East Houston Estate Apartments, LLC v. City of Houston
(Tex.App.- Houston [1st Dist.] Jun. 25, 2009)(Opinion by Keyes)(city held immune, City of Mexia
v. Tooke progeny, statutory waiver for breach of contract suits against local governments not
We conclude that the Loan Agreement that the City entered into with East
Houston is not the type of contract covered by section 271.152's waiver of
immunity from suit, and the City's immunity is not waived on that basis. (7)
Therefore the trial court did not err in sustaining the City's plea to the
AFFIRM TRIAL COURT JUDGMENT: Opinion by Justice Evelyn Keyes
Panel members: Justices Keyes, Hanks and Bland
01-08-00966-CV East Houston Estate Apartments, L.L.C. v. The City of Houston
Appeal from 333rd District Court of Harris County
Trial Court Judge: Hon. Lamar McCorkle
Trial Court Case #: 0758763
O P I N I O N
The appellant, East Houston Estate Apartments, L.L.C. ("East Houston"), appeals the trial court's
order sustaining the plea to the jurisdiction of appellee, City of Houston ("the City"). (1)
In one issue, East Houston argues that the trial court erred in granting the City's plea to the
jurisdiction because the City performed a proprietary act by entering the agreement with East
Houston, or, alternatively, that the City's governmental immunity is waived by Texas Local
Government Code section 271.152. (2)
On August 6, 1996, East Houston entered into a loan agreement with the City. The loan
This Agreement provides for a Loan . . . from the City to the Owner to assist in the rehabilitation
of a 130 unit apartment complex located at 7600 East Houston Road, Houston, Harris County,
Texas, and known as the East Houston Estate Apartments. Funding is being provided to the City
pursuant to a HOME Investment Partnership Agreement ("HOME Agreement") between the City
and the United States of America, acting by and though its Department of Housing and Urban
Development, for federal funding of a HOME Investment Partnerships Program under the
National Affordable Houston Act of 1990, as amended ("HOME Program").
The Loan shall be issued to the Owner from the City subject to the conditions and terms of this
Agreement. This Loan Agreement covers a community development activity undertaken by the
City and authorized under Chapter 373 and/or 374 of the Texas Local Government Code.
The Agreement also stated "Loan shall mean the loan contemplated by this Agreement, in the
maximum principal amount of Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00)
made by the City to the Owner for the purpose of financing a portion of the rehabilitation costs of
the Project." To accompany the Loan Agreement, East Houston executed a promissory note
naming the City as payee in the principal sum of and a "Deed of Trust, Security Agreement, and
Financing Statement." The Loan Agreement further provided that East Houston must "execute an
agreement with a Project Manager who has been approved by the Director [of the City's
Department of Housing and Community Development or designee]" before the funds could be
The Loan Agreement also required that East Houston "obtain a firm commitment" from another
lender, who would act as the Senior Lender, "for financing a portion of the acquisition and
construction of the Project in at least the amount of $1,167,070.00." Thus, also on August 6,
1996, East Houston entered into a loan agreement with Chase Bank of Texas, N.A. ("Chase
Bank"), and Chase Bank and the City entered into an inter-creditor agreement acknowledging
Chase Bank as the Senior Lender.
Among the "Covenants of the Owner" were requirements that East Houston "use the proceeds of
the Loan only for items included in the Final Budget that has been approved by the Director,"
deadlines for the commencement and completion of work, the requirement that the owner
"perform the Work in a good and workmanlike manner and in substantial accordance with the
Work Write-up that has been approved by the Director," and requirements that East Houston
comply with various other statutory provisions and regulations and with certain "affordability
requirements." Specifically, the Agreement provided:
[T]he Owner shall comply with the following affordability requirements:
a. At least twenty percent (20%) of the sixty-six (66) Designated Units, i.e., at least thirteen (13)
units, shall be rented only to those families whose gross income does not exceed fifty percent
(50%) of the median income for the area, as determined by HUD, and each of these thirteen (13)
or more units shall bear rent no greater than thirty percent (30%) of the adjusted income of the
qualified tenant family, less a monthly allowance for utilities and services (excluding telephone) to
be paid by the tenant.
b. The remaining Designated Units shall be rented only to those families whose gross income
does not exceed eighty percent (80%) of the median income for the area, as determined by HUD,
and these units shall bear rents no greater than the lesser of--
(1) the fair market rent for comparable existing housing units in the area as established by HUD
under 24 CFR § 888.111, less a monthly allowance for any utilities and services (excluding
telephone) to be paid by the tenant; or
(2) a rent that does not exceed thirty (30%) percent of the adjusted income of a family whose
gross income equals sixty-five percent (65%) of the median income for the area, as determined
by HUD, with adjustments for the number of bedrooms in the unit, less a monthly allowance for
utilities and services (excluding telephone) to be paid by the tenant.
