Case Information
*1 Before CAMPBELL and HANCOCK and PIRTLE, JJ.
This is an accelerated appeal wherein Appellant, Republic Power Partners, L.P., challenges the trial court‘s order granting the plea to the jurisdiction filed by Appellee,
the City of Lubbock, in a suit filed by Republic Power claiming breach of contract and breach of warranties by the City of Lubbock and West Texas Municipal Power Agency (WTMPA). Presenting three issues, Republic Power questions whether the trial court erroneously granted the plea to the jurisdiction given that (1) the City of Lubbock was *2 engaged in a proprietary function for which it has no immunity from suit, (2) governmental immunity has been waivеd for written contract claims against local governmental entities under section 271.152 of the Texas Local Government Code, and (3) the City of Lubbock waived its immunity from suit by its conduct. For the reasons to follow, we affirm.
F ACTUAL B ACKGROUND
In 1983 the cities of Brownfield, Floydada, Lubbock and Tulia formed WTMPA for the purpose of obtaining a reliable and adequate source of electric energy for its citizens. WTMPA is a municipal power agency created pursuant to subchapter C of chapter 163 of the Texas Utilities Code. See § 163.054(a). A municipal power agency created pursuant to this subchaptеr is a separate municipal corporation, a political subdivision of this State, and a political entity and corporate body distinct from the public entities creating it. See id . at § 163.054(c). A municipal power agency is expressly authorized to enter into contracts necessary to the full exercise of its powers, which includes the authority to enter into a contract, lease or agreement for the generation, transmission, sale or exchange of electric energy. See id . at § 163.060.
WTMPA currently obtains the electric energy it resells to its member cities from Sоuthwestern Public Service (SPS). Under the Power Purchase Agreement with SPS, WTMPA is required to purchase all of its electric energy from SPS through May 2019. In 2007, WTMPA was notified by SPS that the existing Power Purchase Agreement would not be renewed. At that time, WTMPA began contemplating how it was going to supply electrical energy to its member cities after expiration of the existing Power *3 Purchase Agreement . WTMPA ultimately negotiated and executed a Development Agreement with Republic Power, a private business entity, for the purpose of forming a partnership to develop, finance and operate future еlectric energy generation and transmission facilities. [1]
The Development Agreement required WTMPA to form a local government corporation to own and operate a power generation facility and issue bonds to finance its construction. The Development Agreement was executed on August 1, 2008, and on September 25, 2008, WTMPA‘s Board of Directors unanimously approved High Plains Diversified Energy Corporation as the local government corporation designated to own and operate the electric energy generation and transmission facilities contemplated by the agreement. Thereafter, one addendum dated July 23, 2009, and two amendments dated October 9, 2009, and May 18, 2011, were added to the Development Agreement . Initially, per the Development Agreement , the ―Project Owner‖ was WTMPA, but those rights and obligations were assigned to High Plains.
Over the next three years, Republic Power raised millions in capital and expended considerable sums completing feasibility studies and arranging for financing of the project. The Development Agreement provided for issuance of first mortgage revenue bonds by the local government corporation, ultimately High Plains, for the purpose of obtaining the balance of the funds necessary to complete the project. In furtherance of that financing obligation, a bond validation hearing was ultimately scheduled in a Lubbock County district court to approve issuance of the revenue bonds. *4 Prior to that hearing, at a regularly scheduled meeting of the board of High Plains, a dispute arose as to the allocation of any surplus revenue generated by the project. Due to its greater usage of the electric energy to be generated, the City of Lubbock believed it should receive a greater percentage of any surplus revenue. The Board of Directors disagreed and ultimately, at the bond validation hearing, the City of Lubbock objected to issuance of the revenue bonds by arguing High Plains was not a valid local government corporation and WTMPA did not have the authority to create it. The district court agreed with the City of Lubbock and dismissed the bond validation proceeding with prejudice. As a result, no revenue bonds were ever issued.
