Northwest Austin Mun. v. City of Austin

• Decision Date: 14 November 2008
• Docket Number: No. 03-04-00240-CV.,03-04-00240-CV.
• Citation: 274 S.W.3d 820
• Parties: NORTHWEST AUSTIN MUNICIPAL UTILITY DISTRICT NO. 1, Don Zimmerman, William C. Ferguson, and Alan R. Weiss, Appellants, v. CITY OF AUSTIN; Mayor Will Wynn, Brewster McCracken, Lee Leffingwell, Mike Martinez, Randi Shade, Laura Morrison, and Sheryl Cole, in their Official Capacities as City Council Members, Appellees.<SMALL><SUP>1</SUP></SMALL>
• Court: Texas Court of Appeals

274 S.W.3d 820

NORTHWEST AUSTIN MUNICIPAL UTILITY DISTRICT NO. 1, Don Zimmerman, William C. Ferguson, and Alan R. Weiss, Appellants, v. CITY OF AUSTIN; Mayor Will Wynn, Brewster McCracken, Lee Leffingwell, Mike Martinez, Randi Shade, Laura Morrison, and Sheryl Cole, in their Official Capacities as City Council Members, Appellees.¹

No. 03-04-00240-CV.

Court of Appeals of Texas, Austin.

November 14, 2008.

Rehearing Overruled December 31, 2008.

Gregory S. Coleman, Yetter, Warden & Coleman, L.L.P., Melanie P. Sarwal, Weil, Gotshal & Manges, L.L.P., Austin, for appellants.

Nancy K. Matchus, Asst. City Atty., Austin, for appellees.

Before Chief Justice LAW, Justices PURYEAR and ONION.^*

OPINION

W. KENNETH LAW, Chief Justice.

Appellants Northwest Austin Municipal Utility District No. 1, Don Zimmerman, William C. Ferguson, and Alan R. Weiss appeal from the judgment against them in their suit to declare that an agreement executed by the District and appellees City of Austin and City Council members (collectively, "the City") is an "allocation agreement" under section 54.016(f) of the Texas Water Code and that the agreement violates section 54.016(f) by allowing both the City and the District to assess and collect their full rate of property taxes.² The trial court granted partial summary judgment in favor of the City, upholding the City's property tax levy and collection of taxes. Because we hold that the agreement is an allocation agreement as a matter of law, we reverse the district court's order in part and render summary judgment in favor of the District on this issue. However, because summary judgment is improper as to the parties' remaining declaratory claims, we reverse this portion of the judgment and remand for further proceedings.

BACKGROUND

In 1984, real estate developer Nash Phillips/Copus ("NPC") purchased 2,348 acres in northwest Travis County, located in the City of Austin's extraterritorial jurisdiction. NPC petitioned the City for water and wastewater services and sought to create a municipal utility district³ to provide water and wastewater services to the property, known as the Canyon Creek development. The City opposed the creation of the Northwest Austin MUD proposed by NPC, arguing that the City had recently approved a number of MUDs in its extraterritorial jurisdiction and expressing concerns that the proliferation of MUDs can have "a substantial impact on the City's fiscal integrity."

When a city denies a request to include land within its extraterritorial jurisdiction in a proposed MUD, the water code provides that authorization may be sought by petitioning the Texas Water Commission⁴ without securing the written consent of the city. See Tex. Water Code Ann. § 54.016(b)-(d) (West Supp.2008). Under these provisions, which apply "only to land within the extraterritorial jurisdiction of a city,"

the commission shall allow creation or inclusion of the land in a proposed district upon a finding that the city either does not have the reasonable ability to serve or has failed to make a legally binding commitment with sufficient funds available to provide water and wastewater service adequate to serve the proposed development at a reasonable cost to the landowner.

Id. § 54.016(d). "The provisions of this section shall apply whether the land is proposed to be included in the district at the time of creation of a district or to be included by annexation to a district." Id. Any party may appeal the Commission's decision in district court. Id.

