Court Opinion

ID: 3195127
Source: CourtListenerOpinion
Date Created: 2016-04-18 15:11:52.081639+00
Date Added: 2024-06-11T14:28:47.833430
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                          444444444444
                                            NO . 15-0029
                                          444444444444

            WHEELABRATOR AIR POLLUTION CONTROL, INC., PETITIONER,

                                                  v.

        CITY OF SAN ANTONIO ACTING THROUGH THE CITY PUBLIC SERVICE
                 BOARD OF SAN ANTONIO, TEXAS, RESPONDENT

           4444444444444444444444444444444444444444444444444444
                              ON PETITION FOR REVIEW FROM THE
                     COURT OF APPEALS FOR THE FOURTH DISTRICT OF TEXAS
           4444444444444444444444444444444444444444444444444444

                                     Argued January 14, 2016

       JUSTICE GREEN delivered the opinion of the Court.

       In Wasson Interests, Ltd. v. City of Jacksonville, we resolved the issue of whether the

distinction between governmental and proprietary acts—sometimes referred to as the proprietary-

governmental dichotomy—applies to breach-of-contract claims against municipalities, and

concluded that it does. ___ S.W.3d ___, ___ (Tex. 2016). We explained that, in both the contract-

claims and tort-claims contexts, “acts performed as part of a city’s proprietary function do not

implicate the state’s immunity for the simple reason that they are not performed under the authority,

or for the benefit, of the sovereign.” Id. This contract-claims case requires us to determine whether

a claim for attorney’s fees for breach of a contract to install pollution control equipment at a power

plant is proprietary or governmental in nature. In light of Wasson, we hold that (1) the actions of the
municipality in entering the contract—relating to the operation of a public utility—are proprietary;

and (2) a claim for attorney’s fees arising from those proprietary actions does not implicate

governmental immunity. We therefore reverse the court of appeals’ judgment and remand the case

to the trial court.

                                                      I. Facts

        Effective August 5, 2004, Wheelabrator Air Pollution Control, Casey Industrial, Inc., and

City Public Service Board of San Antonio, a municipal board of the City of San Antonio (CPS

Energy),1 entered into a contract (the Agreement) for the design and construction of the J.T. Deely

Baghouse Project (the Project), part of a coal-fired power station owned and operated by CPS

Energy. CPS Energy is a municipally-owned electric and gas utility in San Antonio, Texas. CPS

Energy agreed to pay Wheelabrator $41,818,460 for goods and services in connection with the

Project. Wheelabrator completed all portions of its work in 2007, but CPS Energy notified

Wheelabrator that it was withholding 10% of the total contract price—the retainage amount

according to the contract—because of a dispute between Casey Industrial and CPS Energy.

Wheelabrator filed suit against CPS Energy in August 2011, alleging breach of contract or, in the

alternative, asserting a quantum meruit claim, and requesting reasonable and necessary attorney’s

fees, costs, and interest. There is no dispute that the Agreement has been fully performed and that

CPS Energy has withheld the retainage from Wheelabrator. In its first appearance, CPS Energy filed

a plea to the jurisdiction asserting governmental immunity to the extent that Wheelabrator’s claims

        1
            The City of San Antonio acts by and through CPS Energy, so CPS Energy is treated as a municipality.

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fell outside the waiver of immunity under chapter 271 of the Texas Local Government Code, TEX .

LOC. GOV ’T CODE §§ 271.151–.160, and specifically immunity from Wheelabrator’s quantum meruit

claims. The trial court denied CPS Energy’s plea to the jurisdiction, the Fourth Court of Appeals

reversed, and we denied Wheelabrator’s petition for review. City of San Antonio v. Wheelabrator

Air Pollution Control, 381 S.W.3d 597, 599 (Tex. App.—San Antonio 2012, pet. denied).

         After the court of appeals remanded the case to the trial court, CPS Energy filed an amended

answer and plea to the jurisdiction alleging immunity from all claims except those within the scope

of section 271.152 of the Local Government Code. CPS Energy argued that the prior version of the

statute, which did not allow recovery of attorney’s fees, applied because the Agreement was executed

in 2004, before Chapter 271’s enactment in 2005. Additionally, CPS Energy filed a motion to

consolidate the Wheelabrator case with the suit Casey Industrial filed against CPS Energy,

explaining that “CPS Energy retained the amount [withheld from Wheelabrator] because of a dispute

between CPS Energy and Casey [Industrial] under the [Agreement]” and that the cases arose out of

the same Agreement, involve the same parties, and present the same questions of law and fact. The

trial court, despite Wheelabrator’s opposition, granted the motion to consolidate on March 31, 2014.

