City of Hous. v. Downstream Envtl., L. L.C.

• Decision Date: 12 June 2014
• Docket Number: No. 01–12–01091–CV.,01–12–01091–CV.
• Parties: The CITY OF HOUSTON, Appellant v. DOWNSTREAM ENVIRONMENTAL, L.L.C., Appellee.
• Court: Texas Court of Appeals

444 S.W.3d 24

The CITY OF HOUSTON, Appellant

v.DOWNSTREAM ENVIRONMENTAL, L.L.C., Appellee.

No. 01–12–01091–CV.

Court of Appeals of Texas, Houston (1st Dist.).

June 12, 2014.

Dissenting Opinion of Justice Keyes April 13, 2014.

Rehearing En Banc Overruled Aug. 14, 2014.

David M. Feldman, City Attorney, Lynette K. Fons, First Assistant City Attorney, Judith L. Ramsey, Chief General Litigation Section, Hope E. Hammill–Reh, Robert W. Higgason, Senior Assistant City Attorneys, Houston, TX, for Appellant.

Mary Wimbish, Michael M. Essmyer Sr., Essmyer & Daniel P.C., Houston, TX, for Appellee.

Panel consists of Justices KEYES, HIGLEY, and MASSENGALE.

OPINION ON REHEARING

MICHAEL MASSENGALE, Justice.

This is an interlocutory appeal from the trial court's order denying the City of Houston's plea to the jurisdiction. See Tex. Civ. Prac. & Rem.Code Ann. § 51.014(a)(8) (West Supp.2012). Downstream Environmental, L.L.C. sued the City for damages that allegedly arose when the discharge line between Downstream's liquid waste disposal facility and the City's sewer system was temporarily closed. The lawsuit also implicates rate increases and a billing dispute that occurred after the temporary closure of the discharge valve. In addition to seeking damages, Downstream seeks equitable and injunctive relief pursuant to its claims under the Texas Bill of Rights.

On April 13, 2014, we issued an original opinion in this case. On May 19, 2014, Downstream filed a motion for rehearing. We deny the motion for rehearing, but withdraw our opinion and judgment of April 13, 2014, and issue this opinion in its stead. The disposition remains unchanged: we reverse the trial court's order in part, and we hold that the City is immune from Downstream's claims for money damages arising from breach of contract, negligence, and alleged constitutional violations. We remand the case to the trial court to allow the remaining requests for injunctive relief based on constitutional claims to proceed.

Background

Downstream Environmental, LLC is a liquid waste disposal business that operates a nonhazardous waste treatment plant in west Houston. It operates in accordance with an industrial waste permit issued by the City of Houston Department of Public Works and Engineering. This permit allows Downstream to discharge into the City's sanitary sewer system liquid wastes that comply with limitations on the type and concentration of certain pollutants. These wastes are then processed at the City's Beltway wastewater treatment plant.

On the afternoon of May 25, 2010, a truck from G.I. Environmental Vacuum Service, a waste transportation company, entered Downstream's facility. After off-loading a few hundred gallons of waste, a Downstream employee noticed that it was darker than usual and had a foul odor, described as one of “rotting onions” or an “industrial type odor.” Approximately 1,000 to 2,000 gallons of nonconforming waste was off-loaded into Downstream's facility that day before employees rejected the remainder of the truck's contents. The next day, the same G.I. Environmental driver delivered a second load of non-conforming waste. Downstream accepted no more than 1,000 gallons of non-conforming waste before the truck and its contents were again rejected.

Meanwhile, on the evening of May 25, the City of Houston Health Department received complaints of an offensive odor near the Beltway wastewater treatment plant. The next morning, the City began investigating the source of the odor, and employees at the Beltway Wastewater Laboratory, which is located on the same site as the Beltway wastewater treatment plant, were told to vacate the building due to a pervasive and offensive odor. The then-unknown toxic substance in the City's sanitary sewer system killed all of the biological treatment microorganisms at the wastewater treatment plant. Without these microorganisms, the plant cannot function, and death of the microorganisms created an emergency situation for the City and required the sewer lines and lift stations to be decontaminated and the plant to be re-seeded.

On May 26, 2010, Dan Noyes, one of Downstream's owners, met with the City regarding the non-conforming waste. The City closed the discharge line between Downstream's facility and the City's sanitary sewer. The parties disagree about whether this action was undertaken voluntarily by Downstream to help identify a third party responsible for putting non-conforming waste into the sewer system by way of a manhole just outside Downstream's property or whether the City unilaterally plugged the discharge line in response to Downstream's acceptance of non-conforming waste. The City directed Downstream to conduct a hazardous materials sweep, which revealed no hazardous materials at its facility.

