Court Opinion

ID: 4661779
Source: CourtListenerOpinion
Date Created: 2021-02-22 08:15:11.190988+00
Date Added: 2024-06-11T08:02:16.005765
License: Public Domain

Affirmed and Opinion filed February 18, 2021.

                                       In The

                      Fourteenth Court of Appeals

                                NO. 14-19-00776-CV

                  CITY OF LEAGUE CITY, TEXAS, Appellant

                                         V.
                        JIMMY CHANGAS INC., Appellee

                     On Appeal from the 10th District Court
                           Galveston County, Texas
                      Trial Court Cause No. 18-CV-0818

                                     OPINION

      In this breach-of-contract case, the City of League City contends the trial court
erred in denying its plea to the jurisdiction because the City engaged in a
governmental function when it entered into the contract at issue, and thus, it is
immune from suit. Because we conclude that the City instead was engaged in a
proprietary function in entering into the contract, we affirm the trial court’s denial
of the City’s jurisdictional plea.
                                   I. BACKGROUND

       In 2012, the City entered into a “Chapter 380 Economic Development
Incentives Grant Agreement” with Jimmy Changas, Inc., (Changas) in which the
City offered incentives to Changas to develop a restaurant within city limits.
Changas later sued the City for breach of contract, alleging that it had fully
performed the contract, but the City had failed to pay as agreed. Changas alleged
that the City was not immune from suit because the City performed a proprietary
function in entering into the Grant Agreement, or alternatively, the legislature
waived the City’s immunity under Chapter 271 of the Local Government Code.

       The City filed a plea to the jurisdiction, later amending the plea and combining
it with a motion in the alternative for summary judgment on the merits. The trial
court denied the City’s plea and summary-judgment motion. The City now brings
this interlocutory appeal of the portion of the trial court’s order denying the plea to
the jurisdiction.1

                              II. STANDARD OF REVIEW

       Whether a court has subject-matter jurisdiction is a question of law that is
properly asserted in a plea to the jurisdiction. Tex. Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 224 (Tex. 2004). We review the trial court’s ruling on a
plea to the jurisdiction de novo. Chambers-Liberty Ctys. Navigation Dist. v. State,
575 S.W.3d 339, 345 (Tex. 2019). Parties may submit evidence supporting or
opposing the plea, which we review under the same standard applicable to a
traditional motion for summary judgment. Id. (citing Sampson v. Univ. of Tex. at
Austin, 500 S.W.3d 380, 384 (Tex. 2016)). We take as true all evidence favorable to

       1
         See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(8) (authorizing an interlocutory
appeal of an order granting or denying a plea to the jurisdiction by a governmental unit).

                                            2
the plaintiff, indulging every reasonable inference and resolving any doubts in the
plaintiff’s favor. Sampson, 500 S.W.3d at 384. If the relevant evidence fails to raise
a fact question on the jurisdictional issue, the court rules on the plea to the
jurisdiction as a matter of law. Miranda, 133 S.W.3d at 228. But if the evidence
creates a fact question regarding jurisdiction, then the trial court must deny the plea
to the jurisdiction and allow the factfinder to resolve the issue. Id. at 227–28.

                                          III. ANALYSIS

      The state generally has sovereign immunity from suit and liability. See
Wasson Interests, Ltd. v. City of Jacksonville, 489 S.W.3d 427, 429–30 (Tex. 2016)
(“Wasson I”). When political subdivisions of the state act in a governmental
capacity, they share in the state’s immunity, which is then referred to as
governmental immunity. See id. But political subdivisions, including municipalities,
have no inherent immunity of their own; thus, when they act in a proprietary, non-
governmental capacity, they lack immunity. See id. The proprietary-governmental
dichotomy applies to both tort and contract claims. See id. at 430.