The Loan Agreement also contained numerous provisions regarding repayment of the loan and
disbursement procedures and circumstances under which the Director could declare a default
under the loan.
The Loan Agreement provided that the Affordability Period--i.e., the period during which the
designated units of the Project had to remain affordable under HUD standards--was fifteen years
from Project Completion and that the "Designated Units for the Project covered by this
Agreement shall consist of 51% of the units (66 units)." (3) In addition, the Loan Agreement
contained a section titled "Federal Funding Limitation" that stated as follows:
Owner understands that the availability of the Loan proceeds is dependent upon federal funding.
Unless and until the City receives adequate funds from HUD, the City shall have no obligation to
the Owner under this Agreement. In the event that the funds received by the City under the
HOME Agreement with HUD are insufficient to meet the City's commitments, the Director may
reallocate all or a portion of the funds that are budgeted for this Agreement. The Loan
Agreement was approved and authorized by City Ordinance 98-126 on February 18, 1998.
Subsequently, work on the Project began.
After numerous construction delays, Chase attempted to foreclose on East Houston's property
on August 11, 2003. At that time, according to East Houston, the City had loaned East Houston
approximately $237,000 of the $750,000 in federal funds provided for in the Loan Agreement,
and Chase Bank, as the Senior Lender, had loaned East Houston approximately one-third of the
$1,167,070.00 provided for in its own loan agreement with East Houston for the Project. East
Houston had not repaid any of the money Chase Bank and the City had lent it for the Project. On
August 29, 2003, East Houston filed a Chapter 11 bankruptcy proceeding that was eventually
dismissed. No action was taken under the loan agreements for several years.
On May 11, 2007, East Houston Apartments, L.L.C. ("EHA") purchased Chase Bank's position in
Chase's loan agreement with East Houston and posted East Houston's real property for
foreclosure. East Houston filed another bankruptcy proceeding on July 2, 2007. On September
10, 2007, the bankruptcy court lifted the stay to allow EHA to enforce its rights through
foreclosure. Subsequently, EHA sold East Houston's property at foreclosure on October 2, 2007.
East Houston filed its original petition in this lawsuit on September 9, 2008, alleging breach of
contract by Chase Bank and the City for failing to release to it all of the funds allotted by the loan
agreements. East Houston alleged damages "in an amount equal to the estimated value of the
property being at least $2,000,000.00 along with lost net income of at least $300,000 per year
for the twenty-year period that the real estate project had to be used for low income housing, for
an aggregate lost profits claim of $6,000,000.00." East Houston also alleged fraud, rescission
and setoff, and civil conspiracy, and it requested punitive damages of $6,000,000.00 and
attorney's fees. In its first amended petition, East Houston argued that the City had waived its
immunity from suit because the acts or omissions that formed the basis of the lawsuit involved
proprietary acts of the City for which it did not have governmental immunity.
On October 8, 2008, the City filed a plea to the jurisdiction arguing that, because the Loan
Agreement between itself and East Houston covered a Community Development Activity
authorized by Chapter 373 or Chapter 374, or both, of the Texas Local Government Code, (4)
and because such activity was statutorily defined as a governmental function, the City was
immune from suit for all claims arising out of that activity.
On October 28, 2008, East Houston responded to the City's plea to the jurisdiction, arguing that
Community Development Activities authorized by Chapters 373 or 374 of the Local Government
Code are proprietary activities of a municipality and also that the City had failed to prove that the
Loan Agreement was properly authorized under Chapter 373 or 374, and, therefore, the City's
immunity from suit was waived. Alternatively, East Houston argued that the City's immunity was
waived under Texas Local Government Code section 271.152, which waives governmental
immunity from suit for breach of certain contracts entered into by a governmental entity. (5) On
October 29, 2008, East Houston filed its second amended petition, adding its argument that the
City's immunity from suit was waived by Local Government Code section 271.152 and
acknowledging that its damages against the City would be correspondingly limited by that statute.
