City of League City, Texas v. Jimmy Changas, Inc. ( 2023 )

Supreme Court of Texas
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No. 21-0307
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City of League City, Texas,
Petitioner,
v.
Jimmy Changas, Inc.,
Respondent
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On Petition for Review from the
Court of Appeals for the Fourteenth District of Texas
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Argued October 4, 2022
JUSTICE BOYD delivered the opinion of the Court, in which Chief
Justice Hecht, Justice Lehrmann, Justice Devine, Justice Busby, Justice
Huddle, and Justice Young joined.
JUSTICE YOUNG filed a concurring opinion.
JUSTICE BLACKLOCK filed a dissenting opinion, in which Justice
Bland joined as to Part III.
This interlocutory appeal involves the thorny
governmental/proprietary dichotomy in a breach-of-contract context.
The court of appeals held that governmental immunity does not protect
a city against a breach-of-contract claim because the city was acting in
its proprietary capacity when it entered into the contract. We agree and
affirm.
I.
Background
The Texas Local Government Code authorizes cities to grant and
loan public funds for various beneficial purposes. Chapter 373, for
example, permits municipal expenditures for “community development”
purposes, including the “elimination of slums and areas affected by
blight” and the “prevention of blighting influences and of the
deterioration of property and neighborhood and community facilities
important to the welfare of the community.” TEX. LOC. GOV’T CODE
§ 373.002(b). Similarly, chapter 374 authorizes cities to fund “urban
renewal” programs “to encourage urban rehabilitation” and “to provide
for the redevelopment of slum and blighted areas.” Id. § 374.013(a).
This dispute involves an “Economic Development Incentives
Grant Agreement” under chapter 380, which permits cities to provide
“economic development” incentives “to promote state or local economic
development and to stimulate business and commercial activity in the
municipality.” Id. § 380.001(a). The Agreement describes plans by
Jimmy Changas, Inc. to invest $5 million to construct a 10,000-square-
foot restaurant facility on a particular tract within the City of League
City’s entertainment district. Jimmy Changas projected the facility
would be at least equal in quality to an existing Jimmy Changas
restaurant in Pasadena, Texas, and would create at least eighty full-
time and forty part-time jobs. League City agreed that, if Jimmy
2
Changas completed the facility as projected, 1 the City would reimburse
all of Jimmy Changas’s capital-recovery fees for water and wastewater
services, all fees Jimmy Changas would pay to obtain plat approvals and
building permits, and a percentage of Jimmy Changas’s local-sales-tax
payments based on the restaurant’s total annual sales.
Consistent with chapter 380’s authorization, the Agreement
recited that its purposes were “to promote state or local economic
development and to stimulate business and commercial activity in the
City,” to “contribute to the economic development of the City by
generating employment and other economic benefits to the City,” and to
encourage Jimmy Changas to develop the property “in a manner that
establishes the area as a regional destination.”
After Jimmy Changas completed the project, League City refused
to provide the reimbursements, contending that Jimmy Changas failed
to timely submit documentation establishing it had invested at least
$5 million and created at least eighty full-time jobs. Jimmy Changas
contends it submitted all the required documentation and that the City
waived any complaint about the timeliness of its submission by
continuously requesting additional documents beyond those Jimmy
Changas initially submitted.
Jimmy Changas filed this suit asserting that League City
breached the Agreement by refusing to pay the promised
reimbursements. The City filed a plea to the jurisdiction, arguing that
1 The Agreement did not require Jimmy Changas to build and operate
the restaurant as projected, but it conditioned the City’s incentive payments
on its doing so.
3
governmental immunity bars the claim and that no statute waives that
immunity. The trial court denied the plea, and the City filed an
interlocutory appeal. 2 The court of appeals affirmed, holding that
governmental immunity does not apply to Jimmy Changas’s claim
because League City was acting in its proprietary capacity—as opposed
to its governmental capacity—when it entered into the Agreement. 619
S.W.3d 819, 828 (Tex. App.—Houston [14th Dist.] 2021). We granted the
City’s petition for review and now affirm.