After the bond validation suit failed, Republic Power filed the underlying suit against the City of Lubbock and WTMPA alleging breach of the Development Agreement . Initially, Republic Power alleged that WTMPA breached the agreement but sought to hold the City of Lubbock liable under a joint enterprise theory. Both defendants filed pleas to the jurisdiction asserting immunity from suit. Republic Power then amended its petition to allege the City of Lubbock directly breached the Development Agreement . In response, the City of Lubbock filed an amended plea to the jurisdiction. Fol lowing a hearing, the trial court granted the City of Lubbock‘s amended plea but denied WTMPA‘s plea. This appeal followed. [2]
S TANDARD OF R EVIEW — P LEA TO THE J URISDICTION
The party suing a governmentаl entity bears the burden of affirmatively
demonstrating the trial court has jurisdiction to hear the dispute.
Tex. Dep’t. of Criminal
Justice v. Miller ,
Whether a court has subject matter jurisdiction is a question of law. Tex. Natural
Res. Conservation Comm ‘ n v. IT-Davy ,
S OVEREIGN /G OVERNMENTAL I MMUNITY
Sovereign immunity protects the State, as well as its agencies and officials, from
lawsuits for damages and from liability. Ben Bolt-Palito Blanco Consol. Indep. Sch. Dist.
v. Texas Political Subdivs. Prop./Cas. Joint Self-Ins. Fund , 212 S.W.3d 320, 323-24
(Tex. 2006); Reata Constr. Corp. v. City of Dallas , 197 S.W.3d 371, 374 (Tex. 2006).
Similarly, the common law doctrine of governmental immunity protects political
subdivisions of the State, including counties, cities and school districts. Ben Bolt, 212
S.W.3d at 324. Under the doctrines of sovereign and governmental immunity, it has
long been recognized that there are two separate components to immunity: (1) immunity
from liability, which bars еnforcement of a judgment against a governmental entity, and
(2) immunity from suit, which bars suit against the governmental entity altogether.
Tooke v. City of Mexia ,
These components of immunity have come to be applied in a variety of
*7
circumstances to promote the pragmatic purpose of immunity, which is to ―shield the
pu blic from the costs and consequences of improvident actions of their governments.‖
Tooke,
Immunity may, however, be waived and the Legislature has the exclusive
authority to do so by statute. To ensure that this legislative control is not lightly
disturbed, statutes waiving immunity are strictly construed as not waiving immunity
unless that waiver is effected by ―clear and unambiguous‖ language. See T EX . G OV ‘ T
C ODE A NN . § 311.034 (West 2013). See also Oncor Elec. Delivery Co. LLC v. Dallas
Area Rapid Transit , 369 S.W.3d 845, 849 (Tex. 2012); Tooke , 197 S.W.3d at 332-33.
Any ambiguity should be resolved in favor of retaining immunity. Wichita Falls State
Hosp. v. Taylor ,
In determining whether immunity has been waived, the Texas Supreme Court has consistently deferred to the Legislature, because doing so allows the Legislature to protect the complex policymaking function surrounding suits against governmental entities. IT-Davy , 74 S.W.3d at 853-54. As more fully discussed below, the Texas Legislature adopted section 271.152 of the Local Government Code to deal with the waiver of governmental immunity in the context of a breach of contract claim. See T EX . L OCAL G OV ‘ T C ODE A NN . § 271.152 (West 2005). The Supreme Court has specificаlly held that ―legislative control over sovereign immunity allows the Legislature to respond *8 to changing conditions and revise existing agreements if doing so would benefit the public.‖ Tooke , 197 S.W.3d at 332 (quoting IT-Davy , 74 S.W.3d at 854). With these principles in mind, we turn to the parties‘ arguments.
A NALYSIS
Proprietary/Governmental Dichotomy
By its first issue, Republic Power contends the trial court erred in granting the City of Lubbock‘s plea to the jurisdiction because immunity does not apply to suits arising from the performance of a proprietary function. Specifically, Republic Power contends that because ―the construction and operation of an electric utility‖ is а proprietary function, no governmental immunity exists. We disagree.
