City of Ames v. City of Liberty

Decision Date23 February 2023
Docket Number09-22-00092-CV
PartiesCITY OF AMES, TEXAS, Appellant v. CITY OF LIBERTY, TEXAS, Appellee
CourtTexas Court of Appeals

Submitted on October 11, 2022

Before Golemon, C.J., Johnson and Wright, JJ.



In this interlocutory accelerated appeal, Appellant the City of Ames appeals the trial court's denial of its plea to the jurisdiction based on governmental immunity. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8); (permitting interlocutory appeals from rulings on a governmental unit's plea to the jurisdiction); Tex. Loc Gov't Code Ann. §§ 271.151-160 ("Chapter 271, Subchapter I" setting forth the requirements for the adjudication of claims arising under written contracts with local governmental entities). Because the contract at issue is covered by Chapter 271 and governmental immunity for this matter has been waived as provided therein, we affirm.

Procedural History
Original Petition

On June 26, 2018, the City of Liberty ("Liberty" or "Appellee") as Plaintiff filed its Original Petition against Defendants City of Ames ("Appellant" or "Ames") and City of Hardin ("Hardin") (collectively "Defendants").[1] The petition alleged that Liberty owns and operates a wastewater collection system and treatment plant, that Liberty receives wastewater from its own collection system and it receives wastewater from Hardin and Ames, and that Liberty had separate wastewater disposal contracts with Hardin and Ames. The Liberty-Hardin contract was executed December 9, 2003, and the Liberty-Ames contract (the "Contract") was dated March 14, 2001.

According to Liberty, the contracts require Defendants to operate their respective wastewater collection systems in a way that complies with Liberty's plumbing code, ordinances, and standards, and the contracts also require the cities to prevent "Seepage and Infiltration" into the collection systems that flow to the Liberty wastewater treatment plant because the plant has finite capacity. Liberty alleged that Defendants had violated the contracts, which resulted in Liberty facing Texas Commission on Environmental Quality ("TCEQ") enforcement and that Defendants' "ongoing breaches" of the contracts subject Liberty to additional regulatory enforcement.

The Petition states that the contracts require Defendants to pay Service Charges for wastewater volumes that exceed Total Acceptable Volumes, and the contracts state each city's daily and monthly Total Acceptable Volume. Liberty alleged that Ames and Hardin had not paid Service Charges owed to Liberty, despite Liberty having sent demand letters. Liberty alleged that each contract was "a written contract for the provision of goods and services" for which the Legislature had waived immunity for the claims asserted, and it asserted a claim for breach of contract against Defendants. Liberty also sought costs and attorney's fees.

Ames's Plea to the Jurisdiction

Ames filed an Answer and Second Amended Answer asserting a general denial and various affirmative defenses and filed a Plea to the Jurisdiction. At the trial court and on appeal, Ames contends that Liberty failed to plead a valid waiver of governmental immunity and that immunity has not been waived for several reasons.

First Ames argues that section 271.152 of the Texas Local Government Code applies to contract disputes between governmental entities and private parties, and not to a dispute between governmental entities. Ames relies upon a quote from a Texas Supreme Court case wherein the Court stated that Subchapter I of Chapter 271 "is a framework for resolving contract disputes between governmental entities and private parties." San Antonio River Auth. v. Austin Bridge & Rd., L.P., 601 S.W.3d 616, 623 (Tex. 2020) (hereinafter "Austin Bridge"). Ames argues that Subchapter I is not a framework for resolving disputes among cities relating to a contract between those cities.

Next, Ames contends the contract does not meet the requirements of the statute because the Contract is not a contract "for goods and services" under Chapter 271 but rather one for the performance of a governmental function governed by the Interlocal Cooperation Act under Chapter 791 of the Government Code. See Tex. Gov't Code Ann. §§ 791.001-.037. According to Ames, the Interlocal Cooperation Act distinguishes between contracts to purchase goods and services and contracts to provide governmental functions. Ames contends that it specifies that an agreement for the provision of a governmental function must specify that payments shall be made from current revenues. See id. §§ 791.011(d)(3), 791.025, 791.026. In contrast, when the contract is for goods and services, it does not have to specify that payments must be made from current revenues. According to Ames, this Contract specifies that payments must be made from current revenues, and therefore it is one for the performance of a governmental function and not one for goods and services.

