V.

PROVIDENCE VILLAGE                                                 APPELLEE

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         FROM THE 393RD DISTRICT COURT OF DENTON COUNTY

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                           OPINION ON REHEARING

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      Appellee Providence Village filed a motion for rehearing and a motion for

en banc reconsideration of our opinion issued September 27, 2012. We deny

both motions, withdraw our opinion and judgment dated September 27, 2012,

and substitute the following.

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                                  I. INTRODUCTION

      Appellant Mustang Special Utility District appeals the trial court‘s orders

denying Mustang‘s jurisdictional challenges to the claims alleged against it by

Providence Village. We will reverse and remand the cause to the trial court.

                                  II. BACKGROUND

      Mustang was formed in 1966 as a water supply corporation for northeast

Denton County. In 1985, Mustang obtained a Certificate of Convenience and

Necessity (CCN) to provide water service in northeast Denton County.             The

legislature created the Upper Trinity Regional Water District in 1989 in part to

provide wholesale treated water services to cities and water distribution utilities in

the Denton County area.

      Located in northeast Denton County, Providence Village was developed as

a master-planned community in 2000. Upper Trinity and Mustang proposed to

extend a treated-water transmission line and to develop and construct a regional

wastewater system in the area, but several financial obstacles stood in the way.

The Denton County Commissioners Court consequently created fresh water

supply districts, including Denton County Fresh Water Supply District No. 9 (the

District), to facilitate the financing of the proposed water line and wastewater

system.    The District‘s service area, located within the area covered by

Mustang‘s CCN, includes Providence Village.

      In August 2001, the District entered into a participating customer contract

with Upper Trinity whereby Upper Trinity agreed to provide fresh water services

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to the District and the District agreed to install a wastewater collection system.

The District agreed that it ―is wholly within the water service area of [Mustang]‖;

that it ―may own its internal water distribution system, and shall contract with

[Mustang] to operate said distribution facilities for retail service within [the

District‘s] boundaries‖; and that it will ―respect the service area of [Mustang] for

which it has been granted a CCN, providing herein for coordination with

[Mustang], with its service area and with services provided by [Mustang] to the

balance of its service area.‖

      In February 2002, Mustang and the District entered into contracts relating

to water and sewer service within the District‘s service area. The District agreed

to use water ―transported . . . to the District by Mustang through . . . facilities built

or to be built by [Upper Trinity] and maintained by Mustang,‖ to build water

distribution and wastewater collection facilities, and to apply for water and sewer

CCNs within the District‘s service area. Mustang agreed to perform a schedule

of services in relation to operating the water and sewer service systems. The

agreements also gave Mustang the option to purchase the District‘s systems

under certain circumstances and provided that the District ―will transfer‖ its CCNs

for water and sewer service to Mustang in the event Mustang exercises its

option.

      In May 2002, Mustang was converted to a special utility district, and in

August 2002, the District obtained CCNs to provide water and sewer service to

its service area. Mustang later obtained a sewer CCN.

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      In 2005, Mustang and the District entered into a ―Merged, Amended, and

Restated‖ agreement for water and sanitary sewer services pursuant to which the

District agreed, among other things, to convey its sanitary sewer collection

facilities to Mustang on October 1, 2011, and to lease its water distribution and

storage facilities to Mustang the same day. Mustang and the District amended

the 2005 agreement in October 2007 so that the District would convey (instead of

lease) its water distribution facilities to Mustang on October 1, 2011.

      In contemplation of the scheduled October 2011 conveyances, Mustang

and the District filed an ―Application for Sale, Transfer, or Merger of a Retail

Public Utility‖ in February 2011, requesting approval from the Texas Commission

on Environmental Quality (TCEQ) for the sale and transfer of the District‘s CCNs

and facilities to Mustang. Providence Village, which had voted to incorporate in

2010, filed a protest with the TCEQ.

      Providence Village sued both Mustang and the District in June 2011. It

provided the following context underlying the basis of its suit:

              This dispute turns on the rights of citizens to organize
      themselves into a city, elect officials, and then have those elected
      officials determine what best meets their current needs. Years ago,
      two unrelated entities executed a contract mandating the transfer of
      water and sewer services enjoyed by the people of Providence
      Village to [Mustang] on October 1, 2011. According to the contract,
      this transfer must take place whether [Providence Village] or [the
      District]—acting through their elected officials—believes that such a
      transfer is in the best interests of their constituents. If the transfer is
      accomplished, neither the local district nor the Town will have control
      over their water and sewer services, even though much of the
      infrastructure was financed with bonds still being repaid by these
      citizens‘ taxes.