In presenting this argument, Republic Power seeks to incorporate the
proprietary/governmental distinction from common law and the Texas Tort Claims Act,
T EX . C IV . P RAC . & R EM . C ODE A NN . §§ 101.021-.029 (West 2011), into this breach of
contract claim. WTMPA contends the City of Lubbock was engaged in a proprietary
function when it entered into the Development Agreement for the express purpose of
providing electrical energy to the citizens of West Texas, and thus no immunity from suit
exists against a claim based on that agreement. Relying on Tooke ,
On the other hand, relying on City of San Antonio ex. rel. City Public Service
Board v. Wheelabrator Air Pollution Control , Inc. ,
In arguing for the application of this proprietary/governmental dichotomy in the context of a breach of contract claim, Reрublic Power argues that a municipality is not immune from claims arising out of its proprietary acts because under common law, when a municipality engages in a proprietary function, it is subject to the same duties *11 and liabilities as private citizens and corporations. See Gates v. City of Dallas , 704 S.W.2d 737, 739 (Tex. 1986) (holding that ―[c]ontracts made by municipal corporations in their proprietary capacity have been held to be governed by the same rules as contracts between individuals‖). [5] In pursuing this argument Republic Power fails to distinguish the two distinct components of immunity: (1) immunity from liability and (2) immunity from suit. Tookе , 197 S.W.3d at 332. In terpreting contracts by the ―same rules‖ is a function of liability, not a function of immunity from suit. Another serious flaw in Republic Power‘s argument is that th e common law principle it relies upon pre-dates the adoption of both the Texas Tort Claims Act and the 2005 legislative enactment of subchapter I of chapter 271 of the Texas Local Government Code, entitled Adjudication of Claims Arising Under Written Contracts With Local Governmental Entities. See T EX . C IV . P RAC . & R EM . C ODE A NN . §§ 101.021-.029 (West 2011) and T EX . L OCAL G OV ‘ T C ODE A NN . § 271.152 (West 2005).
By enacting subchapter I of chapter 271 of the Texas Local Government Code, the Legislature specifically sought to wаive immunity to suit for certain claims arising under written contracts with governmental entities. § 271.152; Kirby Lake Dev. , Ltd. v. Clear Lake City Water Auth ., 320 S.W.3d 829, 838 (Tex. 2010). In 2006, the Court stated that this section was enacted ―to loosen the immunity bar so that all local *12 governmental entities that have been given . . . the statutory authority to enter into contracts shall not be immune from suits arising from those contracts.‖ Ben Bolt , 212 S.W.3d at 327 (second emphasis added). Specifically, section 271.152 provides, ―[a] local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject tо this subchapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject to t he terms and conditions of this subchapter.‖ Th is language is a clear and unambiguous waiver of governmental immunity from suit for a breach of contract claim falling within the category of contracts subject to subchapter I of chapter 271. City of Dallas v. Albert , 354 S.W.3d 368, 377 (Tex. 2011) (holding that section 271.152 is a clear and unambiguous waiver of governmental immunity for breach of contract suits falling within the category of contracts subject to subchapter I of chapter 271).
― As it had already done in the tort-claims context [through the Texas Tort Claims Act], the Legislature could have incorporated the proprietary/governmental distinction into the statutory waiver scheme for contract claims; however, it chose not to incorporate that distinction into a contract setting. ‖ Wheelabrator , 381 S.W.3d at 603. We must presume the Legislature knew and understood exactly what it was doing when it enacted 271.152, and that it deliberately and purposefully omitted that distinction when it selected the words and phrases that it enacted. Id. at 603-04. Because it is the Legislature‘s function to weigh competing interests and establish public policy, specifically in the realm of governmental immunity, we conclude the Legislature did make a policy decision regarding the proprietary/governmental dichotomy – and that policy decision was that the doctrine of immunity applies to contract claims arising from *13 proprietary functions, subject to specific provisions of waiver found in section 271.152. Id. at 604.
As mentioned above, WTMPA relies on three Texas courts of appeals ‘ decisions
to support its position that immunity from suit does not apply because the City of
Lubbock was engaging in a proprietary function. In Temple, the First District Court of
Appeals held the City of Houston had no governmental immunity from a breach of
contract suit because it was performing a proprietary function when it provided life
insurance benefits to its employees. 189 S.W.3d at 819-21. Similarly, in Bailey, the
Third Court of Appeals, relying on Gates ,
Finding the reasoning of the San Antonio Court of Appeals in Wheelabrator to be convincing, we extend that ruling to find immunity does apply to claims arising from the *14 breach of an express contract arising out of the performance of a proprietary function. [6] Issue one is overruled.
Statutory Waiver of Immunity
By its second issue, Republic Power maintains the trial court erroneously granted the City of Lubbock‘s plea to the jurisdiction because immunity , if any, was waived under section 271.152. Again, we disagree.