Nevertheless, the facility remained closed for 21 days while the City investigated. While Downstream was shut down, the City decided to permanently discontinue wastewater services to the facility. Downstream requested an administrative hearing as authorized by the Houston municipal code. SeeCode of Ordinances: City of Houston, Tex. § 47–208(a) (Supp.2013). The administrative judge ruled in favor of Downstream, and the City restored wastewater services the next day. By the time Downstream restarted its operations, waste had solidified in its equipment leading to what it characterized as “catastrophic” failures. Downstream conducted extensive cleaning and replacement of component parts; however, it lost some of its business to a competitor.

In September 2011, the City informed Downstream that it would begin using a new sample location, a manhole outside of Downstream's property, to determine compliance with pollutant discharge limitations. In October 2011, the City increased Downstream's per-gallon cost of discharging wastewater by approximately 700%, which Downstream contends effectively put it out of business. In April 2012 the City reduced that cost, however even the reduced rate was 300% higher than the cost to Downstream before October 2011. Downstream alleged that the City acted improperly by using faulty testing methods and a non-credentialed in-house laboratory. It requested retesting by a credentialed external laboratory, and the City refused.

Downstream then sued the City for various causes of action pertaining to the plugging of the discharge line in the spring of 2010, the increase in its wastewater rates, and the discharge-sampling decisions. In its third amended petition, Downstream alleged the following causes of action: (1) “due process” violations in wrongfully terminating wastewater services and in wrongfully increasing the rates; (2) “equal protection” violations in denying administrative hearings when requested and in failing to lower the charged rate upon proof from an external laboratory; (3) breach of contract; and (4) negligence.

Downstream generally pleaded for monetary damages for loss of sales revenue, costs of plant repairs and hazardous materials clean-up, loss of good will, loss of market share, loss of the market value of the company, attorneys' fees, pre-and post-judgment interest, and costs as allowed by law. With respect to its “due process” and “equal protection” claims,¹ Downstream also sought injunctive relief against future constitutional violations and the voiding of the City's “administrative actions regarding rate increases and frivolous violations.”

The City filed a plea to the jurisdiction based on governmental immunity. Downstream challenged the City's assertion of immunity primarily on the basis that the City was engaged in a proprietary—not governmental—function. Downstream also alleged that the City had waived governmental immunity by its actions in several respects. The trial court denied the jurisdictional plea in its entirety, and the City timely appealed.

Analysis

The City contends that the trial court erred by denying its plea to the jurisdiction because it is immune from suit for several reasons: (1) the operation of the sanitary sewer system is a governmental function; (2) injunctive relief and money damages are both unavailable on the “due process” claims; (3) the “equal protection” claim is facially invalid; (4) there is no allegation of a contract subject to the limited waiver of immunity under Local Government Code section 271; and (5) the City retains immunity from intentional tort claims even if pleaded as negligence. Downstream's response centers on its contention that the City engaged in a proprietary function by providing the industrial waste permits, and therefore it is simply not immune from suit. To this end, Downstream argues that the City was engaged in a proprietary function because it was functioning as a “public utility provider,” and the Tort Claims Act provides that the operation and maintenance of a public utility is a proprietary function. See Tex. Civ. Prac. & Rem.Code Ann. § 101.0215(b) (West Supp.2013).

I. Governmental immunity as jurisdictional bar

A plea to the jurisdiction based on governmental immunity questions a trial court's subject-matter jurisdiction. State v. Holland, 221 S.W.3d 639, 642 (Tex.2007) ; Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 225–26 (Tex.2004). We review de novo the trial court's ruling on a plea to the jurisdiction. City of Houston v. Rhule, 417 S.W.3d 440, 442 (Tex.2013) (per curiam). The plaintiff must allege facts that affirmatively establish the trial court's subject matter jurisdiction. Holland, 221 S.W.3d at 642. In determining whether the plaintiff has satisfied this burden, we construe the pleadings liberally in the plaintiff's favor and deny the plea if facts affirmatively demonstrating jurisdiction have been alleged. Miranda, 133 S.W.3d at 227 ; Smith v. Galveston Cnty., 326 S.W.3d 695, 697–98 (Tex.App.-Houston [1st Dist.] 2010, no pet.).

A plea to the jurisdiction may challenge the existence of jurisdictional facts. Miranda, 133 S.W.3d at 227. In some cases, the challenged jurisdictional facts are distinct from...