law-waiver-of-local-governments-immunity-for-breach-of-contract-claim-by-statute | sovereign immunity
waived by statued |
waiver-by-conduct theory of governmental immunity waiver | waiver by counterclaim

A political subdivision does not waive immunity from suit when it enters into a contract except as provided by
section 271.152 of the local government code.[2] See Tex. Local Gov't Code Ann. § 271.152.

Section 271.152 waives immunity from suit to adjudicate a claim for breach of contract for a local
governmental entity authorized by statute or the constitution to enter into a contract. See id. A "local
government entity" is a political subdivision of the State, including a municipality. See id. § 271.151(3).
Accordingly, under section 271.152, political subdivisions that enter into contracts "subject to this subchapter
waive[ ] sovereign immunity to suit for the purpose of adjudicating a claim for breach of the contract." Id. §
271.152; see also Tooke, 197 S.W.3d at 344-45. Contracts subject to the waiver include only "written
contract[s] stating the essential terms of the agreement for providing goods or services to the local
governmental entity that [are] properly executed on behalf of the local government entity." Tex. Local Gov't
Code Ann. § 271.151(2). To the extent "sovereign immunity" was not waived before the effective date of the
2005 amendments to the statute, the waiver of "sovereign immunity" applies retroactively for sections
271.152-.154. See id. §§ 271.152-.154; McMahon Contracting, 197 S.W.3d at 387; Tooke, 192 S.W.3d at
344-45.

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.
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 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
governmental policy.

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.

Conclusion

We affirm the order of the trial court.

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  



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