II.
Governmental and Proprietary Functions
To “shield the public from the costs and consequences of
improvident actions of their governments,” sovereign immunity
generally bars claims against the State and its agencies. Tooke v. City of
Mexia, 197 S.W.3d 325, 332 (Tex. 2006). Municipal corporations often
function in a governmental capacity on the State’s behalf but at other
times function as “a private corporation,” City of Tyler v. Ingram, 164
S.W.2d 516, 519 (Tex. 1942), “for the private advantage and benefit of
the locality and its inhabitants.” Wasson Ints., Ltd. v. City of
Jacksonville (Wasson I), 489 S.W.3d 427, 433 (Tex. 2016). Because
“sovereign immunity is inherent in the State’s sovereignty,”
municipalities “share that protection when they act ‘as a branch’ of the
2 See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8) (permitting
interlocutory appeal from an order that “grants or denies a plea to the
jurisdiction by a governmental unit”). The City also filed a summary-judgment
motion and a counterclaim to recover its attorney’s fees and expenses. The trial
court denied summary judgment, but we do not address that ruling in this
interlocutory appeal.
4
State but not when they act ‘in a proprietary, non-governmental
capacity.’” Wasson Ints., Ltd. v. City of Jacksonville (Wasson II), 559
S.W.3d 142, 146 (Tex. 2018) (quoting Wasson I, 489 S.W.3d at 430).
The common law has long recognized this dichotomy when cities
are sued in tort, and we held in Wasson I that it also applies when cities
are sued for breach of contract. See Wasson I, 489 S.W.3d at 439. To
determine whether a municipality engaged in a governmental or
proprietary function when it entered into a particular contract, we look
to both the common law and to Texas statutes.
A. Common-law definitions
Under the common law, proprietary functions are those that a city
performs “in its discretion,” “primarily for the benefit of those within the
corporate limits of the municipality,” and not as “an arm of the
government” or “a branch of the state” or “under the authority, or for the
benefit, of the sovereign.” Wasson II, 559 S.W.3d at 147 (quoting Wasson
I, 489 S.W.3d at 427; Gates v. City of Dallas, 704 S.W.2d 737, 739 (Tex.
1986); Dilley v. City of Houston, 222 S.W.2d 992, 993 (Tex. 1949)).
Proprietary functions “can be, and often are, provided by private
persons.” Id. (quoting Joe R. Greenhill & Thomas V. Murto III,
Governmental Immunity, 49 TEX. L. REV. 462, 463 (1971)).
Governmental functions under the common law are those that
involve “the performance of purely governmental matters solely for the
public benefit,” are “normally performed by governmental units,” and
are performed “as a branch of the state—such as when a city ‘exercise[s]
powers conferred on [it] for purposes essentially public . . . pertaining to
the administration of general laws made to enforce the general policy of
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the state.’” Id. (quoting Wasson I, 489 S.W.3d at 433 (in turn quoting
City of Galveston v. Posnainsky, 62 Tex. 118, 127 (1884)); Tooke v. City
of Mexia, 197 S.W.3d 325, 343 (Tex. 2006) (in turn quoting Dilley, 222
S.W.2d at 993); Greenhill & Murto, 49 TEX. L. REV. at 463).
B. Statutory definitions
The Texas Constitution specifically authorizes the legislature to
define governmental and proprietary functions “for all purposes.” TEX.
CONST. art. XI, § 13. Exercising this authority, the legislature has
addressed the dichotomy for purposes of tort claims but not for claims
for breach of contract. Generally consistent with the common-law
descriptions, the Tort Claims Act defines proprietary functions as “those
functions that a municipality may, in its discretion, perform in the
interest of the inhabitants of the municipality.” TEX. CIV. PRAC. & REM.
