law-proprietary-functions-of-local-government | governmental immunity | government entities | immunity
waivers | waiver of governmental immunity by conduct | statutory waivers of sovereign immunity

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.

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 applicable)(trial court did not err in sustaining the City's
plea to the jurisdiction)
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  
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 citizen")).

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 East Houston.

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 Practice
stated:

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.
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 applicable)(trial court did not err in sustaining the City's
plea to the jurisdiction)
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