Rosenberg Dev. Corp. v. Imperial Performing Arts, Inc., No. 17-0660

• Court: Supreme Court of Texas
• Writing for the Court: Justice Guzman delivered the opinion of the Court.
• Citation: 571 S.W.3d 738
• Decision Date: 08 March 2019
• Docket Number: No. 17-0660
• Parties: ROSENBERG DEVELOPMENT CORPORATION, Petitioner, v. IMPERIAL PERFORMING ARTS, INC., Respondent

571 S.W.3d 738

ROSENBERG DEVELOPMENT CORPORATION, Petitioner,
v.
IMPERIAL PERFORMING ARTS, INC., Respondent

No. 17-0660

Supreme Court of Texas.

Argued October 11, 2018
OPINION DELIVERED: March 8, 2019

Scott M. Tschirhart, Denton Navarro Rocha, Bernal & Zech, P.C., 2500 W. William Cannon, Dr., Suite 609, Austin, TX, George E. Hyde, Russell Rodriguez Hyde, Bullock LLP, 1633 Williams Drive, Building 2, Suite 200, Georgetown, TX, Lowell F. Denton, Denton Navarro Rocha, Bernal & Zech, P.C. 2517 North Main Avenue San Antonio, TX, for Petitioner.

James J. Burnett, The Law Office of James J. Burnett, 14090 Southwest Frwy., Suite 300, Sugarland, TX, for Respondent.

David W. Lauritzen, Cotton Bledsoe Tighe & Dawson PC, P.O. Box 2776, Keith David Stretcher, Attorney at Law, 5000 Chapel Hill, Midland, TX, for Amicus Curiae Midland Development Corporation.

Justice Guzman delivered the opinion of the Court.

The sovereign immunity doctrine prohibits suits against the government without the state's consent. Though rooted in the feudal fiction that the "king can do no wrong,"¹ modern justifications for sovereign immunity are political, pecuniary, and pragmatic.² Among other benefits, sovereign immunity maintains equilibrium among the branches of government by honoring "the allocation of responsibility" for resolving disputes with the state.³ The immunity doctrine also protects the public coffers by deferring to the Legislature's policy decisions about "when to allow tax resources to be shifted ‘away from their intended purposes toward defending lawsuits

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and paying judgments.’ "⁴ But while the doctrine "shield[s] the public from the costs and consequences of [the] improvident actions of their government,"⁵ protecting the purse comes at the expense of ensuring accountability under the law for the government's breaches.⁶ To facilitate equipoise in the doctrine's operation, "[t]he judiciary determines the applicability of immunity in the first instance and delineates its boundaries," but we defer to the Legislature to waive immunity when it exists.⁷

As an extension of sovereign immunity, governmental immunity protects political subdivisions performing governmental functions as the state's agent.⁸ The issue of first impression in this contract dispute is whether a municipally created economic development corporation is entitled to immunity from suit as if it were a political subdivision of the state. The Texas Development Corporation Act⁹ authorizes political subdivisions to create nonprofit corporations to undertake projects designed to spur economic growth and reduce unemployment,¹⁰ but at the same time expressly (1) denies those corporate entities status as political subdivisions and (2) forbids authorizing municipalities from delegating any attributes of sovereignty to those entities.¹¹ Consistent with these express indicators of legislative intent and with the immunity doctrine's underlying purposes, we hold economic development corporations are not governmental entities in their own right and therefore are not entitled to governmental immunity. We accordingly affirm the court of appeals' judgment denying the economic development corporation's plea to the jurisdiction.

I. Background

Rosenberg Development Corporation (RDC) is a Type B economic development corporation created by the City of Rosenberg under the authority of the Development Corporation Act (the Act).¹² RDC was incorporated "exclusively for the purposes of ... promoting, assisting[,] and enhancing economic and industrial development activities and ... promot[ing] or develop[ing] new or expanded business enterprises, including public facilities ...."

In March 2012, RDC executed a contract (Performance Agreement) with Imperial Performing Arts, Inc. (Imperial), a nonprofit organization that promotes and produces performance and visual art. RDC agreed to pay Imperial $ 500,000 to, among other things, (1) lease, renovate, and reopen an arts center by the end of September 2012, (2) arrange to renovate and open a historic theater by the end of 2014, and (3) promote RDC as an underwriter

571 S.W.3d 742

of six events at each facility.¹³ Under the contract's terms, RDC's board of directors retained sole discretion to grant an extension of the opening date for each location, but permission could not be "unreasonably withheld."