CODE § 101.0215(b). Statutorily, proprietary functions include, but are
not limited to, “the operation and maintenance of a public utility,”
“amusements owned and operated by the municipality,” and “any
activity that is abnormally dangerous or ultrahazardous.” Id.
By contrast, the Act defines governmental functions as “those
functions that are enjoined on a municipality by law and are given it by
the state as part of the state’s sovereignty, to be exercised by the
municipality in the interest of the general public.” Id. § 101.0215(a). In
addition to this general definition, the Act includes a non-exclusive list
designating thirty-six specific activities as governmental functions,
ranging from “police and fire protection and control” to “animal control.”
Id. § 101.0215(a)(1), (33).
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C. Application to contract claims
“Although these statutory definitions and designations apply
expressly to tort claims, we explained in Wasson I that they can also ‘aid
our inquiry’ when applying the dichotomy in the contract-claims
context.” Wasson II, 559 S.W.3d at 147–48 (quoting Wasson I, 489
S.W.3d at 439). “We thus consider” in contract cases “both the statutory
provisions and the common law in determining whether a city’s
contractual conduct is governmental or proprietary.” Id. at 148.
If a particular activity is not included in the statutory list of
governmental functions, we look to the general definitions under both
the common law and the statute. Id. at 150. Based on those definitions,
we consider the following four factors: (1) whether the city’s act of
entering into the contract was mandatory or discretionary, (2) whether
the contract was intended to benefit the general public or the city’s
residents, (3) whether the city was acting on the State’s behalf or its own
behalf when it entered the contract, and (4) whether the city’s act of
entering into the contract was sufficiently related to a governmental
function to render the act governmental even if it would otherwise have
been proprietary. Id. 3
3 Our dissenting and concurring colleagues do not dispute that we have
recognized the governmental/proprietary distinction as fundamental to the
inherent nature of a municipal corporation for nearly as long as this Court has
existed. See, e.g., Keller v. City of Corpus Christi, 50 Tex. 614, 622 (1879)
(explaining that “municipal corporations possess a double character,—the one,
governmental, legislative, or public; the other, proprietary or private,—and
that for the acts of their agents in their public capacity no action lies unless it
be given by statute; while for other acts done in their private capacity there is
an implied or common-law liability”); Peck v. City of Austin, 22 Tex. 261, 264
(1858) (explaining that a municipal corporation, “though a municipal
7
III.
League City’s Agreement
“The distinction between a municipality’s governmental and
proprietary functions ‘seems plain enough, but the rub comes when it is
sought to apply the test to a given state of facts.’” Id. at 146–47 (quoting
City of Houston v. Wolverton, 277 S.W.2d 101, 103 (Tex. 1955)). Under
these facts, League City argues that it engaged in a governmental
function when it entered into the agreement at issue because (1) its
action falls within the statutory list of governmental functions and,
(2) even if it doesn’t, it falls within the statute’s and the common law’s
general definitions. We disagree with both arguments.
A. Statutory list
Among the thirty-six statutorily designated governmental
functions, the Tort Claims Act includes “community development or
urban renewal activities undertaken by municipalities and authorized
under Chapters 373 and 374, Local Government Code.” TEX. CIV. PRAC.
& REM. CODE § 101.0215(a)(34). League City concedes that it entered
government, and therefore public, may also occupy towards individuals the
position of a private corporation, and be liable upon its contracts, or for the
wrongful acts of its officers, done under its authority, and in pursuance of its
will, expressed or implied”); see also Wasson II, 559 S.W.3d at 146–47 (citing
cases); Wasson I, 489 S.W.3d at 433–34 (citing cases). Instead, they question
whether the Wasson factors provide a proper framework for drawing that
distinction. See post at __ (YOUNG, J., concurring), __ (BLACKLOCK, J.,
dissenting). But we did not create the factors out of whole cloth in Wasson II.