      Since 1987, the Texas Constitution has authorized the legislature to define
which municipal functions are proprietary and which are governmental, 2 and in the
Texas Tort Claims Act (“the TTCA”),3 the legislature has set forth both general
definitions and non-exclusive lists of examples. See TEX. CIV. PRAC. & REM. CODE
ANN. § 101.0215. Generally, governmental functions “are those functions that are
enjoined on a municipality by law and are given it by the state as part of the state’s
sovereignty, to be exercised by the municipality in the interest of the general public.”
Id. § 101.0215(a). Proprietary functions “are those functions that a municipality

      2
          TEX. CONST. art. XI, § 13(a).
      3
          TEX. CIV. PRAC. & REM. CODE ANN. §§ 101.001–109.

                                                3
may, in its discretion, perform in the interest of the inhabitants of the municipality.”
Id. § 101.0215(b).

      In contract claims, courts are guided by the TTCA’s treatment of the
proprietary-governmental distinction. Wasson I, 489 S.W.3d at 439. If a claim
against a municipality arises from its performance of a function included in one of
the TTCA’s non-exclusive lists of examples of proprietary or governmental
functions, then we are bound by the legislature’s characterization of the function.
See Ethio Exp. Shuttle Serv., Inc. v. City of Houston, 164 S.W.3d 751, 755–56 (Tex.
App.—Houston [14th Dist.] 2005, no pet.). If the function at issue is not included in
one of these lists, then we apply the legislature’s general definitions. To determine
if the function is best characterized as proprietary or governmental under the general
definitions, we consider whether the municipality’s act of entering into the contract
(1) was mandatory or discretionary, (2) was intended primarily to benefit the general
public or the municipality’s residents, (3) was on its own behalf or on behalf of the
State, and (4) “was sufficiently related to a governmental function to render the act
governmental even if it would otherwise have been proprietary.” Wasson Interests,
Ltd. v. City of Jacksonville, 559 S.W.3d 142, 150 (Tex. 2018) (“Wasson II”) (op. on
reh’g). When some of the Wasson II factors point to different results, “courts should
consider immunity’s nature and purpose and the derivative nature of a city’s access
to that protection.” Id. at 154.

      In its amended plea to the jurisdiction, the City challenged only Changas’s
pleadings, arguing that the City is presumed to be immune from suit and that
Changas failed to demonstrate a valid waiver of governmental immunity. Changas
alleged, both in its pleading and in response to the City’s plea, that governmental
immunity did not apply because the City entered into the Grant Agreement in its
proprietary capacity. In the alternative, Changas argued that the City’s immunity had

                                           4
been statutorily waived. The City addressed the proprietary-function argument in its
reply; thus, we will consider the evidence the parties presented on this issue to
determine whether the City entered into the Grant Agreement in its governmental
capacity, either because it was engaging in a function specifically identified as
governmental by the legislature or because the activity is governmental under the
factors stated in Wasson II.

A.    The City was not engaged in a function statutorily designated as
      governmental.
      The City first contends that it entered into the Grant Agreement in a
governmental capacity because the TTCA includes among its examples of
governmental functions “community development or urban renewal activities
undertaken by municipalities and authorized under Chapters 373 and 374, Local
Government Code.” TEX. CIV. PRAC. & REM. CODE ANN. § 101.0215(a)(34). The
parties entered into the Grant Agreement pursuant to Chapter 380 of the Texas Local
Government Code rather than Chapter 373 or 374, and they disagree about whether
that distinction makes a difference on the facts presented here.

      The City and Changas each rely on cases decided in 2018 by intermediate
appellate courts who reached differing results on the question of whether a
municipality has governmental immunity under section 101.0215(a)(34) from a
claim that it breached an economic-development agreement pursuant to Chapter 380
of the Texas Local Government Code. Compare City of Westworth Vill. v. City of
White Settlement, 558 S.W.3d 232, 243–44 (Tex. App.—Fort Worth 2018, pet.
denied) (agreement that is not encompassed within Chapter 373 or 374 does not fall
within section 101.0215(a)(34) of the TTCA) with CHW-Lattas Creek, L.P. ex rel.
GP Alice Lattas Creek, L.L.C. v. City of Alice, 565 S.W.3d 779, 786–87 (Tex.
App.—San Antonio 2018, pet. denied) (concluding that “all community

                                          5
development activities,” including agreements under Chapter 380 of the Texas Local
Government Code, are encompassed by section 101.0215(a)(34) of the TTCA).

