City of Alton v. Sharyland Water Supply

• Decision Date: 05 February 2009
• Docket Number: No. 13-06-00038-CV.,13-06-00038-CV.
• Citation: 277 S.W.3d 132
• Parties: CITY OF ALTON, Carter & Burgess, Inc., Turner, Collie & Braden, Inc., and Cris Equipment Company, Inc., Appellants, v. SHARYLAND WATER SUPPLY CORPORATION, Appellee.
• Court: Texas Court of Appeals

277 S.W.3d 132

CITY OF ALTON, Carter & Burgess, Inc., Turner, Collie & Braden, Inc., and Cris Equipment Company, Inc., Appellants, v. SHARYLAND WATER SUPPLY CORPORATION, Appellee.

No. 13-06-00038-CV.

Court of Appeals of Texas, Corpus Christi-Edinburg.

February 5, 2009.

Christopher A. Funk, Walker & Twenhafel, Marcus Montalvo, Montalvo & Ramirez, McAllen, Eileen M. Leeds, Willette & Guerra, Brownsville, Stephen L. Tatum, Cantey, Hanger, LLP, Fort Worth, John B. Wallace, Barker & Lyman, P.C., Houston, TX, for appellants.

J. W. Dyer, Dyer & Associates, McAllen, TX, for appellee.

Before Justices YAÑEZ, RODRIGUEZ, and GARZA.

OPINION ON REHEARING

Opinion on Rehearing by Justice RODRIGUEZ.

After considering the motion for rehearing and request for en banc consideration filed by appellee/cross-appellant, Sharyland Water Supply Corporation (Sharyland), and the amended motion for rehearing filed by appellant/cross-appellee, the City of Alton (Alton), we deny the motions. However, we withdraw our opinion and judgment of November 25, 2008, and substitute the following to make nondispositive clarifications.

This case arises from the installation of a sanitary sewer system. By four issues, Alton contends the following: (1) it is immune from suit;¹ (2) in the alternative the trial court should not have submitted breach of contract issues; (3) there were no compensable damages and there was no evidence of damages caused by Alton; and (4) Sharyland cannot recover attorney's fees against Alton. Appellants, Carter and Burgess, Inc. (C & B), Turner, Collie & Braden, Inc. (TCB), and Cris Equipment Company, Inc. (Cris), challenge, among other things, the status of Sharyland as a third-party beneficiary to their respective contracts with Alton. They also contend that the trial court erred in submitting a negligence question because that claim is barred by the economic loss rule. Furthermore, C & B, TCB, and Cris complain of the trial court's imposition of joint liability and attorney's fees against all defendants. Finally, cross-appellant, Sharyland, asserts that the trial court erred in refusing to grant equitable relief in lieu of the monetary damages awarded by the jury. We affirm in part, reverse and render in part, and reverse and remand in part, as to appellant Alton; we reverse and render as to appellants C & B, TCB, and Cris; and we affirm as to cross-appellant Sharyland.

I. Factual Background

In the early 1980s, Alton, a Class A municipality located in Hidalgo County, Texas, installed a water distribution system to provide potable water to its residents.² Beginning in 1981, Alton and Sharyland entered into numerous water service agreements (collectively referred to as the Water Service Agreement). By the Water Service Agreement, Sharyland agreed to sell and deliver water and/or sewer service to Alton, and Alton agreed to purchase and receive water and/or sewer service from Sharyland. In order to obtain water for its new system, Alton entered into a Water Supply Agreement with Sharyland, a non-profit rural water supply corporation, on August 12, 1982. Under the 1982 agreement, Alton conveyed its new water distribution system to Sharyland, and Sharyland agreed to provide Alton with water.

During the 1990's, the citizens of Alton relied on septic systems and outhouses for sewage disposal. In 1994, Alton obtained development grants for the installation of a sanitary sewer system. Part of the septic system was built in the public right-of-way and another part connected the septic system from the public right-of-way to individual houses. For the public right-of-way phase, Alton entered into contracts with L.L. Rodriguez and Associates to design a sanitary sewer system; C & B to manage the project; and TCB to provide inspection services for the construction phase. Alton also contracted with Cris for installation of the sewer main and the residential service connections within the public right-of-way. Cris subcontracted with Grab Pipeline Services, Inc., to assist in the installation.³ The construction of the sewer system was completed in 1999.

