Kirby Lake Dev. v. Clear Lake City Water Auth.

• Decision Date: 27 August 2010
• Docket Number: No. 08-1003.,08-1003.
• Citation: 320 S.W.3d 829
• Parties: KIRBY LAKE DEVELOPMENT, LTD., Miter Development Co., L.L.C., Taylor Lake, Ltd., and Friendswood Development Co., Ltd., Petitioners,v.CLEAR LAKE CITY WATER AUTHORITY, Respondent.
• Court: Texas Supreme Court

320 S.W.3d 829

KIRBY LAKE DEVELOPMENT, LTD., Miter Development Co., L.L.C., Taylor Lake, Ltd., and Friendswood Development Co., Ltd., Petitioners,v.CLEAR LAKE CITY WATER AUTHORITY, Respondent.

No. 08-1003.

Supreme Court of Texas.

Argued Jan. 19, 2010.

Decided Aug. 27, 2010.

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Lawrence J. Fossi, Karen B. Jewell, Fossi & Jewell, LLP, Houston, TX, for petitioners.

Ramon G. Viada III, Viada & Strayer, The Woodlands, TX, Barry Abrams, Abrams, Scott & Bickley, LLP, William E. Schweinle Jr., Schweinle, Parish & Lowerre, P.C., Houston, TX, for respondent.

Murry B. Cohen, Akin Gump Strauss Hauer & Feld LLP, Houston, TX, Laura F. Hill, Texas Municipal League, Austin, TX, for amicus curiae.

Chief Justice JEFFERSON delivered the opinion of the Court, in which Justice HECHT, Justice WAINWRIGHT, Justice MEDINA, Justice GREEN, Justice JOHNSON, and Justice LEHRMANN joined, and in which Justice WILLETT joined as to all parts except footnote 7.

Water lies beneath the surface of today's case, yet our holding is based on a rule of grammar, not capture. The Water Authority must seek voter approval, “in any bond election” it conducts, to sell bonds so that developers-who fronted the cost of the city's water and sewer lines-can be reimbursed. Does “any” bond election mean “every” bond election? Or has the Authority satisfied its obligation by approving the reimbursement proposal in at least one election, even if voters reject the measure? We hold that, in the context of these Agreements, “any” means “every.” Our answer to that question, however, matters little unless the Authority is amenable to suit. We hold that it is. When a Water Authority enters into a contract like the one here, it may be sued for failing to fulfill the contract's terms. See Tex. Loc. Gov't CodeE § 271.152. The Authority's refusal to include a reimbursement measure in every bond election constituted a breach of its contracts with the Developers. Because the Legislature has waived the Authority's immunity from suit for that breach, we reverse in part the court of appeals' judgment and remand the case to that court to consider the Authority's remaining issues. Because we agree with the court of appeals that the Authority's actions did not rise to the level of a taking, we affirm that part of the court of appeals' judgment.

I. Background

Petitioners are residential developers in the Clear Lake area of greater Houston.¹ Each entered into contracts entitled “Sales Agreement and Lease of Facilities” with the Clear Lake City Water Authority.² The Agreements stipulated that the Developers would build water and sewer facilities according to the Authority's specifications, and that the Developers would lease the facilities to the Authority free of charge until the Authority purchased them. The Authority agreed to reimburse the Developers for 70% of their construction costs once it received voter-approved bond funds. The Authority was not obligated to reimburse the Developers until a bond sale was approved in an election.

The Agreements contain the following pertinent clauses:

Subject to other terms and provisions hereof, the Developer agrees to sell and the Authority agrees to purchase all completed portions of the Facilities ... as soon as possible, but not more than 30 days after receipt of bond proceeds legally available and allocated by the Authority for payment therefore....

It is expressly acknowledged and agreed by the parties hereto, that the Authority has no existing voter authorization to issue any bonds to pay for the cost of the Facilities, and does not anticipate that funds will be available for such costs without a voter approved bond sale for such purchase. The Authority intends to call a bond election in the near future but is not obligated to do so, and the Authority cannot predict when, if ever, such an election and bond sale will occur, or when, if ever, the Authority will have other funds available and allocated for the purchase of the Facilities. The Authority shall have the right to purchase the Facilities with funds available from a source other than a bond sale for such purpose, but shall have no obligation to do so. The Authority does agree, however, that it shall include in any bond election it does hold subsequent to the effective date of this Agreement bond authorization in an amount sufficient to pay the purchase price of the Facilities? ³

....