Consistent with our disposition of issue one, thеre is but one route to the
courthouse for breach-of-contract claims against a governmental entity, and that route is
through section 271.152. General Servs. Comm ‘ n v. Little-Tex Insulation Co. , 39
S.W.3d 591, 597 (Tex. 2001). By enacting section 271.152, the Legislature specifically
provided that a local governmental entity ―waives sovereign immunity to suit for the
purpose of adjudicating a claim for breach of contract, subject to the terms and
conditions of [s ubchapter I].‖ § 271.152; Kirby Lake, 320 S.W.3d at 838. A ―contract
subject to this subchapter‖ is defined as ―a written contract stating the essential terms of
the agreement for providing gоods or services to the local governmental en tity‖ . See §
271.151(2). See also Albert ,
For the statute‘s wavier of immunity to apply, three requirements must be established: (1) the party against whom the waiver is asserted must be a local *15 governmental entity; (2) the entity must be authorized by statute or the Constitution to enter into contracts; and (3) the entity must in fact have entered into a contract that is ―subject to this subchapter.‖ City of Houston v. Williams , 353 S.W.3d 128, 134 (Tex. 2011). Additionally, five e lements must be met to determine if the contract is ―subject to this subchapter.‖ It must be (1) in writing, (2) state the essential terms, (3) provide for goods or services, (4) to the local governmental entity, and (5) be executed on behalf of the local governmental entity. See § 271.151(2). See also Williams , 353 S.W.3d at 135.
The opening paragraph of the Development Agreement provides it is ―made and entered into . . . by and between West Texas Municipal Power Agency, a Texas joint power agency an d municipal corporation (‗WTMPA‘ ) comprised of the cities of Brownfield, Floydada, Lubbock and Tulia . . . . ‖ (E mphasis added). Republic Power argues that WTMPA entered into the Development Agreement ―on behalf of itself and the Cities‖ and it was executed on their behalf for purposes of section 271.152. The ― RECITALS ‖ portion of the Development Agreement does recognize a distinction between WTMPA and the cities themselves. Specifically, paragraphs C and D contain language that the ―Project Owner‖ acts ―on behalf of [WTMPA] and the Cities.‖ (Emphasis added). However, those recitals apply only to certain determinations and not to obligations under the Development Agreement .
The Development Agreement further provides in part: IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed by their proper officers respectively, being thereunto duly authorized, and their respective seals to be hereto affixed . . . .
In that regard, the signature page of the Development Agreement is signed by Gary Brown on behalf of WTMPA and John N. Crew on behalf of Republic Power. None of the cities involved in the formation of WTMPA are listed as signatories in the contract. The addendum and both amendments are also signed by Brown, Crew and Scott Collier, President of High Plains. WTMPA was named the ―Project Owner‖ until it assigned the Development Agreement to High Plains who, in turn, became the ―Project Owner. ‖
While Republic Power acknowledgеs the City of Lubbock was not a signatory to the Development Agreement , it argues it should be held liable under the circumstances of this particular case. According to Republic Power, the City of Lubbock ‘s insistence on nearly 100% of surplus revenue generated by the project equated it with being WTMPA. [7] We disagree. WTMPA is a municipal power agency created under chapter 163 of the Texas Utilities Code. It is a separate municipal corporation and is governed by its own board of directors. The City of Lubbock is not WTMPA.
Despite being named in the opening paragraph, the City of Lubboсk and the other member cities were not parties to the Development Agreement , addendum or amendments. None of the documents are executed on behalf of any of the cities, and although Texas law recognizes that a contract need not be signed to be ―executed‖ unless the parties explicitly require signatures, Mid-Continent Cas. Co. v. Global Enercom Mgmt. , 323 S.W.3d 151, 157 (Tex. 2010), there is no intent that the City of Lubbock was considered a party or even a third party beneficiary to the Development *17 Agreement . To the contrary, section 10.11 of the Development Agreement specifies that the ―provisions of the Agreement are for the exclusive benefit of the Project Owner and Republic Power‖ and provides only for Texas Tech University as a third party beneficiary per section 3.4(c) of the Development Agreement .
A contract generally binds no one except the parties to it. BML Stage Lighting ,
Inc. v. Mayflower Transit , Inc. , 14 S.W.3d 395, 400 (Tex. App. — Houston [14th Dist.]