Instead, we derived them directly from a long line of this Court’s common-law
decisions and the Tort Claims Act’s express statutory definitions. See Wasson
II, 559 S.W.3d at 147–48, 150. No party in this case urges us to reconsider the
governmental/proprietary distinction or the considerations we have long relied
upon to draw that distinction.
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into the Agreement with Jimmy Changas as an economic-development
activity under chapter 380 of the Local Government Code and not as a
community-development or urban-renewal activity under chapters 373
or 374. Nevertheless, the City contends that subsection (a)(34)
encompasses a broad category of “community development” activities
and that its Agreement with Jimmy Changas “falls within” that
category. In support of this contention, the City relies on the San
Antonio Court of Appeals’ opinion in CHW-Lattas Creek, L.P. v. City of
Alice, 565 S.W.3d 779, 786 (Tex. App.—San Antonio 2018, pet. denied),
and on a footnote in our opinion in Hays Street Bridge Restoration Group
v. City of San Antonio, 570 S.W.3d 697, 705 n.46 (Tex. 2019).
As here, CHW-Lattas Creek involved an economic-development
agreement under chapter 380 between the City of Alice and a developer,
CHW. In that agreement, CHW agreed to convey undeveloped land to
Alice in exchange for Alice’s agreement to develop the property by
constructing, among other things, an aquatics center, amphitheater,
conference center, and hotel. 565 S.W.3d at 782–83. Relying primarily
on legislative history rather than on subsection (a)(34)’s plain language,
the court concluded that subsection (a)(34) specifies activities under
chapters 373 and 374 only “because the two cases in which courts had
found community development activities to be proprietary involved
community development activities undertaken under those two
chapters.” Id. at 786 (citing City of Houston v. Sw. Concrete Constr., Inc.,
835 S.W.2d 728 (Tex. App.—Houston [14th Dist.] 1992, writ denied);
Josephine E. Abercrombie Ints., Inc. v. City of Houston, 830 S.W.2d 305(Tex. App.—Corpus Christi–Edinburgh 1992, writ denied)). The court
9
held that Alice was engaged in a governmental function when it entered
into the economic-development contract under chapter 380 because
subsection (a)(34) includes “all community development activities
regardless of which chapter of the Local Government Code applies.” Id.We disagree with the CHW-Lattas Creek court’s construction of
subsection (a)(34). “A statute’s unambiguous language ‘is the surest
guide to the Legislature’s intent,’ because ‘the Legislature expresses its
intent by the words it enacts and declares to be the law.’” Tex. Health
Presbyterian Hosp. of Denton v. D.A., 569 S.W.3d 126, 135–36 (Tex.
2018) (first quoting Sullivan v. Abraham, 488 S.W.3d 294, 297 (Tex.
2016), then quoting Molinet v. Kimbrell, 356 S.W.3d 407, 414 (Tex.
2011)). Subsection (a)(34) expressly includes only community-
development activities under chapter 373 and urban-renewal activities
under chapter 374, and we cannot rewrite the statute by judicially
incorporating other types of activities. Although the legislature has
specified that local community-development and urban-renewal
activities intended to remove “slums” and “blight” qualify as
governmental functions, it has never suggested that local economic-
development activities intended to promote a local business
environment do as well.