East Houston also added causes of action for negligence, tortious interference with prospective
relations, breach of the covenant of good faith and fair dealing, violations of the Deceptive Trade
Practices Act, and retaliation and harassment. On October 30, 2008, the City filed its reply to
East Houston's response to its plea to the jurisdiction.
The trial court held a hearing on the City's plea to the jurisdiction on October 31, 2008. On
November 11, 2008, the trial court signed the order sustaining the City's plea to the jurisdiction
and dismissing all of East Houston's claims against the city for want of jurisdiction.
Plea to the Jurisdiction
In its sole issue, East Houston argues that the trial court erred in sustaining the City's plea to the
jurisdiction based on governmental immunity to East Houston's breach of contract suit because
the City's contract with East Houston constituted a proprietary act of the City. Alternatively, East
Houston argues that the City is not immune from suit on East Houston's breach of contract claim
because the City's immunity is waived by Texas Local Government Code section 271.152.
A. Standard of Review
A plea to the jurisdiction challenges the trial court's subject matter jurisdiction to hear the case.
Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). Subject matter jurisdiction is
essential to the authority of a court to decide a case and is never presumed. Tex. Ass'n of Bus.
v. Tex. Air Control Bd., 852 S.W.2d 440, 443-44 (Tex. 1993). The plaintiff has the burden to
allege facts affirmatively demonstrating that the trial court has subject matter jurisdiction. Id. at
The existence of subject matter jurisdiction is a question of law. State Dep't of Highways & Pub.
Transp. v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002). Therefore, we review the trial court's
ruling on a plea to the jurisdiction de novo. Id. When a plea to the jurisdiction challenges the
existence of jurisdictional facts, the trial court must consider relevant evidence submitted by the
parties. Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 228 (Tex. 2004). If the
evidence creates a fact question regarding jurisdiction, the trial court cannot grant the plea to
the jurisdiction, and the fact issue will be resolved by the fact-finder; however, if the relevant
evidence is undisputed or fails to raise a fact question on the jurisdictional issue, the trial court
rules on the plea as a matter of law. Id. at 227-28. In deciding a plea to the jurisdiction, a court
may not consider the merits of the case, but only the plaintiff's pleadings and the evidence
pertinent to the jurisdictional inquiry. County of Cameron v. Brown, 80 S.W.3d 549, 555 (Tex.
2002). In conducting our review, we take as true all evidence favorable to the nonmovant and
indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Miranda,
133 S.W.3d at 228.
B. Waiver of Immunity for Proprietary Act
Governmental immunity has two components--immunity from liability and immunity from suit.
Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006). A unit of state government is immune
from suit and liability unless the state consents. Tex. Dep't of Transp. v. Jones, 8 S.W.3d 636,
638 (Tex. 1999). A governmental entity that enters into a contract waives immunity from liability
and voluntarily binds itself to the contractual terms, but the entity does not thereby waive
immunity from suit. Id.; Seureau v. ExxonMobil Corp., 274 S.W.3d 206, 215 (Tex. App.--Houston
[14th Dist.] 2008, no pet.). Here, both parties agree that the issue is whether the City is immune
from suit for breach of contract.
Immunity from suit bars a suit against a governmental entity unless the Legislature expressly
consents to the suit by resolution or by clear and unambiguous statutory language. Tooke, 197
S.W.3d at 332-33. The party suing a governmental entity must establish the State's consent to
suit by reference to a statute or to express legislative permission. Gilford, 277 S.W.3d at 69
(citing Mo. Pac. R.R. Co. v. Brownsville Navigation Dist., 453 S.W.2d 812, 814 (Tex. 1970)). A
governmental entity's immunity can be waived only through the use of clear and unambiguous
language. Brown, 80 S.W.3d at 554; Univ. of Tex. Med. Branch v. York, 871 S.W.2d 175, 177
1. Proprietary Act
East Houston argues that the City is not immune from suit because its act in entering the Loan
Agreement for the Project was proprietary rather than governmental as the City argues.