In accordance with the Performance Agreement, RDC paid Imperial $ 500,000 in two equal payments. However, both projects turned out to be more time-consuming and expensive than contemplated, with the theater requiring so much work that the "renovation" would effectively require rebuilding at an alleged cost of up to $ 5 million over the course of up to five years. Despite these challenges, Imperial completed and opened the arts center in November 2012 after receiving an extension from RDC. But when Imperial asked RDC to extend the deadline to complete the theater's renovation and also to amend the Performance Agreement to allow Imperial to either select or construct an alternative venue, RDC allegedly refused. Imperial ceased work on the theater project in June 2014, and this legal dispute followed.

The litigation has a complicated procedural posture and involves myriad claims, counterclaims, and third-party claims,¹⁴ but the immunity issue on appeal is limited to Imperial's breach-of-contract and declaratory-judgment claims. The former asserts that RDC breached the Performance Agreement by "unreasonably refusing to grant [Imperial] an extension," while the latter requests a declaration that the $ 500,000 RDC paid under the contract was an unconditional and absolute grant of those funds to Imperial that need not be refunded.

Assuming its immunity from suit, RDC filed a plea to the jurisdiction arguing that (1) Imperial's consequential-damages claims are barred by section 271.153 of the Texas Local Government Code ; (2) Imperial failed to plead a valid waiver of governmental immunity because the breach-of-contract immunity waiver in section 271.152 of the Local Government Code applies only to political subdivisions not economic development corporations;¹⁵ (3) RDC is immune from liability for damages under section 505.106 of the Local Government Code as to its performance of governmental functions; and (4) RDC did not waive immunity from suit by asserting claims against Imperial. The trial court granted the plea in part but denied it in most respects, allowing Imperial's breach-of-contract and declaratory-judgment claims to move forward. RDC appealed.

The court of appeals affirmed the trial court's order denying RDC's plea to the jurisdiction.¹⁶ As a preliminary matter, the court addressed sua sponte its jurisdiction

571 S.W.3d 743

over the interlocutory appeal, holding RDC satisfied the statutory definition of "governmental unit" for purposes of the interlocutory-appeal statute.¹⁷ Then, because RDC's appellate arguments assumed its immunity from suit—a matter implicating subject-matter jurisdiction—the court considered sua sponte whether RDC actually enjoys such immunity.¹⁸

The court first determined that RDC, which is neither a state agency nor a political subdivision, is not immune from suit under the common law.¹⁹ The court then examined the Development Corporation Act's provision limiting liability for Type B economic development corporations and held the Legislature did not purport to grant economic development corporations immunity from suit for non-tort claims.²⁰ Section 505.106 of the Act provides:

(a) The following are not liable for damages arising from the performance of a governmental function of a Type B corporation or the authorizing municipality:

(1) the corporation;

(2) a director of the corporation;

(3) the municipality;

(4) a member of the governing body of the municipality; or

(5) an employee of the corporation or municipality.

(b) For purposes of Chapter 101, Civil Practice and Remedies Code, a Type B corporation is a governmental unit and the corporation's actions are governmental functions.²¹

Applying the statute's plain language, the court held: (1) subsection (a) provides immunity only from liability—not from suit—and only for claims arising from an economic development corporation's performance of governmental functions, and (2) subsection (b) "invoke[s] the common law doctrine of governmental immunity" for economic development corporations, but only for tort claims covered by the Texas Tort Claims Act, not the non-tort claims at issue here.²²

In so holding, the court distinguished cases from other Texas appellate courts RDC cited as immunizing economic development corporations from liability or suit.²³ The court disapproved of the analysis in Weir Bros., Inc. v. Longview Economic Development Corp. , which affirmed a judgment granting an economic development corporation's jurisdictional plea on fraud, antitrust, and breach-of-contract claims.²⁴ Though finding subject-matter jurisdiction lacking, the Weir court only considered whether subsection (a) sheltered the corporation from liability, not immunity from suit.²⁵ Here, the lower court observed that treating immunity from liability as a jurisdictional matter is erroneous because immunity from liability is an affirmative defense that is not a proper basis for a

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