Fort Worth ISD v. City of Fort Worth

• Decision Date: 24 August 2000
• Docket Number: No. 98-1138,98-1138
• Citation: 22 S.W.3d 831
• Parties: (Tex. 2000) Fort Worth Independent School District, Petitioner v. City of Fort Worth and Southwestern Bell Telephone Company, Respondents
• Court: Texas Supreme Court

Page 831

22 S.W.3d 831 (Tex. 2000)

Fort Worth Independent School District, Petitioner v. City of Fort Worth and Southwestern Bell Telephone Company, Respondents

No. 98-1138

IN THE SUPREME COURT OF TEXAS

Argued November 3, 1999

Decided May 11, 2000

Rehearing Overruled August 24, 2000.

On Petition for Review from the Court of Appeals for the Second District of Texas

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Justice Hecht delivered the opinion of the Court.

From 1937 to 1992, a Fort Worth city ordinance required Southwestern Bell Telephone Co. to pay the City, "in lieu of" all charges, fees, and taxes owed for its location of poles, wires, and other facilities on city property, a percentage of its gross receipts from the rendition of local service. A separate ordinance provided that the City would apportion Bell's payments between itself and the Fort Worth Independent School District. The School District sued the City and Bell for breach of their obligations under these ordinances and for the City's breach of a separate agreement to continue the same arrangement after 1992. The district court granted summary judgment for the City and Bell, and the court of appeals affirmed.¹ The principal issue before us is whether the city ordinances and the related, contemporaneously executed documents constituted a valid agreement enforceable by the School District against the City and Bell. We hold that the City and Bell have failed to establish conclusively:

* that no agreement existed whereby the City waived immunity from liability;

* that the City's obligations to the School District lacked consideration; or

* that the parties' arrangement violated:

* the prohibitions in the City's charter against obligations for future expenditures without adequate reserves, and franchises for more than 25 years;

* the prohibitions in article I, sections 17 and 26 of the Texas Constitution against irrevocable and perpetual grants;

* the provisions of article III, sections 51 and 52 of the Texas Constitution that prohibit a city from granting public money to any other entity;

* the requirements of article VIII, section 1(a) and (b) of the Texas Constitution that taxes be equal and uniform, and that property be taxed in proportion to its value; or

* the requirement of article VIII, section 18(b) of the Texas Constitution that after January 1, 1982, all property in a county have a single appraisal.

We also hold, however, that the City has established as a matter of law that it had no obligation to continue its arrangement with the School District after 1992. Accordingly, we affirm the court of appeals' judgment in part, reverse it in part, and remand the case to the district court for further proceedings.

I

The City of Fort Worth and the Fort Worth Independent School District are each empowered to tax real property located within their respective borders.² The City may also impose fees and charges for its services.³ When the School District was first created in 1925, its territorial limits were substantially the same as the City's,⁴ and its taxes were assessed and collected by the City's tax assessor-collector, who paid them over to the board of education.⁵

In 1927, the City claimed that the right it had previously given Southwestern Bell Telephone Co. to use public streets, alleys, and rights-of-way to place poles and run wires for its telephone system was an easement, and for the first time the City assessed an ad valorem tax on that right. The next year, Bell sued the City and the School District in federal court, claiming that the tax was unlawful. After eight years of bitterly contested litigation, the United States Court of Appeals for the Fifth Circuit held in 1936 that Bell's right to use public property was a taxable property interest.⁶

As hard as it had been for the City and School District to establish their legal right to tax Bell's easement, the practical problems of appraising that unique property interest posed an even more difficult challenge. The Fifth Circuit had warned that Bell's interest could not be "valued on any strained or artificial basis."⁷ After the court's decision issued, Bell's lawyer wrote to the City Council that "it will be difficult to formulate a basis of valuation that will not give rise to recurring controversies each year" and that he hoped "some equitable basis might be found to settle the tax question between the city, the school district, and the telephone company amicably and thus terminate the litigation that has been in progress for several years." Bell's lawyer proposed:

We, therefore, have sought to find some other basis that will be fair to both parties, that will yield to the city and school district an equivalent of what might be reasonably expected on an ad valorem basis and avoid future controversies that might otherwise arise. It occurred to us that the gross exchange revenues of the Ft. Worth exchange could be used as a basis for such computation, applying thereto a percentage that will yield to the city and school district as much revenue as might otherwise be obtained. The gross revenue for 1935 was slightly in excess of a million five hundred thousand dollars. One and one-half percent of such gross revenue would be $22,500. If business improves and the revenue of the Ft. Worth office increases the payment to the city and school district will like wise be increased. Such a basis of calculation will automatically determine the payments to the city and school district and will prevent future controversies as to property values, etc.