2000, pet. denied). The City of Lubbock, as a member city, was ―no more than an
incidental beneficiary‖ to the creation of WT MPA for the purpose of providing electric
energy to the communities involved. See Sharyland Water Supply Corp. v. City of
Alton ,
Waiver by Conduct
By its third and final issue, Republic Power asserts the City of Lubbock ‘s plea to the jurisdiction was erroneously granted because immunity from suit was waived by its conduct. [8] We disagree. Republic Power further asserts the City of Lubbock waived its immunity, if any, by engaging in certain conduct, to-wit: knowingly entering into the *18 Development Agreement , attempting to gain more than its 25% share of revenues, and then killing the deal by intervening in the bond validation action when it did not get its way on the surplus revenues issue.
The Texas Supreme Court has rejected the invitation to recognize an exception for waiver of immunity by conduct. See IT-Davy , 74 S.W.3d at 857. See also Sharyland Water Supply Corp. , 354 S.W.3d at 414. This Court has also refused tо recognize waiver of immunity by conduct. See Leach v. Tex. Tech Univ. , 335 S.W.3d 386, 400-01 (Tex. App. — Amarillo 2011, pet. denied). Issue three is overruled.
C ONCLUSION
We affirm the trial court‘s order granting the City of Lubbock‘s plea to the jurisdiction on Republic Power ‘ s claims for breach of contract.
Patrick A. Pirtle Justice
Notes
[1] Municipal power agencies are expressly authorized to contract with private persons. See T EX . U TIL . C ODE A NN . § 163.060(b)(2)(C) (West 2007).
[2] In a related appeal decided this same date, WTMPA challenged the trial court‘s order denying
its plea to the jurisdiction. See West Texas Municipal Power Agency v. Republic Power Partners, L.P. ,
No. 07-12-00374-CV,
[3] In Wheelabrator, the San Antonio Court of Appeals held that the Legislature‘s failure to include the proprietary/governmental dichotomy to contracts in section 271.152 of the Texas Local Government Code meant the dichotomy did not apply, thereby holding the City of San Antonio was immune from suit on Wheelabrator‘s quantum meruit claim.
[4] Whilе the City of Lubbock contends the activities of the city giving rise to this suit were the performance of a governmental function, Republic Power contends the Texas Supreme Court and the Texas Legislature have both defined the construction and operation of an electric power utility as a proprietary — not governmental — function. See San Antonio Indep. Sch. Dist. v. City of San Antonio , 550 S.W.2d 262, 264 (Tex. 1976); T EX . C IV . P RAC . & R EM . C ODE A NN . § 101.0215(b)(1) (West Supp. 2013). For purposes of this opinion we will assume, without deciding, that the City of Lubbock was engaging in a proprietary function.
[5] In Gates , the Texas Supreme Court acknowledged the cоmmon law principle that a city has
immunity for governmental functions performed as an agent for the State ―in furtherance of general law
fo r the interest of the public at large,‖ while at the same time acknowledging that ―proprietary functions
have subjected municipal corporations to the same duties and liabilities as those incurred by private
persons and corporations.‖ 704 S.W.2d at 738-39. The broad application of this principle to non-tort
proprietary functions has, however, been called into question. See Lower Colo. River Auth. v. City of
Boerne , No. 04-13-00108-CV, 2013 Tex. Aрp. LEXIS 15498, at *7-8 (Tex. App. — San Antonio Jan. 8,
2013, no pet.); Wheelabrator, 381 S.W.3d at 604. The Supreme Court itself has put this broad
interpretation into question when it used a compare signal when citing Gates immediately after explicitly
stating that it has never held the proprietary/governmental distinction applies to determining whether
immunity from suit is waived for breach of contract claims arising from the performance of a proprietary
function. Tooke ,
[6] We are aware of the Austin Court of Appeals ‘s decision in City of Georgetown v. Lower
Colorado River Authority ,
[7] In its Second Amended Petition , Republic Power alleges Lubb ock‘s City Manager asserted at a High Plains Board of Director‘s closed meeting that ―Lubbock is [West Texas]‖ and deserves more than 25% of the revenue.
[8] Republic Power candidly acknowledges that waiver by conduct is rare but presents the argument to preserve the issue in the event of further appeal of the case.