Moreover, even if we consider the history of the bill that resulted
in subsection (a)(34), we note that the CHW-Lattas Creek court
overlooked the fact that the bill as introduced would have included
“community development activity” without identifying any particular
chapter of the Local Government Code. See Tex. S.B. 1697, 75th Leg.,
R.S. 1997 (as introduced). The bill was amended, however, to specify
10
only “community development activities undertaken . . . under Chapter
373,” and later amended to also specify urban-renewal activities under
chapter 374. Tex. S.B. 1697, 75th Leg., R.S. (1997) (as amended). That
the bill began with a broad reference to community-development
activities and then narrowed to include only community-development
and urban-renewal activities “authorized under” chapters 373 and 374
undercuts the CHW-Lattas Creek court’s conclusion that the legislature
intended a broad definition. See id.; CHW-Lattas Creek, 565 S.W.3d at
786. We thus disapprove of the CHW-Lattas Creek court’s construction
of subsection (a)(34). 4
League City contends, however, that our opinion in Hays Street
Bridge confirms the correctness of the San Antonio court’s holding in
CHW-Lattas Creek. Hays Street Bridge involved an agreement in which
the City of San Antonio contracted with a group of concerned residents
to restore a deteriorated bridge that served as a “historic cultural
landmark.” 570 S.W.3d at 699. We agreed that the city’s actions in
entering into the contract fell within the description of community-
development and urban-renewal activities in subsection (a)(34), as well
as the description of “bridge construction and maintenance” in
4 We do not pass judgment, however, on the CHW-Lattas Creek court’s
ultimate conclusion that the City of Alice was engaged in a governmental
function when it entered into the contract at issue in that case. See 565 S.W.3d
at 787. Even if that contract did not fall within subsection (a)(34)’s description,
it concerned many different municipal functions that may otherwise be
considered governmental, including “street construction and design,” “sanitary
and storm sewers,” “waterworks,” “parks and zoos,” “civic, convention centers,
or coliseums,” and “recreational facilities, including but not limited to
swimming pools, beaches, and marinas.” TEX. CIV. PRAC. & REM. CODE
§ 101.0215(a)(1), (9), (11), (13), (16), (23).
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subsection (a)(4). Id. at 705. In doing so, we disagreed with the residents’
argument that subsection (a)(34)’s reference to chapters 373 and 374
rendered that subsection inapplicable. Id. at 705 n.46.
We did so, however, not because we thought subsection (a)(34)
means something different than it says but because the Tort Claims
Act’s classifications merely serve as “guidance in the contract-claims
context—rather than binding lists to be interpreted narrowly.” Id. We
did not hold in Hays Street Bridge that any agreement that touches on
“community development” falls within subsection (a)(34) such that
courts must conclude that a city engaged in a governmental function by
entering into such an agreement. Instead, we focused on whether the
contract fell under the broader common-law and statutory definitions of
a governmental function by considering the Wasson factors. Id. at
705–06. 5
Nor can we conclude that economic-development activities under
chapter 380 are so similar to community-development and urban-
renewal activities under chapters 373 and 374 as to extend subsection
(a)(34) by implication. As mentioned, chapter 373 allows municipalities
5 The City also relies on another San Antonio Court of Appeals opinion,
which broadly construed subsection (a)(34)’s reference to “community
development or urban renewal activities” as “activities which a municipality
funds or incentivizes through tax abatements or grants to encourage
development . . . .” City of Helotes v. Page, No. 04-19-00437-CV, 2019 WL
6887719, at *3 n.3 (Tex. App.—San Antonio Dec. 18, 2019, pet. denied). We
need not agree or disagree with this definition but need only note that it does
not transform a contract under chapter 380 into a contract under chapter 373
or 374. Indeed, the Page court did not hold that it did, but instead relied on the
general definitions and applied the Wasson factors to conclude that the City of
Helotes engaged in a “vendor’s fair” as a proprietary function. See id. at *3–4.
12
to create “community development program[s]” designed to “improve the
living and economic conditions of persons of low and moderate income”
and “aid in the prevention or elimination of slums and blighted areas,”
among other things. TEX. LOC. GOV’T CODE § 373.004 (emphasis added).