In the tort context, cases involving claims against a city begin by considering whether the city was
acting in a proprietary or governmental function. The City of Houston v. Petroleum Traders
Corp., 261 S.W.3d 350, 355 (Tex. App.--Houston [14th Dist.] 2008, no pet.); see also Tooke, 197
S.W.3d at 343 ("The proprietary-governmental dichotomy has been used to determine a
municipality's immunity from suit for tortious conduct.") (emphasis added). "[G]enerally speaking,
a municipality's proprietary functions are those conducted 'in its private capacity, for the benefit
only of those within its corporate limits, and not as an arm of the government,' while its
governmental functions are 'in the performance of purely governmental matters solely for the
public benefit.'" Tooke, 197 S.W.3d at 343 (quoting Dilley v. City of Houston, 222 S.W.2d 992,
993 (Tex. 1949)). Governmental entities are immune from suit for torts committed in the
performance of its governmental functions--not for those committed in the performance of a
proprietary function. Id. (citing City of Tyler v. Likes, 962 S.W.2d 489, 501 (Tex. 1997) and Dilley,
222 S.W.2d at 993-94) (emphasis added).
The Texas Supreme Court has never expressly held that this distinction between governmental
and proprietary functions applies in the context of a claim for breach of contract. See Tooke, 197
S.W.3d at 343 & n.89 ("[W]e have never held that this same distinction determines whether
immunity from suit is waived for breach of contract claims, and we need not determine that issue
here.") (citing Gates v. City of Dallas, 704 S.W.2d 737, 738-39 (Tex. 1986) (stating 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," and that a city that contracts in its
proprietary role is "clothed with the same authority and subject to the same liabilities as a private
In Tooke, the Texas Supreme Court addressed the application of governmental immunity to a
suit to recover on an alleged breach of contract for waste removal by the City, and the Tookes
contended that their contract dispute with the City involved a proprietary function. Id. at 343. The
Tooke Court stated that the "Texas Constitution authorizes the legislature to 'define for all
purposes those functions of a municipality that are to be considered governmental and those
that are proprietary, including reclassifying a function's classification assigned under prior statute
or common law.'" Id. (citing Tex. Const. art. XI, § 13). The Tooke Court then pointed out that "for
purposes of tort liability, the Legislature has statutorily included [waste removal] among a
municipality's governmental functions." Id. (citing Tex. Civ. Prac. & Rem. Code Ann. §
101.0215(a)(6) (Vernon 2005)). The Tooke Court concluded, "[W]e see no reason to think that
the classification would be different under the common law. Thus, even if the City were not
immune from suit for a breach of a contract whose subject lies within its proprietary functions, the
Tookes' contract does not qualify." Id. at 344.
Following its opinion in Tooke, the Texas Supreme Court held again:
Because the Legislature has statutorily included "sanitary and storm sewers" among a
municipality's governmental functions for purposes of tort liability [under Texas Civil Practice and
Remedies Code section 101.0215(a)(9)], 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.
PKG Contracting, Inc. v. City of Mesquite, 197 S.W.3d 388, 388-89 (Tex. 2006).
Courts of Appeals, including this Court, have subsequently applied the governmental-proprietary
dichotomy to breach of contract cases. See City of Emory v. Lusk, 278 S.W.3d 77, 83 (Tex.
App.--Tyler 2009, no pet.) (holding that "due to the City's immunity [under Texas Civil Practice
and Remedies Code section 101.0215], the Lusks are precluded from filing a suit for breach of
contract"); City of Houston v. Petroleum Traders Corp., 261 S.W.3d 350, 355-56 (Tex.
App.--Houston [14th Dist.] 2008, no pet.) (examining Tooke and stating, "Even assuming for
argument's sake that the dichotomy does apply to PTC's contract claim, the fuel purchases at
issue here are a governmental function"); City of Weslaco v. Borne, 210 S.W.3d 782, 791-92
(Tex. App.--Corpus Christi 2006, pet. denied) (analyzing breach of contract claim with
"assumption that the proprietary-governmental dichotomy extends to breach of contract claims");
see also Temple v. City of Houston, 189 S.W.3d 816, 821 (Tex. App.--Houston [1st Dist.] 2006,
no pet.) ("Because the City was performing a proprietary function in providing insurance for its
employees, the City does not have sovereign immunity."). Furthermore, Tooke and subsequent
cases have demonstrated a deference to the Legislature's classification of a function as either
governmental or proprietary in contract cases as well as tort cases. See Tooke, 197 S.W.3d at
344 (contract); PKG Contracting, 197 S.W.3d at 388-89 (contract); Petroleum Traders Corp.,
261 S.W.3d at 355-56 (contract).
Here, just as in Tooke and PKG Contracting, section 101.0215 of the Texas Civil Practice and
Remedies Code defines the action undertaken by the City--in this case, Community Development
Activities authorized under the Texas Local Government Code--as a governmental activity. See
Tex. Civ. Prac. & Rem. Code Ann. § 101.0215(a)(34) (Vernon 2005) (deeming that "community
development or urban renewal activities undertaken by municipalities and authorized under
Chapters 373 and 374 of the Texas Local Government Code" constitute governmental activity);
Tooke, 197 S.W.3d at 344; PKG Contracting, 197 S.W.3d at 388-89.