      Less than a year later, the Supreme Court of Texas decided Hays Street Bridge
Restoration Group v. City of San Antonio, 570 S.W.3d 697 (Tex. 2019). In that case,
a citizen’s group entered into a memorandum of understanding (“MOU”) with San
Antonio for an historic bridge’s restoration and incorporation into a public park. Id.
at 700. San Antonio obtained a federal grant administered by the Texas Department
of Transportation and agreed with the Department to fund 20% of the project’s cost.
Id. at 700–01. Pursuant to the MOU, the citizen’s group arranged for funds, the
bridge itself, and adjacent real property to be contributed to San Antonio for the
project. See id. The bridge was restored, but contrary to the MOU’s terms, San
Antonio arranged to sell it to a brewery. Id. at 701. The citizen’s group sued for
specific performance, and San Antonio claimed governmental immunity under
section 101.0215(a)(34) of the TTCA, as well as under subsection (a)(4) (defining
“bridge construction and maintenance” as a governmental function). Id. at 705. The
Supreme Court of Texas agreed that both provisions applied. Id.

      The City relies on the following footnote from Hays Street Bridge:

      Section 101.0215(a)(34) lists “community development or urban
      renewal activities undertaken by municipalities and authorized under
      Chapters 373 and 374, Local Government Code”. The [petitioner]
      argues that this limitation renders the provision inapplicable here.
      Because we consider the Legislature’s classification of governmental
      and proprietary functions in the Tort Claims Act to be guidance in the
      contract-claims context—rather than binding lists to be interpreted
      narrowly—we disagree.
Id. at 705 n.46 (citations omitted; emphasis in original).

      The City interprets this footnote to mean that all municipal economic-
development agreements are encompassed by section 101.0215(a)(34) of the TTCA,

                                          6
as the Fourth Court of Appeals held in CHW-Lattas. But the Supreme Court of Texas
did not say that a municipal economic-development agreement necessarily falls
within the scope of this subsection; rather, the court rejected the argument that an
economic-development agreement that is not governed by Chapter 373 or 374 of the
Texas Local Government Code necessarily falls outside the scope of subsection
(a)(34). See id.

      The high court said that determining whether a municipality is performing a
governmental or proprietary function requires two steps. First, we look at whether
the enumerated lists in § 101.0215 include the kind of contract at issue. If not, then
we apply the general definitions using the Wasson II factors. See Hays Street Bridge,
570 S.W.3d at 704–05. In Hays Street Bridge, the court found that the bridge fell
within two governmental functions, those being “bridge construction and
maintenance” and the second being the one at issue in this section of the opinion:
“community         development   or   urban   renewal   activities”   under   section
101.0215(a)(34). Id. at 705 & n.46. The reason for the ruling is found earlier in the
paragraph in which the footnote appears: “The MOU was made to support the City–
State funding agreement for restoration of the Bridge and revitalization of the
surrounding area.” Id. at 705 (emphasis added). Thus, the restoration project was
largely state-funded, and San Antonio’s immunity was derived from the State.

      Despite having held that the bridge project fell within the enumerated
governmental functions, the court nevertheless proceeded to the second step,
applying the general definitions under the Wasson II factors. The court found that
the bridge-restoration project was a governmental function under the general
definitions as well, again emphasizing that “[e]ighty percent of the restoration
project was funded by the Texas Department of Transportation.” Id. at 706.