         At this point, CPS Energy filed a plea to the jurisdiction seeking dismissal of Casey

Industrial’s and Wheelabrator’s claims for attorney’s fees for lack of jurisdiction, arguing that

attorney’s fees were outside the scope of statutorily-waived immunity as the statute was written in

2004, the time of the Agreement.2 Wheelabrator argued in response: (1) CPS Energy had no

        2
           CPS Energy also filed a second plea to the jurisdiction as to Casey Industrial’s breach-of-contract claims,
arguing that Casey Industrial sought damages outside the scope of section 271.153 of the Local Government Code. This
second plea to the jurisdiction is not relevant to the current interlocutory appeal.

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immunity from suit from Wheelabrator’s claims because CPS Energy was performing a proprietary

function in its dealings with Wheelabrator; (2) a plea to the jurisdiction is not the proper basis for

challenging liability for attorney’s fees because it is premature; and, alternatively, (3) CPS Energy

waived immunity from suit by asserting an offset claim against Wheelabrator. The trial court granted

CPS Energy’s plea to the jurisdiction and dismissed with prejudice Casey Industrial’s and

Wheelabrator’s claims for attorney’s fees. Wheelabrator brought an interlocutory appeal and the

court of appeals affirmed. ___ S.W.3d ___, ___ (Tex. App.—San Antonio 2014, pet. granted).

Wheelabrator again brought an interlocutory appeal to this Court. For the reasons explained below,

we reverse the court of appeals’ judgment.

                                   II. Dichotomy Applicability

       In the trial court, CPS Energy argued that Wheelabrator failed to allege a valid waiver of

immunity from suit and the court therefore lacked subject matter jurisdiction. Generally, “immunity

from suit implicates courts’ subject-matter jurisdiction.” Rusk State Hosp. v. Black, 392 S.W.3d 88,

91 (Tex. 2012). Thus, it “is properly asserted in a plea to the jurisdiction.” Tex. Dep’t of Parks &

Wildlife v. Miranda, 133 S.W.3d 217, 225–26 (Tex. 2004). Whether a court has subject matter

jurisdiction is a question of law that we review de novo. Id. at 226. As previously established, a city

does not have derivative immunity when it engages in a proprietary function, even in the contract-

claims context. Wasson, ___ S.W.3d at ___. Therefore, in determining whether Wheelabrator’s suit

for attorney’s fees is barred by governmental immunity, we must first determine whether the subject

matter of the suit stems from a proprietary or a governmental function of the municipality. If we

determine the action arose out of the municipality’s performance of a proprietary function, then the

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case proceeds as if the claim were asserted against a private person. See id. at ___. Alternatively,

should we determine the action arose out of the municipality’s performance of a governmental

function, immunity applies and it must be overcome by a claimant establishing a valid waiver.3 See,

e.g., PKG Contracting, Inc. v. City of Mesquite, 197 S.W.3d 388, 388–89 (Tex. 2006) (per curiam)

(holding that the city was acting in its governmental capacity when it entered the contract with PKG

and that it had not waived immunity from suit).

                                           A. CPS Energy’s Function

         Wheelabrator asserts, and CPS Energy neither concedes nor disputes, that a municipality’s

operation and maintenance of a public utility is a proprietary function. This comports with Texas

law. This Court has previously held that a municipality’s operation of its own public utility is a

proprietary function. San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 264

(Tex. 1976) (“A city which owns and operates its own public utility does so in its proprietary

capacity.”). Furthermore, the Texas Tort Claims Act (TTCA), which we have previously deferred

to when classifying functions in contract disputes, lists operation of a public utility as a proprietary

function.     See TEX . CIV . PRAC. & REM . CODE § 101.0215(b)(1) (stating that “proprietary

functions, . . . includ[e] . . . the operation and maintenance of a public utility”). In PKG Contracting,

this Court looked to the TTCA for guidance in classifying a municipality’s actions as proprietary or

governmental in a breach-of-contract action. 197 S.W.3d at 388–89. The Court explained:

         3
           As we said in Wasson, “[o]ur caselaw . . . prescribes a relatively simple two-step process for addressing the
applicability of immunity[:] [(1)] The judiciary determines the applicability of immunity in the first instance and
delineates its boundaries[;] [(2)] If immunity is applicable, then the judiciary defers to the [L]egislature to waive such
immunity.” ___ S.W .3d at ___ (emphasis in original).

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        Because the Legislature has statutorily included “sanitary and storm sewers” among
        a municipality’s governmental functions for purposes of tort liability, and we see no
        reason to think that the classification would be different under the common law, we
        conclude that the City was acting in its governmental capacity when it contracted
        with PKG to construct a storm drainage system.