We follow Tooke's holding that the Texas Constitution requires that courts defer to the
legislature's classification of a governmental entity's actions as either governmental or
proprietary. See Tex. Const. art. XI, § 13 (authorizing Legislature to "define for all purposes
those functions of a municipality that are to be considered governmental and those that are
proprietary, including reclassifying a function's classification assigned under prior statute or
common law"); Tooke, 197 S.W.3d at 343 (quoting same). Therefore, we conclude that the
Legislature's classification of Community Development Activities authorized under Chapter 373
or 374 of the Local Government Code as a governmental function is instructive in this case, and
we hold that the City was acting in its governmental capacity in entering the loan agreement with
In so holding, we recognize that City of Houston v. Southwest Concrete Construction, Inc., 835
S.W.2d 728 (Tex. App.--Houston [14th Dist.] 1992, writ denied), the case relied on by East
Houston, and Josephine E. Abercrombie Interests, Inc. v. City of Houston, 830 S.W.2d 305 (Tex.
App.--Corpus Christi 1992, writ denied), have been abrogated by statute. In Southwest Concrete,
the City was sued for breaching two contracts with a private contract in which the city agreed to
administer loans created under the federal Rental Rehabilitation Program. Sw. Concrete, 835
S.W.2d at 729. In Abercrombie, the city foreclosed on a development project that it had agreed
to fund in part through federal community development block grant loans. Abercrombie, 830
S.W.2d at 306. The Southwest Concrete and Abercrombie courts both examined the definitions
of proprietary and governmental acts as provided in section 101.0215 of the Texas Civil Practice
and Remedies Code and held that the city's activities were proprietary functions. Sw. Concrete,
835 S.W.2d at 730-33; Abercrombie, 830 S.W.2d at 308-09. However, both of these cases
predate the Legislature's 1997 amendment to include section 101.0215(a)(34). See Tex. S.B.
1697 & H.B. 2766, 75th Leg., R.S. (1997).
In its analysis of the 1997 enabling legislation, House Bill 2766, the House Committee on Civil
Community development activities, even though inherently governmental, are not categorized in
the [Texas Torts Claims Act] as either governmental or proprietary. However, courts have found
them to be proprietary (i.e., discretionary), resulting in unlimited liability for the municipality.
Consequently, lawsuits against municipalities relating to community development activities
diminish the funds available for projects within the municipality. The designation of community
development activities as a governmental function should provide reasonable limits on
recoveries in this arena and avoid the potential of major losses which would reduce funding of
community development projects.
House Comm. On Civil Practices, Bill Analysis, Tex. H.B. 2766, 75th Leg., R.S. 1997. As we have
already stated, the Texas Constitution authorizes the legislature to reclassify a function's
classification assigned under prior statute or common law. Tooke, 197 S.W.3d at 343 (citing Tex.
Const. art. XI, § 13). The legislature's amendment of Civil Practice and Remedies Code section
101.0215(a) to include subsection (34) expresses its clear intent that Community Development
Activities under Chapter 373 or 374 of the Local Government Code be considered governmental
activities in the tort context, and we hold that the legislature's reasoning applies in the contract
context as well. See Tooke, 197 S.W.3d at 344; PKG Contracting, 197 S.W.3d at 388-89;
Temple, 189 S.W.3d at 821.
2. Compliance with Chapters 373 and 374
East Houston argues that, even if we hold that section 101.0215(a)(34) of the Civil Practice and
Remedies Code classifies Community Development Activities authorized by Chapters 373 or 374
of the Local Government Code as governmental for purposes of contract claims, the City is still
not immune from suit because it did not comply with the provisions of Chapter 373 or Chapter
Chapter 373 authorizes a municipality to adopt a community development program to aid in the
prevention or elimination of slums and blighted areas, including the rehabilitation of
privately-owned properties. Tex. Loc. Gov't Code Ann. §§ 373.004-373.005 (Vernon 2005); Tex.