Similarly, chapter 374 enables municipalities to prevent and eliminate
slums and blight through “the rehabilitation, the conservation, or the
slum clearance and redevelopment of the area.” Id. § 374.011(a)(1)
(emphasis added). Chapter 380, on the other hand, permits
municipalities to engage in activities “to promote state or local economic
development and to stimulate business and commercial activity in the
municipality.” Id. § 380.001(a). Chapter 380 says nothing of slums,
blight, or lower-economic living conditions, and League City does not
assert that the Agreement was intended to address those concerns. 6
The stated purpose of the Agreement was “to stimulate business
and commercial activity,” not to undertake “urban renewal activities,”
see id. § 374.003(25) (“‘Urban renewal activities’ includes slum
clearance, redevelopment, rehabilitation, and conservation activities to
prevent further deterioration of an area that is tending to become a
blighted or slum area.”), or improve conditions of lower-income
communities, see id. § 373.002(b) (stating that activities taken under
this chapter should be “directed toward” “elimination of slums and areas
6 The Comprehensive Annual Financial Report for the City makes no
mention of blight or slum neighborhoods. It speaks of the City’s low
employment rate and its “outstanding neighborhoods, superior schools, parks,
trails and waterfront.” The City’s Economic Development Profile notes the City
“continuously ranks among the best communities in the state . . . with the
average annual household income of more than $100,000, strong school
districts, high community public safety ratings, and abundant recreational
activities.”
13
affected by blight,” “elimination of conditions detrimental to the public
health, safety, and welfare,” and “alleviation of physical and economic
distress through the stimulation of private investment and community
revitalization in slum or blighted areas”). As the City itself concedes, the
Agreement’s main purposes were “creating local jobs and increasing
state sales tax revenue.” In short, the purpose of the Agreement under
chapter 380 was not so similar to the purposes of chapter 373 and 374
activities so as to consider this an agreement for “community
development or urban renewal” under subsection (a)(34).
B. General definitions
When a particular municipal activity is not included in the
statutory list of governmental functions, we look to the general
definitions to determine whether the activity is “governmental” or
“proprietary.” Wasson II, 559 S.W.3d at 150. Particularly in breach-of-
contract cases, we consider “both the statutory provisions and the
common law in determining whether a city’s contractual conduct is
governmental or proprietary.” Id. at 148. League City argues that, even
if its conduct in entering into the Agreement does not fall within
subsection (a)(34), it was nevertheless engaged in a governmental
function under the general definitions.
As explained, we have identified four factors that summarize both
the common-law and the statutory definitions. Id. at 150. League City
argues that these factors establish it was engaged in a governmental
function when it entered into the Agreement with Jimmy Changas. We
disagree.
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1. Discretionary activity
Under the first factor, we consider whether the City’s act of
entering into the contract was mandatory or discretionary. Id. Like the
common law, the statutory definitions provide that governmental
functions are those that “are enjoined on a municipality by law,” while
proprietary functions are those that “a municipality may, in its
discretion, perform.” TEX. CIV. PRAC. & REM. CODE § 101.0215(a), (b).
League City does not dispute that its decision to enter into the
Agreement was a discretionary act. Chapter 380 states that
municipalities “may establish and provide for the administration of one
or more programs . . . to promote state or local economic development
and to stimulate business and commercial activity in the municipality.”
TEX. LOC. GOV’T CODE § 380.001(a) (emphasis added). Neither chapter
380 nor any other statute required the City to use public funds to
promote economic development or to stimulate local business. This
factor clearly weighs in favor of concluding that the City engaged in a
proprietary function by entering into the Agreement.
2. Primarily for the benefit of City residents
Under the second factor, we consider whether the municipality
entered into the contract to benefit the general public or the City’s
residents. Wasson II, 559 S.W.3d at 150. Under the common law, this
factor distinguishes a municipal corporation’s local purpose to serve its
residents from those it may perform “as the agent of the state in
furtherance of general law for the interest of the public at large.” City of
15
Houston v. Shilling, 240 S.W.2d 1010, 1011–12 (Tex. 1951). 7 In the same
way, the statute distinguishes between proprietary functions a city
performs “in the interest of the inhabitants of the municipality” and
governmental functions performed “in the interest of the general
public.” TEX. CIV. PRAC. & REM. CODE § 101.0215(a), (b).