Ames also argues that Liberty failed to establish that the Contract was properly executed, as required by section 271.151. See Tex. Loc. Gov't Code Ann. § 271.151(2)(A).[2] Ames emphasizes that Liberty failed to establish that the Contract was properly executed-that Liberty provided "no city council resolutions or other documents indicating that the mayors of both cities had the necessary authority to properly execute the purported contract." Therefore, according to Ames, Liberty failed to overcome the "heavy presumption" that a plaintiff's claims against a governmental immunity are barred.

Finally, Ames argues that the damages sought are not recoverable under Chapter 271. Ames contends the damages Liberty seeks for TCEQ-related expenses are consequential damages that are not recoverable under section 271.153(b)(1).[3]According to Ames, Liberty's interpretation of the Contract "attempts to illegally penalize Defendant by charging [] (in some invoices) seven times the normal rate charged by the Plaintiff for wastewater[,]" which constitutes an illegal penalty not recoverable under section 271.153(a)(1).

Liberty's Notice of Non-Suit Without Prejudice and Its Second Amended Petition

Liberty filed a non-suit without prejudice, non-suiting its claims for:

. . . consequential damages are damages tied to the Agreed Order in TCEQ Docket No. 2015-1549-MWD-E and the Agreed Order in TCEQ Docket No. 2018-1495-MWD-E, as specifically referenced in Plaintiff's First Amended Petition at Paragraph 9 (costs of regulatory enforcement), and in portions of Paragraph 11 (only with respect to wastewater treatment plant operating costs).

Liberty filed a Second Amended Petition, which omitted the allegations about the TCEQ enforcement costs Liberty incurred due to Defendants' alleged breach of contract. Liberty's amended petition also pleaded that immunity had been waived under section 271.152 of the Texas Local Government Code. The Second Amended Petition was the live pleading at the time of the hearing on the plea to the jurisdiction.

Liberty's Response to Defendants' Pleas to the Jurisdiction and Argument on Appeal

In its response to the plea to the jurisdiction and on appeal Liberty argues that the Defendants' arguments are based on two fictions: (1) that the Legislature only waived immunity for situations where a private entity sues a public entity and not when a lawsuit is between two local governmental entities and (2) that a contract for goods and services under section 271.151 of the Texas Local Government Code does not apply to an interlocal agreement under Chapter 791 of the Texas Government Code. According to Liberty, section 271.152 does not exclude contracts between governmental entities or limit the waiver of immunity to lawsuits where a private entity sues a local governmental entity. Liberty contends that Defendant's plea to the jurisdiction relies on dicta in Austin Bridge that did not "in any way shrink the scope of the Legislature's immunity waiver for breach of contract claims against local government entities." Liberty cites cases where the Chapter 271 immunity waiver has been applied to breach of contract cases between local governmental entities.[4] And Liberty also argues that, to determine whether Chapter 271 applies, the test is whether the entity allegedly in breach of contract is a governmental entity and not whether the party claiming breach is a governmental entity.[5] In addition, Liberty argues that the Texas Supreme Court has explained that whether a contract is an interlocal agreement under Chapter 791 has no bearing on whether governmental immunity has been waived under Chapter 271.[6] Liberty further explained "there is no statutory language or case law that carves out or renders inapplicable the Chapter 271 waiver for goods/services contracts if said contract also happens to serve as an interlocal agreement."

According to Liberty, there is "no question that Liberty provides services to Defendants pursuant to the Contracts,[] as it collects and treats wastewater flows from Ames and Hardin[,]" and the contracts at issue are "agreements between governmental entities by which Liberty provides wastewater collection and treatment services to Defendants in exchange for payments, including volumetric adjustments[.]"

Finally Liberty argues that the rates charged for volumes greater than the Total Acceptable Volumes ("TAV")-the thresholds of wastewater discharge specified by the contracts-are not consequential damages "because the volumetric rates are agreed-upon amounts due and owed under the Contracts[.]" Rather, Liberty argues that the TAV charges are "a classic volumetric...

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