Bay Cherry Hill, L.P. v. City of Fort Worth, 257 S.W.3d 379, 390 (Tex. App.--Fort Worth 2008, no
pet.). A municipality must conduct public hearings on the proposed community development
program before adopting the program by resolution or ordinance. Tex. Loc. Gov't Code Ann. §
373.006 (Vernon 2005); Tex. Bay Cherry Hill, 257 S.W.3d at 390.
Here, the loan agreement was made to provide funding to a private entity, East Houston, for the
purpose of rehabilitating an apartment complex to provide very low-income and low-income
housing, and it was approved and adopted by the Houston City Council in an ordinance at its
February 18, 1998 meeting. We conclude this is sufficient compliance for the City's activities to
qualify as Community Development Activities authorized by Chapter 373 for purposes of
determining immunity from suit. See Tex. Bay Cherry Hill, 257 S.W.3d at 390 ("The City held
public hearings on the Plan before adopting it by resolution. Thus, the Plan is a Community
Development Plan under Local Government Code chapter 373, and the City's adoption of the
Plan was the exercise of a governmental function under Civil Practice and Remedies Code
section 101.0215(a)(34) as well."); see also Chambers v. City of Austin, No. 03-00-00595-CV,
2001 WL 726372, at *4 (Tex. App.--Austin June 29, 2001, no pet.) (not designated for
publication) ("Questions that may or may not exist regarding the City's compliance with the
procedural requirements for adoption of the program, or the providing of financing, have no
bearing on the authorization of the program under Chapter 373. In deciding that the program is
authorized under chapter 373, we need not, and do not address the issue of the City's
adherence to the proper procedural route in the adoption and administration of the program.").
Therefore, the City's act in entering the Loan Agreement with East Houston was a governmental
act--not a proprietary one--and its immunity from suit is not waived on that basis.
C. Waiver of Immunity Under Local Government Code section 271.152
Alternatively, East Houston argues that Texas Local Government Code section 271.152 waives
the City's immunity from suit on the contract.
In the context of a claim for breach of contract, the legislature must have waived immunity from
suit as to the claim in question by clear and unambiguous language for immunity to be waived.
See Tex. Gov't Code Ann. § 311.034 (Vernon Supp. 2008) (providing that a statute shall not be
construed as a waiver of sovereign immunity unless the waiver is effected by clear and
unambiguous language); Tooke, 197 S.W.3d at 332-33 (requiring clear and unambiguous
language to waive governmental immunity).
Section 271.152 provides:
A local government entity that is authorized by statute or the constitution to enter into a contract
and that enters into a contract subject to this subchapter waives sovereign immunity to suit for
the purpose of adjudicating a claim for breach of the contract, subject to the terms and
conditions of this subchapter.
Tex. Loc. Gov't Code Ann. § 271.152 (Vernon 2005). A contract subject to section 271.152 is
defined as "a written contract stating the essential terms of the agreement for providing goods or
services to the local government entity that is properly executed on behalf of the local
government entity." (6) Tex. Loc. Gov't Code Ann. § 271.151(2) (Vernon 2005).
Our primary goal in interpreting a statute is to determine and effectuate the legislature's intent in
promulgating the statute. In re Canales, 52 S.W.3d 698, 702 (Tex. 2001). When a statute is clear
and unambiguous, we discern the legislature's intent by giving the words in the statute their plain
and common meaning and by giving effect to all of the statute's terms. Mueller v. Beamalloy, Inc.,
994 S.W.2d 855, 860 (Tex. App.--Houston [1st Dist.] 1999, no pet.) (citing Tex. Gov't Code Ann.
§ 311.021 (Vernon 2005)). In construing statutes as a whole, we consider all provisions of an act
and decline interpretations that produce absurd results or render terms meaningless. Id.
East Houston argues that its agreement with the City provided for East Houston to provide the
service of rehabilitating the apartment complex and providing very low-income and low-income
housing for City residents and for the City to release to it all of the funds allocated by the loan
agreement. The City argues that the agreement between itself and East Houston was a loan
agreement that does not require East Houston to provide anything that could be construed as a
service to the City.