The Agreement between League City and Jimmy Changas
expressly and repeatedly states that its purposes were to “stimulate
business and commercial activity in the City,” to “contribute to the
economic development of the City by generating employment and other
economic benefits to the City,” “to encourage [Jimmy Changas] to
develop the [restaurant] in a manner that establishes the area as a
regional destination,” to “promote local economic development,” and to
“raise funds for the city budget.” [Emphases added.]
Nevertheless, League City contends that it intended the
Agreement to benefit the State and all of its citizens because the State
would receive most of (and thus be the primary beneficiary of) Jimmy
Changas’s sales-tax payments, the Agreement did not require Jimmy
Changas to hire only League City residents, and the establishment of
the entertainment district as a “regional destination” would benefit
visitors as well as the City’s residents. Although we do not doubt that
Texas citizens other than League City residents could receive some
benefit from a new Jimmy Changas restaurant within the City’s
7 See also City of Houston v. Quinones, 177 S.W.2d 259, 261 (Tex. 1944)
(distinguishing an act that is “public in its nature and performed as the agent
of the State in furtherance of general law for the interest of the public at large”
from those “performed primarily for the benefit of those within the corporate
limits of the municipality”).
16
entertainment district, the Agreement itself confirms that the City
entered into it “primarily for the benefit of those within the corporate
limits of the municipality.” Wasson II, 559 S.W.3d at 151 (emphasis
added) (quoting Gates v. City of Dallas, 704 S.W.2d 737, 739 (Tex. 1986)).
This factor weighs in favor of a proprietary function.
3. Acting on the City’s own behalf
Under the third factor, we consider whether the City was acting
on the State’s behalf or on its own behalf by entering into the Agreement.
Wasson II, 559 S.W.3d at 150. This factor further distinguishes between
acts a city chooses to perform “in its private capacity” to benefit its
residents from those “sovereign” acts it is required to perform as an “arm
or agent of the state in the exercise of a strictly governmental function
solely for the public benefit.” Shilling, 240 S.W.2d at 1011–12; Dilley,
222 S.W.2d at 993. The statute similarly defines governmental functions
as those “given it by the state as part of the state’s sovereignty.” TEX.
CIV. PRAC. & REM. CODE § 101.0215(a).
We have recognized that when the first and second factors both
indicate that a city entered into a contract as a proprietary function—
that is, it entered into the contract as a matter of its own discretion and
did so primarily to benefit its own residents—then the city was likely
acting on its own behalf, at least absent some clear indication to the
contrary. See Wasson II, 559 S.W.3d at 152. Nevertheless, even when a
city exercises its own discretion to enter a contract, it may be acting on
the State’s behalf when, for example, the State provides funding or other
support for the city’s efforts. See, e.g., Hays Street Bridge, 570 S.W.3d at
17
706 (holding that the third factor weighed towards governmental
function because the State provided most of the necessary funding).
League City contends that it entered into the Agreement on the
State’s behalf because its purpose was to “create new jobs in the state
and increase tax revenue for the state, both of which develop the
economy of the state.” Again, while we do not doubt that local economic-
development activities can improve the State’s overall economy, the
terms and requirements of this Agreement do not indicate in any way
that the City entered into it on the State’s behalf. This factor weighs
towards a proprietary function.
4. Relation to a governmental function
The final factor considers “whether the city’s act of entering into
the [contract] was sufficiently related to a governmental function to
render the act governmental even if it would otherwise have been
proprietary.” Wasson II, 559 S.W.3d at 150. “We have long held that not
all activities ‘associated’ with a governmental function are
‘governmental,’” and “[t]he fact that a city’s proprietary action ‘touches
upon’ a governmental function is insufficient to render the proprietary
action governmental.” Id. at 152–53. “Instead, a city’s proprietary action
may be treated as governmental only if it is essential to the city’s
governmental actions.” Id. at 153.