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In addition to injunctive relief, Providence Village sought a declaration that the

2005 agreement (as amended by the 2007 agreement) is void for violating the

reserved powers doctrine and that the District is not contractually obligated to

transfer its CCNs to Mustang or to ―achieve parity‖ with Mustang‘s rates. 1 Over

the course of the litigation, Mustang filed a motion to dismiss, a motion for

summary judgment, and a second plea arguing that governmental immunity

barred Providence Village‘s claims against Mustang. The trial court denied each

of Mustang‘s jurisdictional challenges, and this accelerated, interlocutory appeal

followed.2 See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8) (West Supp.

2012).

      1
       The supreme court recently described the reserved powers doctrine as
follows:

             Certain powers are conferred on government entities ―for
      public purposes, and can neither be delegated nor bartered away.‖
      Government entities cannot ―cede . . . away [such powers] through
      contracts with others so as to disable them from the performance of
      their public duties.‖

Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 843 (Tex.
2010) (citations omitted).
      2
        The parties entered into a rule 11 agreement whereby the District agreed
not to transfer the sewer collection and water distribution and storage facilities to
Mustang until the trial court enters a judgment or order disposing of Providence
Village‘s claims.

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III. DECLARATORY JUDGMENT ACTION CONTESTING VALIDITY OF 2005 AGREEMENT

      In its first issue, Mustang argues that the trial court erred by denying its

jurisdictional challenges to the declaratory judgment action alleged against it by

Providence Village. Specifically, Mustang contends that governmental immunity

bars Providence Village‘s claim because any attempt by Providence Village to

invalidate the 2005 agreement between Mustang and the District impermissibly

seeks to control state action.     According to Mustang, ―declaratory judgment

actions seeking to ‗invalidate‘ a contract are suits tantamount to controlling state

action when alleged against the state and cannot be maintained absent

legislative intent to waive immunity.‖

      Providence Village acknowledges that a declaratory judgment action that

seeks to establish a contract‘s validity, to enforce performance under a contract,

or to impose contractual liability is barred by governmental immunity because

such a suit attempts to compel and control state action. But it argues that it does

not seek to accomplish any of those actions by its declaratory judgment action,

and it does not contend that Mustang and the District had no right or authority to

contract (an ultra vires claim). Instead, Providence Village ―seeks only a judicial

declaration as to the validity of the contract under the Reserved Powers

Doctrine.‖ According to Providence Village, ―if [declaratory judgment actions] to

determine the validity of a statute or ordinance and suits to construe a contract or

statute . . . are permissible, then there is no principled reason why a suit such as

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this one, which contests the validity of a contract under the same section, would

not be permissible.‖ [Emphasis added.]

      A.     Standard of Review

      A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat

a cause of action without regard to whether the claims asserted have merit.

Bland ISD v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). If a court lacks subject

matter jurisdiction in a particular case, then it lacks authority to decide that case.

Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443–44 (Tex. 1993)

(reasoning that subject matter jurisdiction is essential to the authority of a court to

decide a case). The plaintiff has the burden to plead facts affirmatively showing

that the trial court has jurisdiction. Id. at 446. Whether the trial court has subject

matter jurisdiction is a question of law that we review de novo. Tex. Dep’t of

Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004); Tex. Natural Res.

Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002).

      B.     Governmental Immunity

      Governmental immunity involves two issues: whether the State has

consented to suit and whether the State has accepted liability.          Harris Cnty.

Hosp. Dist. v. Tomball Reg’l Hosp., 283 S.W.3d 838, 842 (Tex. 2009). Immunity

from suit is jurisdictional and bars suit unless the State expressly waives

immunity or consents to the suit. Id.; Tex. Dep’t of Transp. v. Jones, 8 S.W.3d
636, 638 (Tex. 1999).        Here, it is undisputed that Mustang is a political

subdivision of the State of Texas. Therefore, it enjoys governmental immunity

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from suit, unless its immunity has been waived.        See Ben Bolt-Palito Blanco

Consol. ISD v. Tex. Political Subdiv./Cas. Joint Self-Ins. Fund, 212 S.W.3d 320,

324 (Tex. 2006).

