Engelman Irrigation Dist. v. Shields Bros., Inc.

• Citation: 514 S.W.3d 746
• Decision Date: 17 March 2017
• Docket Number: No. 15-0188,15-0188
• Parties: ENGELMAN IRRIGATION DISTRICT, Petitioner, v. SHIELDS BROTHERS, INC., Respondent
• Court: Supreme Court of Texas

514 S.W.3d 746

ENGELMAN IRRIGATION DISTRICT, Petitioner,

v.SHIELDS BROTHERS, INC., Respondent

No. 15-0188

Supreme Court of Texas.

Argued December 7, 2016

OPINION DELIVERED: March 17, 2017

Ramon G. Viada III, Viada & Strayer, The Woodlands, for Amici Curiae Texas Association of School Boards Legal Assistance Fund, Texas City Attorneys Association and Texas Municipal League.

Roger W. Hughes, Scott T. Clark, Adams & Graham, L.L.P., Harlingen, for Petitioner.

David E. Wood, Law Office of David E. Wood, McAllen, for Respondent.

Justice Willett delivered the opinion of the Court.

In this appeal, a governmental entity asks the Court to declare void a decades-old final money judgment on grounds that the law has changed regarding the entity's sovereign immunity.¹ The marquee issue, on the periphery in several of our recent immunity cases, is now squarely presented: Must courts equate sovereign immunity with a lack of subject-matter jurisdiction for all purposes? More specifically, does our decision in Tooke v. City of Mexia (that statutory "sue and be sued" language is insufficient to waive immunity)² apply narrowly only to judgments still being challenged on direct appeal or broadly to all prior judgments, thus permitting collateral attack of long-ago final judgments?

All things, even litigation, must come to an end.³ This quarter-century-old dispute has run its course.

Favoring finality over uncertainty, we affirm the judgment of the court of appeals.

I. Background

In 1992, Shields Brothers, Inc. sued the Engelman Irrigation District, a governmental entity, alleging Engelman had breached a contract to deliver water to Shields. Engelman contended the trial court lacked subject-matter jurisdiction because Engelman had governmental immunity. In response, Shields relied on Missouri Pacific Railroad Co. v. Brownsville Navigation District , where we held that statutes providing a governmental entity may "sue and be sued" effected a waiver of sovereign immunity.⁴ The 275th District Court of Hidalgo County denied Engelman's immunity defense, and the case proceeded to trial. The jury found damages for lost profits. In 1995, the trial court rendered judgment for Shields in the amount of $271,138.80, along with interest and attorney fees. Engelman appealed this judgment (the Engelman I judgment), and in 1997 the court of appeals affirmed.⁵ Addressing Engelman's sovereign-immunity defense, the court of appeals cited Missouri Pacific and held that a then-applicable Water Code provision stating that water districts may "sue and be sued"⁶ waived Engelman's immunity.⁷ We denied review of Engelman I in 1998,⁸ and the judgment became final.

But Engelman did not pay the Engelman I judgment.⁹ Beginning in 1999, Engelman sought authorization to file for bankruptcy under provisions of the Water Code. The authorization was denied by the Texas Commission on Environmental Quality and later by the 98th District Court of Travis County. In 2008, TCEQ's administrative decision was affirmed by the court of appeals in what we will call Engelman II .¹⁰ The Engelman I judgment remained unpaid.

In 2006, while Engelman II was on appeal, we decided Tooke v. City of Mexia ,¹¹ which overruled Missouri Pacific 's holding that "sue and be sued" language waived immunity.¹² The court of appeals in Engelman II expressly did not consider the effect of Tooke on the Engelman I judgment.¹³

In 2010, Engelman brought the pending suit, Engelman III , in the 93rd District Court of Hidalgo County. Engelman sought a declaratory judgment that the Engelman I judgment was void under Tooke . Shields filed a counterclaim asking the court to order Engelman's board of directors to levy, assess, and collect taxes to pay the Engelman I judgment. The trial court severed the counterclaim and rendered judgment denying Engelman's claim for declaratory relief. Engelman appealed this judgment, the Engelman III judgment. The court of appeals affirmed,¹⁴ concluding the Engelman I "judgment is not void and may not be attacked collaterally, notwithstanding the holding in Tooke ."¹⁵

Engelman now argues to us, in this appeal of the Engelman III judgment, that it is entitled to relief from the Engelman I judgment. Engelman contends that Tooke should be applied retroactively, and that under sovereign-immunity law as explicated in Tooke , Engelman was always immune from Shields's breach-of-contract claim. Engelman argues that its immunity deprived the trial court in Engelman I of subject-matter jurisdiction, thus voiding the Engelman I judgment.

