On April 12, 2024, the Texas Supreme Court handed down two decisions clarifying its interpretation of governmental immunity and waiver under Section 271.152 of the Texas Local Government Code.
Governmental units, including political subdivisions like municipalities, are generally immune from suit without a legislative waiver. That waiver is often found in Texas Local Government Code Section 271.152. According to Section 271.152, when a local government entity authorized to make contracts “enters into a contract” for goods or services that meet certain requirements, that entity “waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of contract[.]” Tex Loc. Gov’t Code § 271.152. However, the waiver is subject to the various limitations imposed by Sections 271.151 through 271.160 of the Local Government Code, as discussed in the court’s decisions.
In the first case, San Jacinto River Auth. v. City of Conroe, No. 22-0649, 2024 WL 1590001, at *2 (Tex. Apr. 12, 2024), the court ruled that Section 271.154 does not limit a government unit’s waiver under Section 271.152, but rather provides private parties with the right to enforce alternative dispute resolution provisions against government units. In the second case, Campbellton Rd., Ltd. v. City of San Antonio by & through San Antonio Water Sys., No. 22-0481, 2024 WL 1590000, at *13 (Tex. Apr. 12, 2024), the court noted that a contract without terms providing a governmental unit an enforceable contractual right to services, or terms requiring a governmental unit to pay a private party, has nevertheless “stated the essential terms” of an agreement in the spirit of a Section 271.152 waiver.
Both decisions provide important updates to our understanding of waiver limitations under Section 271.152 and, moreover, signal a larger trend in the court’s decision-making.
Waiver Under Section 271.152
San Jacinto River Auth. v. City of Conroe
In San Jacinto River Auth., the court considered whether alternative dispute resolution procedures, enforceable under Section 271.154 of the Texas Local Government Code, could serve as limits on a government unit’s waiver of immunity under Section 271.152. 2024 WL 1590001 at *2-4. The court determined that Section 271.154 does not limit a government unit’s waiver under Section 271.152, but instead vests private parties with the ability to enforce alternative dispute resolution provisions against government units. Id. at *4
The San Jacinto River Authority (SJRA) had developed a groundwater reduction plan (the GRP) to draw surface water from Lake Conroe and sell that water to cities and utilities, helping them comply with regulatory guidelines seeking to reduce water providers’ ground water usage. Id. at *1. Under the GRP, the SJRA would design, construct, and operate a water treatment plant and related systems, sharing the costs and benefits of the project with various water providers that opted to contract with the SJRA. Id. A number of suits have resulted from this arrangement, largely centering around the City of Conroe and the City of Magnolia’s refusal to pay increases to their water rates and/or pumpage fees. Id. at *2.
In the instant suit, several private utilities sued the SJRA for breach of their respective GRP contracts. Id. The SJRA, for its part, counterclaimed and brought additional third-party claims against Conroe and Magnolia, claiming that the two cities breached their contracts with the SJRA by failing to pay the required rates and fees. Id. Conroe and Magnolia subsequently filed pleas to the jurisdiction, asserting that their immunity had not been waived under Section 271.152 because, among other things, the SJRA failed to submit its claims to pre-suit mediation as required by the GRP contracts. Id. The trial court granted the pleas and dismissed the SJRA’s claims. Id. The court of appeals affirmed, holding that Section 271.152’s waiver of immunity was subject to limitation by Section 271.154, which provides that dispute adjudication procedures stated in the contract are enforceable, and the SJRA had failed to engage in pre-suit mediation as required by the GRP contracts. Id.; see also Tex Loc. Gov’t Code § 271.154.
Unpersuaded by arguments that Section 271.154 limited Section 271.152’s waiver of immunity, the Texas Supreme Court reversed. Instead of placing a limitation on waiver, the court explained, Section 271.154 provides that requirements for alternative dispute resolution “are enforceable” upon a showing of waiver of immunity under Section 271.152. Id. at *4. Rather than limit the rights of private parties to enforce agreements against local government entities, Section 271.154 “ensures that under the waiver, both sides are on equal footing so that the private parties can similarly enforce pre-suit ADR agreements against local government entities.” Id. According to the Texas Supreme Court’s reading, Section 271.154 acts to broaden the rights of private parties, not diminish them. That said, the court also concluded that upon remand, the lower court could order compliance with the alternative dispute resolution procedures before proceeding with the case. Id.
Campbellton Road, Ltd. v. City of San Antonio
The Texas Supreme Court next considered the extent of Section 271.152(2)(A)’s limitation on waiver. For a contract to be “subject to this subchapter” to which waiver of immunity applies, there must be evidence of 1) “a written contract” 2) “stating the essential terms of the agreement.” Further, this agreement must be one 3) “for providing goods and services” to the governmental unit in question. (Campbellton Road, 2024 WL 1590000 at *6.) While the Campbellton Road decision speaks to all three requirements, this analysis focuses on the court’s interpretation of the second: that the contract “stat[es] the essential terms of the agreement.” Id.
In Campbellton Road, the court considered whether a written instrument documenting the terms and conditions for a municipal water system to provide sewer service and guarantee capacity for a developer’s planned subdivision formed a contract subject to Section 271.152. If so, this could give the developer grounds to sue the municipal water system for breach of contract, even though the municipal water system had no contractual right to the developer’s performance, and the contract contained no terms requiring the water system to pay the developer. Id. at *9. Here, the court determined that such a contract did meet Section 271.152’s waiver requirements, clarifying its prior decision in Lubbock Cnty. Water Control & Imp. Dist. v. Church & Akin, L.L.C., 442 S.W.3d 297, 300 (Tex. 2014).
The Lubbock County court found that an agreement between the parties was not an agreement to provide services within the waiver requirements of Section 271.152, as it contained only a provision restricting the use of property, rather than requiring the use of property for a specific purpose. Id. at *10 (citing Lubbock County, 442 S.W.3d at 303). The court noted that “[w]hen a party has no right under a contract to receive services, the mere fact that it may receive services as a result of the contract is insufficient to invoke [the Act’s] waiver of immunity.” Id. Regarding payment, the court found that “waiver will typically only apply to contracts in which the governmental entity agrees to pay” for services. Id. at *11 (citing Lubbock County, 442 S.W.3d at 304). This language was relied upon by the court of appeals in Campbellton Road, which found that the instant contract was not a contract subject to Section 271.152, as it had no such service or payment requirement. Id. at *9.
However, the Campbellton Road court refused to read this language as a bright line rule concerning either service or payment requirements. Id. at *13. Instead, the court reasoned that an agreement for providing services for purposes of Section 271.152 could include an agreement that “does not necessarily create an enforceable contractual right to those services at the time those terms are stated,” and later manifestation of mutual assent through actual performance could satisfy this requirement. Id. at *11, *12. As to the lack payment terms, the court further reasoned that the “absence of a payment provision [wa]s not dispositive.” The water system’s provision of collection credits to the developer in exchange for the developer’s participation effectively stood in for a payment provision where the water system could not prove the credits had no value.
Takeaways
The Texas Supreme Court’s decisions in San Jacinto River Auth. and Campbellton Road are valuable indications of the court’s narrow read of the Local Government Code—and its overall willingness to constrain the breadth of governmental immunity. Local government entities of all types should consider the impact of these decisions when assessing potential risks in contracting.