Id. (quoting TEX . CIV . PRAC. & REM . CODE § 101.0215(a)(9)) (internal quotation omitted); see also

Tooke v. City of Mexia, 197 S.W.3d 325, 343–44 (Tex. 2006) (borrowing the TTCA’s classification

of “garbage and solid waste removal, collection, and disposal” as governmental in a contracts

dispute). In Wasson, we reaffirmed the appropriateness of deferring to the TTCA when classifying

acts in the contract-claims context. ___ S.W.3d at ___ (“In determining the boundaries of immunity

as it relates to whether a function is proprietary or governmental . . . courts should be guided . . . by

the TTCA’s treatment of the proprietary-governmental distinction.”).

        CPS Energy is a municipally-owned electric and gas utility. It executed the Agreement under

which Wheelabrator would provide goods and services for the design and construction of pollution

control equipment for a coal-fired power station that CPS Energy owns and operates. Both our

common-law precedent and the TTCA—which, as discussed above, we find appropriate to defer

to—have classified a municipality’s operation and maintenance of a public utility as a proprietary

function. See, e.g., San Antonio Indep. Sch. Dist., 550 S.W.2d at 264 (“A city which owns and

operates its own public utility does so in its proprietary capacity.”). Under these facts, therefore, we

conclude that CPS Energy is not shielded by governmental immunity. See Wasson, ___ S.W.3d at

___; San Antonio Indep. Sch. Dist., 550 S.W.2d at 264; TEX . CIV . PRAC. & REM . CODE

§ 101.0215(b)(1).

                                                   6
                                          B. Attorney’s Fees Claim

         Here, the attorney’s fees claim stems directly from Wheelabrator’s breach-of-contract action

against CPS Energy, the subject matter of which we have determined was a proprietary function.

In Wasson, we explained that a municipality “is cloaked in the state’s immunity when it acts as a

branch of the state, but only when it acts as a branch of the state.” ___ S.W.3d at ___ (emphasis in

original). Therefore, we held that a municipality had no immunity when it contracted in its

proprietary capacity. Id. Here, although the claim is for attorney’s fees, such fees are ancillary to

Wheelabrator’s breach-of-contract claim.4 Just as the nature of governmental immunity does not

“inherently limit[] the dichotomy’s application to tort claims,” it likewise does not inherently

preclude a claim for attorney’s fees from a breach-of-contract claim arising from a proprietary

function. Id. Therefore, we hold that Wheelabrator’s claim for attorney’s fees does not implicate

immunity.

         Regardless of whether Wheelabrator’s claim for attorney’s fees is barred by immunity, CPS

Energy argues that Wheelabrator is not entitled to a claim for attorney’s fees “whether against a

governmental entity or not,” unless the contract or a statute provides for recovery, and that

Wheelabrator has failed to allege either. Ultimately, CPS Energy argues, Wheelabrator has not

pointed to a statute that waives governmental immunity for attorney’s fees, the jurisdictional facts

are undisputed, and additional discovery will not enable Wheelabrator to find a basis for waiver of

immunity. In response, Wheelabrator argues that CPS Energy’s plea to the jurisdiction cannot be

        4
           Texas follows the American rule on attorney’s fees, which provides that, generally, “a party may not recover
attorney’s fees unless authorized by statute or contract.” Wells Fargo Bank NA v. Murphy, 458 S.W .3d 912, 915 (Tex.
2015).

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used to decide the merits of a claim and that CPS Energy’s attempt to obtain “summary judgment”

on the merits through its dilatory plea to the jurisdiction is improper. Furthermore, Wheelabrator

asserts that with additional discovery, Wheelabrator may properly develop the record and amend its

pleadings on the merits of its attorney’s fees claim. “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 Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). Furthermore, “[t]he

purpose of a dilatory plea is not to force the plaintiffs to preview their case on the merits but to

establish a reason why the merits of the plaintiffs’ claims should never be reached.” Id. CPS Energy

conflates the issues. Here, we are faced with the determination of whether CPS Energy’s plea to the

jurisdiction should be granted and, more fundamentally, whether CPS Energy was performing a

proprietary or governmental function, which determines whether CPS Energy is protected by

governmental immunity from suit in the first place. Because we hold that CPS Energy is not

protected by governmental immunity, we need not address whether the attorney’s fees claim has

merit.

                                           III. Conclusion

         We hold that CPS Energy was performing a proprietary function and is therefore not immune

from suit based on governmental immunity. We reverse the court of appeals’ judgment and remand

the case to the trial court for further proceedings consistent with this opinion.

                                                ___________________________________
                                                Paul W. Green
                                                Justice

OPINION DELIVERED: April 15, 2016

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