League City contends that it engaged in a governmental function
when it entered into the Agreement because that action was “sufficiently
related” to the governmental function of “sustain[ing] and promot[ing]
the economy, employment, and economic opportunities of the people of
Texas.” See TEX. GOV’T CODE § 315.003. The City notes that in chapter
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501 of the Local Government Code—the Development Corporation Act—
the legislature has recognized a “public purpose of this state in
promoting the welfare of residents of this state economically by securing
and retaining business enterprises and as a result maintaining a higher
level of employment, economic activity, and stability,” and has
specifically authorized municipalities to create nonprofit corporations to
promote that purpose. See TEX. LOC. GOV’T CODE §§ 501.004(a)(4), .051.
Relying on City of Leon Valley Economic Development Corp. v. Little, 522
S.W.3d 6, 10 (Tex. App.—San Antonio 2017, pet. denied), the City
contends that such actions constitute governmental functions.
We rejected that very conclusion, however, in Rosenberg
Development Corp. v. Imperial Performing Arts, Inc., 571 S.W.3d 738(Tex. 2019). As we explained there, the Development Corporation Act
describes economic-development corporations “as private, nonprofit
corporations” and expressly denies them “significant governmental
characteristics—political-subdivision status and attributes of
sovereignty” and “thus evinces clear legislative intent that an economic
development corporation is not an arm of state government.” Id. at
749–50. Local economic development and job creation are undoubtedly
“public purposes,” and projects to promote such purposes “have a
governmental flair, but not so uniquely or so definitively that only a
governmental entity would engage in those activities.” Id. at 750. In
short, entities engaged in economic-development programs do not
provide services that are “essential” to the functions of the government.
Id. at 750–51.
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The City also argues that chapter 381 of the Local Government
Code authorizes counties to develop programs “for state or local
economic development” and “to stimulate, encourage, and develop
business location and commercial activity in the county.” TEX. LOC.
GOV’T CODE § 381.004(b)(1),(3). And, the City points out, these are
governmental functions when performed by a county because “all of
their functions are ‘governmental’ in nature.” Nueces County v. San
Patricio County, 246 S.W.3d 651, 652 (Tex. 2008). If a county’s local
economic-development activities are governmental functions, the City
argues, then a city’s local economic-development activities must be too.
This argument, however, confuses the nature of an entity with the
nature of its functions. As we explained in Nueces County, all of a
county’s functions are governmental because counties are “‘involuntary
agents of the state’ without the power to serve the local interests of their
residents” and as such “have no ‘proprietary’ functions.” Id. (citing TEX.
CONST. art. XI, § 1 interp. commentary; Posnainsky, 62 Tex. at 128).
Unlike counties, municipal corporations are established to serve their
local residents by engaging in both proprietary and governmental
functions. Because of the nature of a municipality, the nature of its
functions matters.
We do not hold, however, that governmental economic-
development activities can never constitute a governmental function.
Ultimately, all economic-development activities are “local,” and
circumstances could conceivably exist in which the State requires a
municipality to engage in such activities as an arm of the State for the
greater benefit of the general public. But that is not what happened
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here. Here, the State merely authorized cities to enter into contracts to
promote their local economy, and League City made the discretionary
decision to enter into such a contract with Jimmy Changas. But the
contract itself confirms that it did so by choice and primarily to benefit
the City and its residents. That discretionary decision was not essential
to any governmental function. This factor, as the others, weighs in favor
of holding that the City engaged in a proprietary function.
IV.
Conclusion
The court of appeals correctly determined that League City
engaged in a proprietary function when it entered into the Agreement
with Jimmy Changas. As a result, governmental immunity does not
apply to protect the City against Jimmy Changas’s claim for breach of
that Agreement. We do not address the merits of that claim or any other
defenses the City may raise. We affirm the court of appeals’ judgment
and remand the case to the trial court for further proceedings.
Jeffrey S. Boyd
Justice
OPINION DELIVERED: June 9, 2023
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