      C.     Governmental Immunity Bars Providence Village’s Declaratory
             Judgment Action

      The purpose of the Uniform Declaratory Judgments Act (UDJA) is to

establish existing ―rights, status, and other legal relations whether or not further

relief is or could be claimed.‖ Tex. Civ. Prac. & Rem. Code Ann. § 37.003(a)

(West 2008). Section 37.004(a) specifically provides as follows:

            A person interested under a deed, will, written contract, or
      other writings constituting a contract or whose rights, status, or other
      legal relations are affected by a statute, municipal ordinance,
      contract, or franchise may have determined any question of
      construction or validity arising under the instrument, statute,
      ordinance, contract, or franchise and obtain a declaration of rights,
      status, or other legal relations thereunder.

Id. § 37.004(a) (West 2008). The UDJA is not a grant of jurisdiction; it is a

procedural device for deciding cases already within a court‘s jurisdiction.

Chenault v. Phillips, 914 S.W.2d 140, 141 (Tex. 1996). Consequently, immunity

will bar an otherwise proper UDJA claim that has the effect of establishing a right

to relief against the State for which the legislature has not waived immunity. Tex.

Parks & Wildlife Dep’t v. Sawyer Trust, 354 S.W.3d 384, 388 (Tex. 2011).

      The law is clear that the UDJA waives governmental immunity (1) for

claims challenging the validity of an ordinance or statute and (2) for ultra vires

claims against state officials who allegedly act without legal or statutory authority

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or who fail to perform a purely ministerial act. See City of El Paso v. Heinrich,

284 S.W.3d 366, 372–73 & n.6 (Tex. 2009); IT-Davy, 74 S.W.3d at 855. Here,

Providence Village‘s request for a declaration that the 2005 agreement is void for

violating the reserved powers doctrine does not challenge the validity of an

ordinance or statute, and Providence Village expressly disavows any attempt to

allege an ultra vires claim.      Thus, Mustang‘s governmental immunity is not

waived under these authorities.

      In addition to clarifying when the UDJA waives governmental immunity, the

supreme court has explained that governmental immunity bars a request for

declaratory relief against a governmental entity (1) that constitutes a suit to

recover money damages or (2) that seeks to establish a contract‘s validity, to

enforce performance under a contract, or to impose contractual liabilities—

actions that effectively control state action. See IT-Davy, 74 S.W.3d at 855–56;

W.D. Haden Co. v. Dodgen, 158 Tex. 74, 78–79, 308 S.W.2d 838, 840–41

(1958). While there is no contention that Providence Village‘s claim under the

UDJA is a disguised attempt to recover money damages, Providence Village

does confirm that it seeks a declaration ―as to the validity‖ of the 2005 contract

under the reserved powers doctrine.            We must therefore decide whether

Providence Village‘s request for a validity determination of the 2005 agreement

falls within the scope of the authorities holding that a request for declaratory relief

that seeks ―to establish a contract‘s validity‖ is barred by governmental immunity.

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See IT-Davy, 74 S.W.3d at 855–56; W.D. Haden, 158 Tex. at 78–79, 308 S.W.2d

at 840–41.

      W.D. Haden is instructive. There, W.D. Haden had a permit issued by the

Texas Game and Fish Commission to take mudshell from Galveston Bay at a

monthly cost of seven cents per cubic yard of mudshell removed. W.D. Haden,
158 Tex. at 76, 308 S.W.2d at 838–39.          After the Commission adopted a

resolution increasing the price from seven cents to ten cents per cubic yard of

mudshell removed, W.D. Haden sued the members and the executive secretary

of the Commission.     Id.   In addition to injunctive relief, W.D. Haden sought

declaratory relief that it had a binding contract with the State to pay only seven

cents per cubic yard for mudshell and that it was entitled to pay that amount

through the term of the agreement. Id. at 76, 308 S.W.2d at 839. Concluding

that the suit was barred by immunity, the supreme court illuminated the

distinction between a suit against a state official complaining of the official‘s

unauthorized actions, which is not a suit against the State and, therefore, not

barred by immunity, and a suit against a state official to compel performance of

or to enforce rights arising out of a contract with a state agency made on behalf

of the State in its sovereign capacity, which is a suit against the State and,

therefore, is barred by immunity. Id. at 78, 308 S.W.2d at 840. The supreme

court cited with approval the following language from another case:

           There is a clear distinction between a suit against an officer for
      a wrong committed by him in the name of the state, and suits
      brought against an officer to prevent the exercise by the state

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      through such officer of some act of sovereignty, or suits against an
      officer or agent of the state to enforce specific performance of a
      contract made for the state, or to enjoin the breach of such contract,
      or to recover damages for such breach, or to cancel or nullify a
      contract made for the benefit of the state.