After the City refused to grant permission for the inclusion of land within its extraterritorial jurisdiction in the proposed district, NPC petitioned the Commission for authorization. Following a contested case hearing, the Commission granted permission to create three MUDs (Northwest Austin MUD Nos. 1, 2, and 3). The City then filed suit in district court to appeal the Commission's decision. While the City's administrative appeal was pending, NPC and the City resumed negotiations and ultimately reached a settlement regarding the creation of the Northwest Austin MUDs. The Austin City Council voted for the formation of the District on January 15, 1987, and confirmed its decision with the passage of Ordinance 870514-X on May 14, 1987. In addition to providing the City's "written consent to the creation of a district," see id. § 54.016(a) (written consent to be provided by resolution or ordinance), Ordinance 870514-X authorized the city manager "to execute, on behalf of the City, the Agreement Concerning Creation and Operation of the Northwest Austin Municipal Utility District No. 1" (the "Agreement").⁵ The Agreement states that the parties understand and acknowledge that "all the land to be included within the District is to be annexed for full purposes by the City prior to final action for creation of the District by the Commission." Under the Agreement, the City would provide retail water, wastewater, and drainage services to customers within the District, while the District and NPC would finance and construct the water, wastewater, and drainage infrastructure and facilities according to the City's development regulations; upon completion, the facilities would be owned, maintained, and operated by the City. The Agreement further provides, in section 7.2:

It is understood and agreed by the parties hereto that the City shall have the authority to assess and collect ad valorem taxes at the City's full tax rate within the District as for any other property within the City of Austin and the District shall have the authority to assess and collect the ad valorem tax established by the District unless either the City or the District are prohibited by a court of law from assessing and collecting all or a portion of the City's or the District's ad valorem tax rate.

After the Agreement was executed, the City passed an ordinance to annex the subject property into the corporate limits of the city. Thereafter, the City filed the Agreement in district court, which remanded the petitions for creation of the Northwest Austin MUDs to the Commission for reconsideration. Among the changes agreed upon by the parties were the dissolution of the three existing MUDs approved by the Commission, the creation of two rather than three districts, and corresponding boundary changes. The district court issued an order approving the Agreement, settling the City's suit against the Commission.

The Commission created the District as an in-city MUD on March 16, 1988. A subsequent election confirmed the District's creation and authorized $21.1 million in bonds for the construction of water, wastewater, and drainage facilities. Under the water code, the District is required to levy and collect ad valorem taxes sufficient to pay for the debt services to these bonds. Id. § 54.601 (West 2002) (district board shall levy continuing direct annual ad valorem tax each year while all or part of bonds are outstanding on all taxable property within district in amount sufficient to pay interest as it becomes due, to create sinking fund for payment of principal or redemption price at any earlier required redemption date, and to pay expenses of assessing and collecting taxes); see also id. § 54.602 (non-exhaustive list of factors board shall consider in determining actual rate to be levied each year). In reviewing the bonds, the Commission found that "the creation of the District will not unreasonably affect total tax assessments on all land and properties located within the proposed District." The Commission further concluded that "all of the requirements of section 54.016 of the Texas Water Code, as amended, have been fully complied with, met and accomplished."

In September 2002, the District and various individual homeowners filed suit challenging section 7.2 of the Agreement. They sought declarations that (1) section 54.016(f) of the water code prohibits the City from charging its full tax rate to the residents of the District, and (2) the residents' continuing duty to pay taxes to the District to retire the debt incurred by the District requires the City to reduce its own tax rate imposed on the residents of the District. In the District and taxpayers' view, the Agreement is an "allocation agreement" within the meaning of section 54.106(f), requiring the Agreement to ensure that "the total annual ad valorem taxes collected by the city and the district from taxable property within the district does not exceed an amount greater than the city's ad valorem tax upon such property." See Tex. Water Code Ann. § 54.106(f)(2). The District and taxpayers also sought injunctive relief from the "illegal and excessive" taxes imposed by the City, as well as attorney's fees and costs.

By counterclaim, the City sought its own declaratory judgment that the Agreement is not an "allocation agreement" under the water code, that section 54.016(f) is not applicable, and that the District had breached the Agreement by seeking to declare section 7.2 invalid. Alternatively, if the court found that the Agreement was subject to the requirements of section 54.106(f), the City sought a declaration that the water code provision was null and void "to the extent it reduces the amount of the City's property taxes owed by the residents of the District or grants them an illegal tax exemption from the payment of the City's property taxes." The City also asserted a number of affirmative defenses against the District's claims, including laches and the statute of limitations, and filed a plea to the jurisdiction on the basis that the plaintiffs lacked standing and the City had not waived its immunity from suit for what was, in essence, a breach of contract claim.

The parties filed cross-motions for partial summary judgment on the merits. The trial court denied the District's motion for partial summary judgment and granted partial summary judgment in favor of the City, finding that the District's claims are barred by the statute...