Court Opinion

ID: 9401165
Source: CourtListenerOpinion
Date Created: 2023-06-11 14:09:16.817186+00
Date Added: 2024-06-11T17:19:51.102033
License: Public Domain

Supreme Court of Texas
                           ══════════
                            No. 21-0307
                           ══════════

                     City of League City, Texas,
                              Petitioner,

                                   v.

                        Jimmy Changas, Inc.,
                             Respondent

   ═══════════════════════════════════════
               On Petition for Review from the
     Court of Appeals for the Fourteenth District of Texas
   ═══════════════════════════════════════

      JUSTICE BLACKLOCK, joined by JUSTICE BLAND as to Part III,
dissenting.

      I agree with much of Justice Young’s thoughtful concurrence. The
“Wasson factors” employed by the Court to distinguish between the
governmental and proprietary functions of a municipality have proven
unsuited for their task. In addition, we should abandon the fiction that
the Tort Claims Act’s rambling list of governmental functions tells us
anything about how to determine whether common law immunity
applies to a contract claim. And it may very well be, as Justice Young
suggests, that when a government accepts performance under a
commercial contract and then refuses to pay, the government has
committed a compensable taking.          I cannot join my colleague’s
concurrence, however, because I conclude that running a Chapter 380
tax-incentive grant program is a governmental rather than a
proprietary function.
      The courts have thus far demonstrated ourselves incapable of
devising coherent standards in this area.         Given the judiciary’s
difficulty, the people of Texas wisely empowered their Legislature to
distinguish for all purposes between “governmental” and “proprietary”
functions and thus to determine when municipalities may be sued for
breach of contract. TEX. CONST. art. XI, § 13. Perhaps the Legislature
will exercise this authority and thereby bring welcome clarity to the law.
                                    I.
      Texas governments execute thousands of contracts every year
with thousands of parties who rely upon, or at least hope for, the
government to perform as promised.         Determining which of these
contracting parties will have a remedy against the public treasury in
court and which will not seems to me a legislative undertaking. It
requires balancing the value we place on holding our government to its
promises against important competing values, such as (1) preserving the
taxpayers’ money and (2) ensuring that our government is ultimately
controlled by democratic processes rather than by contractual
obligations.
      The second point may require elaboration. Contracts like the one
at issue here purport to bind the government years into the future.
Under such an agreement, the official who controlled the government
when the contract was executed has promised that in the future the

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government will do something, even though by that time the
government may be controlled by new officials. But what happens if
public outcry in response to a contract’s execution causes the
government to change course? What happens if the people elect a new
government that disclaims the policy choices reflected in the contract?
Must the new government nevertheless perform a deal it abhors? Are
the people’s representatives and the people’s tax dollars tied to the mast
of whatever deals have previously been executed in their name? How
do we balance the obligation of contracts against the responsiveness of
government to democratic influence? The Legislature is better suited
than the Judiciary to answer these questions.
      Government-sponsored “economic development” programs are no
stranger to political controversy. People disagree in good faith about
whether such programs are desirable. If the Court is right that the
economic development agreement at issue here is a proprietary contract
that may be enforced in court against League City, then the execution
of the contract had the effect of limiting the options available to the
people of League City for their future self-governance. In other words,
if this agreement is enforceable in court like any other commercial
contract, then its execution divested the people of League City of the
power to end corporate welfare in their town, at least for the duration of
the contract. If judicially enforceable, this agreement bound the city to
future actions—actions laden with discretionary policy judgments—
regardless of whether the city officials required to take those future
actions continue to believe they promote the welfare of the people of
League City.