East Houston argues that because the terms of the loan agreement and the restrictive covenants
restricted the amount of rent it could charge for a portion of its units for a period of years, it was
providing low-income housing as a service to the City. East Houston cites Ben Bolt-Palito Blanco
Consol. Indep. Sch. Dist. v. Tex. Political Subdivisions Prop./Cas. Joint Self-Insurance Fund, 212
S.W.3d 320 (Tex. 2006) and Clear Lake City Water Auth. v. Friendswood Dev. Co., 256 S.W.3d
735 (Tex. App.--Houston [14th Dist.] 2008, pet. dism'd) in support of its argument. In Ben Bolt,
the school district sued the joint self-insurance fund for a declaratory judgment on coverage for
property loss, and the fund claimed immunity from suit. Ben Bolt, 212 S.W.3d at 322-23. The
fund argued that its insurance contract with Ben Bolt was not a contract subject to section
271.152 because no goods or services were provided to the Fund. In finding that the fund's
immunity from suit was waived under section 271.152, the Ben Bolt court held:
It is true that Ben Bolt is a consumer of insurance that the Fund offers. But the relationship
between the Fund and its members differs from the ordinary consumer/seller relationship. As the
Fund has acknowledged, its members elect a governing board, and a board subcommittee
resolves claims disputes. To that extent, at least, the Fund's members provide services to the
Fund. Moreover, the statute's legislative history indicates that, by enacting section 271.152, the
Legislature intended to loosen the immunity bar so "that all local governmental entities that have
been given or are given the statutory authority to enter into contracts shall not be immune from
suits arising from those contracts." House Comm. on Civil Practices, Bill Analysis, Tex. H.B. 2039,
79th Leg., R.S. (2005) (emphasis added). There is no indication that the Legislature intended to
exclude self-insurance fund agreements from enforcement.
Ben Bolt, 212 S.W.3d at 327; see also Tex. Assoc. of Sch. Bds. Risk Mgmt. Fund v. Benavides
Ind. Sch. Dist., 221 S.W.3d 732, 738-39 (Tex. App.--San Antonio 2007, no pet.) (applying
reasoning from Ben Bolt to suit between school district and risk management fund and holding
that chapter 271 waived fund's immunity from suit for contractual claims brought by district).
In Clear Lake, Friendswood Development Company filed a breach of contract action against the
city water authority because the authority failed to place on the bond election ballot a proposal to
pay for facilities constructed by the development company under the terms of the contract. Clear
Lake, 256 S.W.3d at 739. The contract between the development company and the water
authority specifically provided that the development company was developing land within the
authority with the intention that the water authority would seek voter approval to pay for the
construction and acquisition of the facilities constructed. Id. at 747. The Clear Lake court
discussed the Texas Supreme Court's analysis in Ben Bolt and held:
If the school district's participation in the election of the fund's governing board was sufficient to
constitute the provision of services in the insurance contract in Ben Bolt, then we conclude that
Friendswood Development's agreement to hire third parties to construct the Facilities and to
build the streets, roads, and bridges is likewise sufficient to constitute the provision of services to
the Authority. Applying the Ben Bolt court's liberal construction of the applicable statute, we
conclude that the Agreement is a written contract stating the essential terms of the agreement for
providing services to the Authority for the construction of the Facilities as well as for the
construction of streets, roads, and bridges in the Subdivision. Therefore, the Authority's immunity
from suit for all claims for breach of the Agreement has been waived under section 271.152.
Clear Lake, 256 S.W.3d at 751 (internal citation omitted). We disagree that this case is
controlled by Ben Bolt and Clear Lake.
The Loan Agreement between East Houston and the City defined the rights and obligations of
the parties. The City thus agreed to disburse the federal funds to East Houston, subject to
certain terms and conditions, as part of an inter-creditor agreement for the financing of the
federal government community development program. Among the conditions was the
requirement that 51% of East Houston's apartment units be available to very low-income and
low-income families at the prescribed affordability rates. The federal loan was subject to an
inter-creditor agreement pursuant to which Chase Bank agreed to loan additional funds to East
Houston, and East Houston agreed to pay the money back. Both loans were secured by the
private property for whose development the funds were provided in a municipally directed
project. It is clear that, while the City would benefit in a general way from having East Houston's
apartment units refurbished and from the availability of more housing for low-income families,
nothing in the contract obligated East Houston to provide any municipal service directly to the
City. The central purpose of the agreement between the City and East Houston was to facilitate a
loan of money from the City's portion of federal funds and from private funds to a private entity
for the purpose of renovating East Houston's empty apartment building. The City was thus a
conduit of federal funds and a facilitator of the project, but no services were provided directly to
the City. This is clearly not the type of "service" envisioned by section 271.152.