Id. at 80, 308 S.W.2d at 841 (emphasis added). The supreme court concluded,

      [The Commission‘s] selection of the manner of making sales as well
      as its decision as to whether the manner it has followed constitutes a
      valid contract is the selection and decision of the State; and however
      incorrect the latter decision may be, a suit to test it by seeking
      enforcement of contract rights is necessarily a suit against the State
      which cannot be maintained without legislative permission.

Id. at 82, 308 S.W.2d at 842. Thus, just as a suit to establish the validity of a

contract entered into by the state is barred by immunity, the supreme court

indicated that a suit to invalidate a contract made for the benefit of the state is

barred by governmental immunity. Id. at 78–80, 308 S.W.2d at 840–42.

      In its motion for rehearing, Providence Village contests W.D. Haden‘s

reasoning, arguing that unlike a suit to validate a contract made for the benefit of

the state, a suit to invalidate a contract made for the benefit of the state is not

barred by immunity because while the former constitutes an attempt to control

state action, the latter does not. We disagree. The distinction between a suit to

validate a contract and a suit to invalidate a contract lies not in the control of

state action, but in the type of state action that the suits seek to control. While a

suit to validate a contract attempts to compel performance of contractual

obligations, a suit to invalidate a contract ultimately seeks to compel non-

performance of once-binding contractual obligations. Both suits thus attempt to

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control state action, albeit different forms of state action. See Creedmoor-Maha

Water Supply Corp. v. Tex. Comm’n on Envtl. Quality, 307 S.W.3d 505, 514

(Tex. App.—Austin 2010, no pet.) (describing a suit that seeks to control state

action as one that ―seeks to restrain the State or its officials in the exercise of

discretionary statutory or constitutional authority‖).

      Providence Village additionally argues in its motion for rehearing that our

reliance on W.D. Haden is misplaced because the part of the opinion reasoning

that a suit to invalidate a contract made for the benefit of the state is barred by

governmental immunity is dicta.       As we have previously explained, it is well

established that as an intermediate appellate court, we are bound by the

pronouncements of the supreme court; it is not our function to abrogate or modify

established precedent. See Scoresby v. Santillan, 287 S.W.3d 319, 324 (Tex.

App.—Fort Worth 2009), aff’d, 346 S.W.3d 546 (Tex. 2011). Consequently, we

decline Providence Village‘s implied invitation to consider ourselves bound by

only part of W.D. Haden. Until we are given further direction by the supreme

court, we refuse to depart from W.D. Haden‘s unambiguous pronouncement that

a suit to invalidate a contract made for the benefit of the State is barred by

governmental immunity.

      Moreover, a similar construction of W.D. Haden‘s reasoning has been

applied by several other appellate courts.         In Texas Logos, L.P. v. Texas

Department of Transportation, TxDOT had awarded a logo sign contract to Media

Choice to operate a road sign program that had previously been implemented by

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Texas Logos. 241 S.W.3d 105, 109 (Tex. App.—Austin 2007, no pet.). Texas

Logos sued TxDOT and sought a declaration under the UDJA that the contract

entered into between Media Choice and TxDOT was void because TxDOT had

violated several procurement statutes during the bidding process.          Id.   On

appeal, TxDOT argued that Texas Logos‘s suit was barred by sovereign

immunity ―because they ultimately seek to invalidate the logo sign contract, a

remedy that would ‗control state action.‘‖ Id. at 119. The appellate court agreed.

Id. It mentioned the rule that a suit seeking to establish a contract‘s validity, to

enforce performance under a contract, or to impose contractual liabilities is a suit

against the state and—citing W.D. Haden—reasoned that the ―Texas Supreme

Court has historically regarded these immunity principles as also barring suits to

cancel or nullify a contract made for the benefit of the state.‖ Id. at 119–20

(emphasis added). Thus, Texas Logos‘s UDJA claim, which ―explicitly attack[ed]

an existing contract with the state,‖ was barred by immunity. Id. at 121; see Tex.