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       Perhaps the courts ought to be empowered to issue judgments
that bind municipal governments in this way.              Perhaps not.      The
Legislature is better suited than the courts to answer such questions,
and our Constitution empowers it to do so.
                                       II.
       I find the Wasson factors of little use, largely for the reasons
expressed by Justice Young. If we are to regain a coherent theory of the
difference between the governmental and proprietary functions of a
municipality, it ought to be more firmly grounded in the concepts
conveyed by the words “governmental” and “proprietary,” as was much
of our pre-Wasson case law. The distinction between these two concepts
will not have sharp contours in every case, but in general the distinction
is not so difficult to perceive that sensible judges must labor under an
artificial list of “factors” in order to see it. Municipal corporations do
some things in their capacity as the government, and they do other
things in the non-governmental capacity of a property owner or a
proprietor of a corporate entity.1 This is a natural, intuitive distinction,
which should not be terribly difficult to grasp in most cases.              The

       1  Compare City of Port Arthur v. Wallace, 171 S.W.2d 480, 481 (Tex.
1943) (fire protection is a governmental function), Ellis v. City of West
University Place, 175 S.W.2d 396, 397–98 (Tex. 1943) (zoning is a
governmental function), White v. City of San Antonio, 60 S.W. 426, 427 (Tex.
1901) (public health is a governmental function), and Whitfield v. City of Paris,
19 S.W. 566, 567 (Tex. 1892) (police protection is a governmental function),
with Gates v. City of Dallas, 704 S.W.2d 737, 739 (Tex. 1986) (administering
an insurance fund for employees is a proprietary function), Lebohm v. City of
Galveston, 275 S.W.2d 951, 955 (Tex. 1955) (maintaining streets owned by the
city is a proprietary function), City of Houston v. Shilling, 240 S.W.2d 1010,
1013 (Tex. 1951) (repairing a garbage truck is a proprietary function), and
Ostrom v. City of San Antonio, 62 S.W. 909, 910 (Tex. 1901) (cleaning streets
owned by the city is a proprietary function).

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distinction is obscured rather than illuminated by mechanical
application of judicial factors divorced from the underlying inquiry.
      I do not pretend that this is always easy, but it was not always so
hard. In 1884, we said that a municipality’s governmental functions are
“the responsibilities of towns and cities for acts done in their public
capacity, in the discharge of duties imposed upon them by the legislature
for the public benefit.” City of Galveston v. Posnainsky, 62 Tex. 118,
130–31 (1884). On the other hand, proprietary functions are “acts done
in what may be called [a city’s] private character, in the management of
property or rights voluntarily held by them for their own immediate
profit or advantage as a corporation, although inuring, of course,
ultimately to the benefit of the public.” Id. at 131. These definitions
aptly convey a useful sense of the distinction between a municipality’s
“public capacity” and its “private character.” Id.
      This conceptual distinction was not created by the Court’s
decisions. It arises from the nature of modern government, and it exists
whether this Court enunciates it or not. Our precedent notices the
distinction and gives it legal consequence. But our precedent did not
create the distinction, and if our precedent causes us to lose sight of it,
we should abandon the precedent, not the distinction.
      The Wasson factors are only useful if they make it easier to
perceive and apply the conceptual distinction these 140-year-old
definitions point us towards—the distinction between the “public
capacity” and the “private character” of a municipal corporation. In
other words, the Wasson factors ought to be merely a tool in service of
the ultimate inquiry. When the factors themselves become the inquiry—

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as seems to have happened—the underlying concepts recede into the
mist, and we lose sight of what we are really asking and why we are
asking it.
      In any given case, perceiving the line between governmental and
proprietary functions may require good judgment and practical
knowledge of how the world works, particularly the world of
government. These are qualities we hope our judges possess. If judges
lack these qualities, then requiring them to apply multi-factor tests
divorced from a firm sense of the inquiry’s conceptual foundations will
not make the outcomes more sensible or more predictable. The search
for scientific efficiency imagined by multi-factor balancing tests rarely
delivers on its promises, as this case demonstrates.       Instead, our
propagation of these malleable judicial “tests” incorrectly suggests to
judges and lawyers that “factors” announced by this Court are
themselves the common law, rather than tools to be employed in service
of better understanding the common law. This approach encourages all
involved to ignore the moral and political foundations of the common
law—or worse yet, to pretend those foundations do not exist and to think
of the common law as nothing more than a list of “factors” announced by
the Court a few years ago.
       No matter the judicial methodology employed, judges will not
always agree, as is the case today. But when we attempt to reduce
intuitive conceptual categories with a deep common law history into
“factors” to be mechanically applied in all cases, we strip away what
should be our touchstone—the overall sense of the conceptual distinction
from which the “factors” were derived. Judging often requires judgment,