                                          7
      CHW-Lattas rested on a different rationale, which we do not find persuasive.
The authoring court relied on the legislative history for subsection (a)(34), quoting
a bill analysis in which the House Committee on Civil Practices wrote, “lawsuits
against municipalities relating to community development activities diminish the
funds available for projects within the municipality.” CHW-Lattas, 565 S.W.3d at
786 (quoting House Comm. on Civil Practices, Bill Analysis, Tex. H.B. 2766, 75th
Leg., R.S. 1997). The CHW-Lattas court held that “[t]he logic for the amendment . . .
extends to all community development activities regardless of which chapter of the
Local Government Code applies.” Id. But, all “lawsuits against municipalities . . .
diminish the funds available for projects within the municipality,” regardless of
whether the suit is related to community-development or urban-renewal activities.
Thus, the only apparent reasoning for limiting subsection (a)(34)’s application to
community-development or urban-renewal activities is because the limitation is
found in the statutory amendment itself. And, regardless of the broad language in
the bill analysis, the legislature defined as a governmental function only a
municipality’s community-development or urban-renewal activities “authorized
under Chapter 373 and 374, Local Government Code.” TEX. CIV. PRAC. & REM.
CODE ANN. § 101.0215(a)(34).

      There are important differences between community-development programs
under Chapters 373 and 374 and those under Chapter 380. Chapter 373 programs are
designed to improve the living and economic conditions of people with low and
moderate income, benefit low- and moderate-income neighborhoods, aid in
preventing or eliminating slums and blighted areas, aid a federally assisted new
community, or meet other urgent community-development needs. TEX. LOC. GOV’T
CODE ANN. § 373.004. Programs under Chapter 374 more specifically target the
prevention and elimination of slums and blighted areas. See id. § 374.002. In

                                         8
contrast, programs under Chapter 380 are designed “to promote state or local
economic development and to stimulate business and commercial activity in the
municipality.” Id. § 380.001(a).

      In sum, the legislature has established municipalities immune from suit for
the alleged breach of agreements implementing community-development programs
to improve the lives of those of low and moderate income, and the Supreme Court
of Texas has extended that immunity to a suit against a municipality for the alleged
breach of an agreement for a community-development program that was largely
state-funded. Because none of those situations apply to the agreement at issue in this
case, we conclude that, in entering into the agreement, the City was not engaged in
a governmental function within the scope of section 101.0215(a)(34).

B.    The City was not engaged in a governmental function under the Wasson
      II test.
      We next determine whether the City was engaged in a governmental function
as measured by the Wasson II factors. Of the four factors—mandatory v.
discretionary; primarily benefiting the general public v. primarily benefiting the
municipality’s residents; acting on its own behalf v. acting on the State’s behalf; and
sufficiently related to a governmental function—the City has briefed only the second
factor.

      According to the City, Changas admits that the Grant Agreement was intended
to benefit the general public. Changas does not admit this; rather, the City has
inferred that Changas agrees with its assessment merely because Changas admits
that (1) the agreement did not require Changas to hire only City residents, (2) a job
applicant’s residency inside or outside the city limits was not a factor in Changas’s
hiring decisions, and (3) Changas remits the sales taxes it collects to the State of

                                          9
Texas. None of these “admissions,” individually or collectively, support the City’s
conclusion.

       That the agreement did not require Changas to hire only municipal residents
says nothing about whether the City was performing a governmental or proprietary
function in entering into the agreement. As the Supreme Court of Texas explained
in Wasson II, “A city’s proprietary contracts will often benefit some nonresidents,
and its governmental contracts will often benefit some residents, but whether a
contract primarily benefits one or the other will often indicate whether it is
proprietary or governmental.” Wasson II, 559 S.W.3d at 151.