* * *

Of course our final agreement to the outlined arrangement would depend on our ability with the legal department of the city, to work out agreements legal and valid in all particulars and an agreement that in all respects meets with the approval of the City Manager and the City Council.

By the end of the year, the parties had negotiated a settlement. On December 23, 1936, the City passed Ordinance No. 1933, which provided in pertinent part:

That from and after the effective date of this ordinance the Telephone Company shall pay to the City of Fort Worth an annual inspection fee and service charge in an amount equal to two per cent (2%) of the gross receipts for the preceding year received by the Telephone Company from the rendition of local exchange telephone transmission service within the corporate limits of the City. Said amount of two per cent (2%) of the gross receipts shall constitute compensation to the City for the expense incurred and services rendered by the City in exercising its police power of regulation and supervision over the construction and location of the Telephone Company's poles, wires, conduits, equipment and other facilities in the streets, alleys, highways and public grounds of the City . . . .

* * *

During the continuance of this agreement and so long as the Telephone Company shall pay to the City the percentage of its gross receipts aforesaid, the City agrees that said payment shall be received by it in lieu of any tax, license, charge, fee, street or alley rental, or other character of charge, heretofore or hereafter levied, for use and occupancy of streets, alleys, and public places of the City; in lieu of any pole tax or charge or permit fee, in lieu of any easement or franchise tax, whether levied as an ad valorem, special, or other character of tax; and in lieu of any imposition other than the usual general or special ad valorem taxes now or hereafter levied. Should the City not have the legal power to agree that the payment of the percentage of gross receipt herein provided for shall be in lieu of the taxes, licenses, charges, fees, rentals, and easement or franchise taxes aforesaid, then the City agrees that it will apply so much of said payment of percentage of gross receipts, up to the amount of one and one-half percent (1½%), as may be necessary to the satisfaction of the Telephone Company's obligations, if any, to pay such taxes, licenses, charges, fees, rentals, and easement or franchise taxes.

Bell filed with the City Secretary a formal, written acceptance of Ordinance No. 1933.

One week later, on December 30, 1936, the City passed Ordinance No. 1935, which stated in part:

WHEREAS, in the settlement of the controversy existing between the Southwestern Bell Telephone Company, the City of Fort Worth and the Fort Worth Independent School District with reference to the levy and collection of taxes on easements used, owned and enjoyed by said company in, over and along certain streets, alleys and public ways in said City, it is provided in Ordinance No. 1933, passed and adopted by the City Council on Wednesday, the 23rd of December, 1936, that said company shall pay annually to the City of Fort Worth two per cent (2%) of the gross receipts from the rendition of local exchange telephone transmission service within the corporate limits of the said City of Fort Worth; and,

WHEREAS, it is necessary to make a proper apportionment of said taxes between the City of Fort Worth and the Fort Worth Independent School District, NOW, THEREFORE,

BE IT ORDAINED BY THIS CITY COUNCIL OF THE CITY OF FORT WORTH, TEXAS:

SECTION 1.

That all of the funds realized from the payment of the gross receipts taxes provided for in Ordinance No. 1933 . . . be and the same are hereby accepted as in said Ordinance No. 1933 provided, and the Commissioner of accounts and other proper officers are hereby authorized, ordered and directed to apportion said funds between the City of Fort Worth and the Fort Worth Independent School District on the same basis that all funds received as ad valorem taxes on all real, personal and mixed property in said city, and not exempt from taxation, are apportioned for the same year.

The following day the School District's Board of Education adopted a resolution that provided in pertinent part the following:

WHEREAS, a controversy exists between [the Telephone Company...