S. Univ. v. State St. Bank & Trust Co., 212 S.W.3d 893, 908–09 (Tex. App.—

Houston [1st Dist.] 2007, pet. denied) (holding that requests for declarations

concerning invalidity of agreement ―fall squarely within the . . . category of

declaratory-judgment claims identified in IT-Davy [claims to establish a contract‘s

validity] and thus fall outside the trial court‘s subject-matter jurisdiction‖); see

generally Lower Colo. River Auth. v. Riley, No. 10-10-00092-CV, 2011 WL
6956136, at *6 (Tex. App.—Waco Dec. 28, 2011, no pet.) (mem. op., not

designated for publication) (reasoning that request for declaratory relief that

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attempted to nullify the assignment of an interest in an easement implicated

governmental immunity because it sought to control political subdivision‘s

actions).

      One other aspect of the Texas Logos opinion is noteworthy. As additional

support for its holding that the suit to invalidate the TxDOT agreement was

barred by immunity, the court observed that ―[s]uits to nullify a contract made for

the benefit of the state would likewise implicate sovereign immunity principles as

currently articulated by the Texas Supreme Court,‖ stating,

      The contemporary rationale or justification for sovereign or
      governmental immunity is to protect state resources from the costs
      of paying judgments and defending against them so they can
      instead be used in accordance with the policy and budgetary
      directives of the legislature or local governments. Contracts are a
      well-established means through which the state or local
      governments effectuate their policy directives regarding
      governmental functions.       Furthermore, contracts may provide
      financial benefits for governmental entities, and thus, will have
      implications for budgetary and appropriations processes. Such is
      the case with the logo sign contract, which, as TxDOT observes,
      guarantees it several million in minimum payments during the
      contract term. By interfering with these policy and budgetary
      decisions regarding the use of state resources, a suit to invalidate
      the logo sign contract implicates sovereign immunity.

Tex. Logos, L.P., 241 S.W.3d at 120 (citations omitted).

      Providence Village asks us in its motion for rehearing to reconcile our

holding in this case with our opinion in City of Crowley v. Ray, No. 02-09-00290-

CV, 2010 WL 1006278, at *3–7 (Tex. App.—Fort Worth Mar. 18, 2010, no pet.)

(mem. op.). City of Crowley is inapposite because none of the declarations

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sought in that case attempted to invalidate a contract made for the benefit of the

State. See id. at *1 (listing requested declarations).

      The facts of this case fall squarely within the purview of W.D. Haden‘s

reasoning and Texas Logos‘s holding. Therefore, we are both compelled by the

supreme court‘s reasoning and convinced by the appellate court‘s holding to

conclude that Providence Village‘s UDJA claim against Mustang to invalidate the

2005 agreement with the District is barred by governmental immunity.

Providence Village‘s suit pursuing a declaration that the 2005 agreement is

invalid seeks to control or compel state action, and the ―contemporary rationale

or justification‖ supporting governmental immunity—protecting state resources

from the costs associated with litigation so that they can be allocated as directed

by the legislature or local government, including by executing contractual

agreements for the benefit of the state—applies equally to this case. See W.D.

Haden, 158 Tex. at 79–80, 308 S.W.2d at 841.

      Accordingly, we hold that the trial court erred by denying Mustang‘s

challenges to Providence Village‘s UDJA claim on the basis of governmental

immunity. We sustain Mustang‘s first issue. We need not address Mustang‘s

second and third issues. See Tex. R. App. P. 47.1.

                                  IV. CONCLUSION

      Having sustained Mustang‘s dispositive first issue, we reverse the trial

court‘s orders denying Mustang‘s jurisdictional challenges to Providence Village‘s

UDJA claim and render judgment dismissing that claim for lack of subject matter

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jurisdiction.   Providence Village argues in its motion for rehearing that it is

prepared to file an amended petition alleging various constitutional claims against

Mustang. Therefore, we remand this cause to the trial court to allow Providence

Village an opportunity to plead those claims.      See Tex. A&M Univ. Sys. v.

Koseoglu, 233 S.W.3d 835, 839 (Tex. 2007) (reasoning that litigant deserves

opportunity to amend pleadings if defects can be cured).

                                                   BILL MEIER
                                                   JUSTICE

PANEL: LIVINGSTON, C.J.; MCCOY and MEIER, JJ.

DELIVERED: December 21, 2012

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