       The remaining two “admissions”—that Changas did not consider residency
status in its hiring decisions and that it remitted sales tax to the State—do not affect
our analysis. Information regarding Changas’s hiring practices after it entered into
the agreement are irrelevant, because whether a municipality was engaged in a
governmental function is determined as of the time the municipality entered into the
contract. Wasson II, 559 S.W.3d at 149. Changas’s subsequent actions shed no light
on the nature of the function the City was performing when it entered into the
agreement. The fact that Changas remitted sales tax to the State4 sheds no light on
that inquiry, because sales taxes can apply to both governmental and proprietary
functions.5 It is likely for this reason that payment of state sales taxes do not appear
as a factor in the case law regarding the proprietary-governmental dichotomy.

       4
        State and municipal taxes are collected together and administered by the state comptroller.
See TEX. TAX CODE ANN. § 321.301.
       5
         For example, both garbage removal and the operation of amusements are taxable, though
the former is a governmental function and the latter is a proprietary function. See TEX. CIV. PRAC.
& REM. CODE ANN. § 101.0215(a)(6) (garbage and solid waste removal are governmental
functions); id. 101.0215(b)(2) (owning and operating amusements are proprietary functions); TEX.
TAX CODE ANN. §§ 151.0048(a)(3), 151.0101(a)(11) (real property services, which include
garbage removal, are taxable); id. § 151.0101(a)(1) (amusement services are taxable).

                                                10
Moreover, Changas would have had to pay state sales tax regardless of where in
Texas it located the restaurant, but as the parties memorialized in their agreement,
the City expected that locating the restaurant in League City would generate
$105,000 annually in municipal sales tax.

       What is most illuminating, however, is the language of the agreement itself.
It states,

       [T]he City is authorized, pursuant to Chapter 380 of the Texas Local
       Government Code, to establish and provide for the administration of
       one or more programs . . . to promote state or local economic
       development and to stimulate business and commercial activity in the
       City; and . . .
       [T]he City believes the development contemplated by [Changas] will
       contribute to the economic development of the City by generating
       employment and other economic benefits to the City.
       Finally, the City argues that Chapter 380 was enacted pursuant to article III,
section 52-a, of the Texas Constitution, which provides that “the legislature may
provide for the creation of programs and the making of loans and grants of public
money . . . for the public purposes of development and diversification of the
economy of the state.” But in enacting Chapter 380, the legislature broke this
overarching state purpose into smaller, “local” bites. Thus, Chapter 380 states, “The
governing body of a municipality may establish and provide for the administration
of one or more programs . . . to promote state or local economic development and to
stimulate business and commercial activity in the municipality.” TEX. LOC. GOV’T
CODE ANN. § 380.001 (emphasis added). We therefore conclude that the agreement
at issue here was primarily intended to benefit the City, and thus, the second Wasson
II factor weighs in favor of characterizing the City’s action in entering into the
agreement as proprietary.

                                         11
      Because the City has offered no argument on the remaining factors, we
address them only briefly. As for the first and third factors, it is undisputed that the
City had discretion to enter into the agreement and that it did so on its own behalf.
Regarding the fourth factor, the City asserts that act of entering into the agreement
was closely related to the governmental function of community development, but
the City has offered no supporting argument. The City maintains only that entering
into a community-development agreement under Chapter 380 was itself a
governmental function; it does not contend that entering into such an agreement, if
proprietary, was nevertheless essential to some other governmental action. See
Wasson II, 559 S.W.3d at 153 (“[A] city’s proprietary action may be treated as
governmental only if it is essential to the city’s governmental actions.”) (emphasis
added).

      Because all four Wasson II factors indicate that the City performed a
proprietary function in entering into the agreement, we conclude that governmental
immunity does not apply. We overrule the sole issue presented.

                                  IV. CONCLUSION

      Having concluded that governmental immunity does not apply, we affirm the
trial court’s denial of the City’s plea to the jurisdiction without addressing the City’s
arguments concerning waiver of immunity.

                                         /s/    Tracy Christopher
                                                Chief Justice

Panel consists of Chief Justice Christopher and Justices Jewell and Hassan.

                                           12