Alton's sewer system consists of main sewer lines, residential service connections and yard lines. The residential service connections join perpendicular to the main sewer line and run horizontally from the main sewer line to the residential property line where they connect with the yard line. The yard line runs from the property line to the individual home to complete each residential connection. In certain locations, Alton's sewer main and Sharyland's water main run parallel to each other in a public right-of-way, resulting in some of Alton's residential service connections crossing Sharyland's water main in order to connect to the yard lines. The residential service connections are the only portions of Alton's sewer system at issue in this case.⁴

II. Procedural Background

A. Pleadings

On March 3, 2000, Sharyland sued Alton for breach of the Water Supply Agreement and the Water Service Agreement.⁵ Sharyland also sued C & B, TCB, and Cris, all engineering firms, for negligence and breach of contract. In addition, Sharyland asked the trial court to enjoin Alton from operating sewer lines across Sharyland's waterlines in a wrongful manner and to compel Alton to reconstruct the sewer lines in a manner consistent with the parties' agreements, state law, and proper engineering practice.

Sharyland alleged that the sanitary sewer residential service connections were installed in violation of state regulations and industry standards and represented a threat to Sharyland's potable water system. Sharyland sought a declaration of the parties' rights and obligations under section 317.13 of the Texas Commission on Environmental Quality Design Criteria for Sewerage Systems (the Commission) as it related to the construction of the sewer system in proximity to its waterlines.⁶ See 30 TEX. ADMIN. CODE § 317.13(1)(B) (2008) (33 TEX. REG. 2126, 2234, adopted 33 TEX.REG. 6928 (2008) (codified at 30 Tex. Admin. Code. Ann. §§ 217.1-.33)).

Alton counterclaimed, asking the trial court to declare its August 12, 1982 Water Supply Agreement with Sharyland null and void. In response, Sharyland asserted that Alton's counterclaim was preempted and/or barred by, among other things, the provisions of section 1926(b) of title 7 of the United States Code, which limits a government's authority to curtail the service provided by a utility during the term of repayment of a federal loan. See 7 U.S.C.A. § 1926(b) (1999).⁷

B. Motions for Summary Judgment

Sharyland filed two motions for summary judgment. In its motion for partial summary judgment Sharyland asked the trial court to grant its request for declaratory judgment relief and declare that section 317.13 applied to all sewers located in proximity with waterlines in this case. See 30 TEX. ADMIN.CODE ANN. § 317.13(1)(B). In its motion for summary judgment, Sharyland urged that section 1926(b) barred Alton's counterclaim. See 7 U.S.C.A. § 1926(b). The trial court granted Sharyland's motion for partial summary judgment on its declaratory judgment claim finding that section 317.13 "applies to the situation presented in this case" and that "[t]he term `sewer' in the context of ... [c]hapter 317 refers to `a conduit which carries off water or waste matter' and includes sanitary sewer residential service connections." See 30 TEX. ADMIN. CODE § 317.13. The trial court also granted Sharyland's motion for summary judgment, concluding that section 1926(b) barred Alton's counterclaim and ordering that Alton take nothing by its counterclaim against Sharyland. See 7 U.S.C. § 1926(b).

C. Jury Trial

Sharyland's breach of contract claim against Alton and its breach of contract and negligence claims against C & B, TCB, and Cris were tried to a jury. The jury found that Alton breached its Water Supply Agreement with Sharyland by failing to maintain required separation distance between sewer lines and that it breached the Water Service Agreement by failing to comply with Sharyland's rules and regulations.⁸ The jury also found that C & B, TCB, and Cris each breached their respective contracts with Alton and that Sharyland was a third-party beneficiary of those contracts. Finally, the jury found that: (1) C & B, TCB, and Chris were negligent; (2) such negligence was the proximate cause of damages to Sharyland; and (3) liability should be apportioned jointly and severally, at 20% for C & B, 40% for TCB, and 40% for Cris. The jury assessed damages at $1,139,000 and awarded Sharyland attorney's fees in the amount of $510,221.68 through trial, with additional awards of $125,000 should appeals be filed in the court of appeals and the Texas Supreme Court.

D. Post-Trial Hearings and Entry of Judgment

The trial court conducted post-trial hearings. After hearing arguments of counsel and receiving evidence regarding equitable relief and attorney's fees, the trial court entered final judgment awarding Sharyland monetary damages and attorney's fees against Alton, C & B, TCB, and Cris, but denying Sharyland's claims for injunctive relief and specific performance. All motions for new trial were heard and overruled. All parties appealed from the judgment.

III. Sharyland's Breach of Contract Claim Against Alton

A. Governmental Immunity

By its first issue, Alton contends that the court has no jurisdiction over Sharyland's breach of contract claims because it has not waived its governmental immunity. In response, Sharyland argues Alton's immunity has been waived by an equitable waiver of immunity, by Alton's counterclaim asking the court to declare the contracts between Sharyland and Alton void, and by sections 271.151-.160 of the Texas Local Government Code. See TEX. LOCAL GOV'T CODE ANN. §§ 271.151-.160 (Vernon 2005).

1. Standard of Review and Applicable Law

Governmental immunity deprives a trial court of subject-matter jurisdiction for lawsuits in which certain governmental units...