II. Discussion

A. Retroactivity and Res Judicata

A judicial decision generally applies retroactively.¹⁶ This general rule applies to Tooke . The Court in Tooke expressly disagreed with the dissent's view in that case that the decision should only apply prospectively.¹⁷ We later retroactively applied Tooke to cases on appeal when Tooke issued, reversing judgments that had relied on the law prevailing prior to our decision.¹⁸

But retroactive application of a judicial decision does not generally extend to allow reopening a final judgment where all direct appeals have been exhausted.¹⁹ For example, in Sanchez v. Schindler , we held a parent could recover mental-anguish damages under the Wrongful Death Statute, overruling caselaw to the contrary.²⁰ We held our decision would apply retroactively, but only to cases "still in the judicial process," such as cases "tried and on appeal" on the date of our decision.²¹ We did not suggest that our decision could be applied retroactively to allow collateral attack on a final judgment. Similarly, in Segrest v. Segrest , a former husband sought a declaration that his final 1974 divorce decree dividing his military retirement benefits was unenforceable, after the United States Supreme Court held in 1981 that such benefits were not divisible as community property in state court. We held that principles of res judicata precluded the collateral attack on the final decree:²² "That the judgment may have been wrong or premised on a legal principle subsequently overruled does not affect application of res judicata."²³

There is nothing novel to Texas law in this regard. It is consistent with American law generally.²⁴ The United States Supreme Court has likewise held that a judicial decision does not apply retroactively to cases that have already proceeded to a final judgment. The Court has applied this rule to civil cases and to criminal habeas corpus actions, even where the change in the law is of constitutional significance.²⁵ It has recognized as a general rule that its decisions apply retroactively, but only to "cases still open on direct review."²⁶ "Of course, retroactivity must be limited by the need for finality; once suit is barred by res judicata or by statutes of limitation or repose, a new rule cannot reopen the door already closed."²⁷

The reason for not allowing collateral attack on a final judgment is that such an attack would run squarely against principles of res judicata that are essential to a rational and functioning judicial system. "Res judicata bars the relitigation of claims that have been finally adjudicated or that could have been litigated in the prior action."²⁸ The policies behind res judicata "reflect the need to bring litigation to an end, prevent vexatious litigation, maintain stability of court decisions, promote judicial economy, and prevent double recovery."²⁹ For any rational and workable judicial system, at some point litigation must come to an end, so that parties can go on with their lives and the system can move on to other disputes. We have recognized the "fundamental rule that it is the purpose of the law to put an end to litigation and expedite the administration of justice."³⁰ Or, as we stated in Permian Oil Co. v. Smith ,

The principle of res adjudicata is founded in public policy and is as old as English jurisprudence. Fundamentally its purpose is to expedite justice by putting an end to litigation; and to preserve the sanctity of the judgments of the courts by making them immune to collateral attack. Once a court has exercised its functions of decision on an issue over which it has jurisdiction, and that decision becomes final, the parties thereto and their privies cannot escape its binding effect. Lacking this anchorage of finality a judicial system would be little more than a rule of fiat.... It must be borne in mind that the purpose of the law remains constant to prevent the failure of justice as a result of permitting the retrial between the same parties or their privies of a cause of action or of an issue which has been finally disposed of.³¹

Ordinarily, therefore, a final judgment is the end point of litigation.

B. Subject-Matter Jurisdiction and Sovereign Immunity

However, an element of res judicata is "a prior final judgment on the merits by a court of competent jurisdiction."³² Under Texas law, res judicata does not apply when the first tribunal lacked subject-matter jurisdiction.³³ A judgment rendered without subject-matter jurisdiction is void and subject to collateral attack.³⁴

Which leads us to the crux of this case. Engelman argues that its immunity from suit deprived the Engelman I trial court of subject-matter jurisdiction. Hence, the judgment in Engelman I is void and subject to collateral attack in the pending suit, Engelman III. We disagree.

It is true we have stated that sovereign immunity is a jurisdictional bar. For example, we stated in a frequently cited decision, Texas Department of Parks and Wildlife v. Miranda , "In Texas, sovereign immunity deprives a trial court of subject matter jurisdiction for lawsuits in which the state or certain governmental units have been sued unless the state consents to suit."³⁵ But more recently, we have been more guarded in our description of the interplay of jurisdiction and sovereign immunity in three decisions: Houston Belt & Terminal Railway Co. v. City of Houston ;³⁶ Manbeck v. Austin Independent School District ;³⁷ and Rusk State...