The plain meaning of the statute supports the conclusion that section 271.152 does not apply to
contracts like the one at issue here, in which the benefit that the City would receive is an indirect,
attenuated one. Section 271.152 is clearly limited as to which contracts fall under the waiver of
immunity from suit. See Tex. Loc. Gov't Code Ann. § 271.151(2) (section 271.152 applies to "a
written contract stating the essential terms of the agreement for providing goods or services to
the local government entity that is properly executed on behalf of the local governmental entity").
If every contract that confers some attenuated benefit on a governmental entity constitutes a
contract for a "service," the limitation of contracts covered by section 271.152 to "contract for
goods or services provided to the entity" loses all meaning. Nothing in the statute nor in its
legislative history supports such an interpretation. Had the legislature intended to waive immunity
from liability for every contract participated in by the State, it could have done so. We must
interpret the limitation as having some meaning. See Mueller, 994 S.W.2d at 860.
Furthermore, the Ben Bolt court looked to the special relationship between the parties to
conclude that they provided mutual services to each other--Ben Bolt, a school district, provided
board members to the fund, another state governmental entity, while the fund provided
insurance coverage to Ben Bolt in exchange for premium payments. See Ben Bolt, 212 S.W.3d at
327. Likewise, the Clear Lake court followed the reasoning in Ben Bolt in determining that the
development company had provided a service for the water authority in constructing streets,
roads, and bridges. See Clear Lake, 256 S.W.3d at 751.
Here, the relationship between the parties is quite different. East Houston, a private citizen, and
the City entered into a Loan Agreement in which the City agreed to loan East Houston federal
community development funds received through the City's separate HOME Agreement with a
federal funding agency for rehabilitation of East Houston's privately owned apartment building.
The benefit of the funds received thus ran directly from the federal government and Chase Bank
to East Houston, not to the City, and East Houston never contracted to provide any service
directly to the City.
The underlying contract here is also of a different character than that of the contract in Ben Bolt.
In Ben Bolt, the governmental entity whose immunity from suit was waived was involved in the
proprietary function of providing insurance coverage. See Ben Bolt, 212 S.W.3d at 327; see also
Temple, 189 S.W.3d at 821 (holding that selling insurance is proprietary function for which there
is no immunity from suit for breach of contract claim); Gates, 704 S.W.2d at 738 (stating 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" and that city that contracts in its
proprietary role is "clothed with the same authority and subject to the same liabilities as a private
citizen"). Here, the City was involved in the governmental function of directing federal community
development funds and private funds into local community development projects to further
In Tooke, the Texas Supreme Court discussed the importance of the legislature's control over
waiver of immunity as a means of protecting state resources. See Tooke, 197 S.W.3d at 331-32
("The [principle of sovereign immunity] remains firmly established, and as it has come to be
applied to the various governmental entities in this State, an important purpose is pragmatic: to
shield the public from the costs and consequences of improvident actions of their
governments."). This consideration is even more significant in a situation like this, when the
distribution of federal and private funds, but not municipal funds, to a private entity is involved to
further public policy.
We conclude that the Loan Agreement that the City entered into with East Houston is not the
type of contract covered by section 271.152's waiver of immunity from suit, and the City's
immunity is not waived on that basis. (7) Therefore the trial court did not err in sustaining the
City's plea to the jurisdiction.
We overrule East Houston' sole point of error.
We affirm the order of the trial court.
Evelyn V. Keyes
Panel consists of Justices Keyes, Hanks, and Bland.
1. Two other parties were named as defendants in the proceedings below: Chase Bank of Texas,
N.A. and East Houston Apartments, L.L.C. However, neither of these parties was subject to the
order sustaining the City's plea to the jurisdiction and neither participates in this appeal.
2. See Tex. Loc. Gov't Code Ann. § 271.152 (Vernon 2005).
3. The City and East Houston also agreed to restrictive covenants that essentially mirrored the
terms of the Loan Agreement.
4. See Tex. Loc. Gov't Code Ann. §§ 373.001-373.006, 374.001-374.910 (Vernon 2005).
5. See Tex. Loc. Gov't Code Ann. § 271.152.
6. The statute does not define what constitutes a "service."
7. Because of our holding on this issue, we do not need to address the City's alternative
argument that East Houston did not plead proper damages.