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unsurprisingly.    It is rarely a science.    A common law judge’s
responsibility to grasp and apply conceptual distinctions using good
judgment and practical knowledge can rarely be reduced to the scientific
application of multi-part balancing tests.
                                  III.
      With these considerations noted, I conclude that the Chapter 380
tax-incentive program at issue here is a governmental function of the
city. This is a case about the government’s operation of a statutorily
authorized grant program that awards tax incentives for economic
development. The agreement between League City and Jimmy Changas
has no “private character.” It is not the kind of arms-length commercial
exchange in which private parties might engage for their mutual benefit.
Instead, it implements a tax-rebate grant program authorized by Article
XI, Section 13 of the Texas Constitution and Chapter 380 of the Local
Government Code and operated for the diffuse benefit of the public.
      Only a government could or would run a grant program designed
to generate diffuse public benefit by offering tax breaks to private
entities. Taxation “is undeniably a governmental function.” Fort Worth
Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 846 (Tex. 2000).
Indeed, “[t]he collection of taxes is undoubtedly one of the highest and
most characteristic of the governmental functions.” Black v. Baker, 111
S.W.2d 706, 708 (Tex. [Comm’n Op.] 1938). So the city’s collection of
taxes from Jimmy Changas to benefit the public is “undoubtedly”
governmental, but the city’s rebating of the same taxes to benefit the
public is not. I do not follow.

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      Jimmy Changas’ role in all this is as a participant in a
government-benefits program operated in the city’s distinctly “public
capacity” pursuant to a statute—not as a participant in a bargained-for
exchange of a “private character.” Put another way, Jimmy Changas is
a government grant recipient, not a government contractor—a
beneficiary of government largesse, not a counterparty in a commercial
exchange.
      Jimmy Changas would object to this characterization and point
out that it acted in reliance on the city’s promises, to its potential
financial detriment. But the government often requires many things of
the recipients of its largesse, and people frequently act in reliance on the
government’s promise that it will extend benefits to those who dance to
its tune. We do not typically treat such interchanges as enforceable by
the common law of contracts.       Instead, the remedies available to a
disgruntled participant in a government-benefits program are those
provided by the laws governing the program, not those available under
contract law.
      This Chapter 380 agreement is just one instance of the
implementation of a quintessentially governmental program operated
for a diffuse public benefit. In running such a program, League City is
acting in its capacity as the government, using authority delegated to it
by the Constitution and statutes of our state. League City is not acting
in its capacity as a corporation or a property owner, and the nature of
this tax-rebate agreement bears little resemblance to any contract that
might be found in the private sector.

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      The Legislature could of course provide administrative or judicial
remedies to participants in the local programs Chapter 380 authorizes,
but it has not done so. Instead, the Legislature has provided Chapter
271, which authorizes breach-of-contract suits against municipalities
only if the contract is “for providing goods or services to the”
municipality. TEX. LOC. GOV’T CODE § 271.151(2). The recipient of a
Chapter 380 grant does not provide “goods or services” to the
municipality in the sense contemplated by Chapter 271. The city itself
gets no direct benefit—no goods or services—out of the deal. It hopes
for a diffuse benefit to the local economy, but there is no sense in which
this agreement is an exchange of the city’s money for an equivalent
amount of goods or services owed to the city by Jimmy Changas.
      Viewed alongside Chapter 271, the Court’s decision today
produces an awfully strange result. Private companies that enter into
conventional commercial contracts to provide goods and services in
furtherance of a city’s governmental functions—for example, a company
that sells computers to the police department—must abide by the
procedural restrictions and liability limits of Chapter 271 if they decide
to sue the city. Yet companies that receive economic development grant
awards rebating their taxes under the authority of Chapter 380 have no
need to consult Chapter 271 at all. They have a direct line to the courts,
unmediated by the Legislature. The corporate welfare recipient now has
more access to the courts than the government contractor. That this is
where we have ended up speaks for itself about the pitiable state of the
law in this area.
      I respectfully dissent.

                                    9
                                   James D. Blacklock
                                   Justice

OPINION FILED: June 9, 2023

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