The Authority shall have no obligation to obtain approval from the voters of bonds to finance purchase of the Facilities, but if such voter approval is obtained, the Authority shall sell Authority bonds for the purpose of purchasing the Facilities.... The Authority agrees to proceed with due diligence to consummate the issuance of such bonds and the acquisition of the Facilities under such circumstances.

In May 1998, as stipulated by the Agreements, the Authority placed a bond authorization measure on the next election ballot. Voters rejected the measure. In October 1998, the Authority again placed a bond measure on the ballot, this time separating it into two parts: a proposal to reimburse the Developers, and another to fund the maintenance of a separate water treatment plant the Authority owned. The voters passed the second proposal but rejected the first. Three of the four Developers (Kirby Lake, Miter, and Taylor Lake) then sued the Authority, alleging that it was obligated to reimburse them anyway. A jury found for the Developers, and the trial court rendered judgment in accordance with that verdict. Clear Lake City Water Auth. v. Kirby Lake Dev., Ltd., 123 S.W.3d 735, 741-42 (Tex.App.-Houston [14th Dist.] 2003, pet. denied) (“ Kirby Lake I ”). The court of appeals reversed, holding that voter approval was a condition precedent to the Authority's purchase obligation. Id. at 756.

The Authority held another bond election in September 2004. This time it omitted the Developers' reimbursement proposition altogether, citing the

language of the opinion rendered by the Fourteenth Court of Appeals ..., which expressly stated that certain of the Developers' contracts merely required “that the developers be included in any subsequent election, and they were”- confirming that any obligation to seek voter approval to issue bonds to reimburse [the Developers] has already been satisfied.

The Developers sued again, alleging that the Authority breached its agreement to include a reimbursement provision in each bond election.⁴ On motion for summary judgment, the trial court concluded that the Authority breached the agreement and awarded damages. 274 S.W.3d 41, 42 (“ Kirby Lake II ”). The court of appeals rejected the Authority's argument that it was immune from suit, holding that Local Government Code section 271.152 waived the Authority's immunity. Id. at 44 (citing Friendswood I, 256 S.W.3d at 751). Nonetheless, the court of appeals reversed the trial court's judgment, holding that the Authority complied with the contract because “the balance of the paragraph [in the Agreements] clearly indicates that only one election was contemplated.... We therefore find the agreement to be unambiguous in obligating the Water Authority to place the measure only on the next ballot after the effective date of the agreement.” Id. at 46.

Kirby, Miter, and Taylor also alleged that the Authority's continued possession of the facilities constituted a taking. 2008 Tex.App. LEXIS 5887, at *1(“Kirby Lake III”).⁵ The Authority then filed a plea to the jurisdiction, arguing, among other things, that Kirby, Miter, and Taylor consented to the alleged taking. Id. at *2. The trial court granted the plea and dismissed the takings claim for lack of jurisdiction. Id. The court of appeals agreed, finding that the Developers had consented to the Authority's possession of the facilities-barring an inverse condemnation claim. Id. at * 13. Each of these cases was decided by a different panel of the same court of appeals.

In November 2006, while the above cases were pending in the trial court, the Authority held another bond election that called for reimbursing the Developers. The 2006 election proved more contentious than its predecessors. The Authority's board members-including members who had signed the original contracts-actively discouraged passage of the measures. A front-page article in the local paper quoted board members as opposing the bonds. An Authority Newsletter denied any obligation to conduct future bond elections, but said “[n]evertheless, the Board finds it appropriate at this time to submit the issue to the voters for a third time, so that the will of the people, which is an express condition of the contracts, can be heard.” The bond measures failed-an outcome that the Developers claim would not have occurred absent the Authority's intermeddling.

We consolidated Friendswood II, Kirby Lake II, and Kirby Lake III, Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 52 Tex. Sup.Ct. J. 788, 788-89 (May 29, 2009), and granted the petition for review Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 53 Tex. Sup.Ct. J. 15, 15 (Oct. 23, 2009). The Developers maintain that the court of appeals erred in holding that “any bond election” meant only one election. They also allege that the Authority's perpetual use of the property without compensation constitutes inverse condemnation.

The Authority argues, among other things, that neither section 49.066 of the Water Code nor section 271.152 of the Local Government Code waives its immunity, and that it has fully satisfied its obligations under the Agreements.

II. An Overview of Water Management in TexasA. History

Texas' first venture into water regulation stemmed from the state's need to irrigate its driest regions. See generally F. Joyce Cox The Texas Board of Water Engineers, 7 Tex. L.Rev. 86, 86 (1928-1929) (“In Texas, as elsewhere, administrative control of water resources came in answer to a need.”). In 1889, the Legislature enact...