San Jacinto River Authority v. City of Conroe, Texas and City of Magnolia, Texas ( 2024 )

Supreme Court of Texas
══════════
No. 22-0649
══════════
San Jacinto River Authority,
Petitioner,
v.
City of Conroe, Texas and City of Magnolia, Texas,
Respondents
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Ninth District of Texas
═══════════════════════════════════════
Argued January 9, 2024
JUSTICE BUSBY delivered the opinion of the Court.
These parties to water sales contracts are before the Court for a
second time. Unlike a typical contract dispute, all the parties here are
government entities with immunity from suit. So far, their taxpayers
and ratepayers have been funding only procedural and jurisdictional
skirmishes distantly related to the merits of the dispute.
Today’s legal skirmish concerns the scope of the statutory waiver
of immunity for contractual claims against local government entities.
The contracts at issue obligate two cities to buy surface water from a
river authority. When a dispute over fees and rates arose, the cities
stopped paying their complete balances, and the authority sued the
cities to recover those amounts. The trial court granted the cities’ plea
to the jurisdiction, and the court of appeals affirmed on the ground that
the authority did not engage in pre-suit mediation as the contracts
required.
We hold that contractual procedures for alternative dispute
resolution, which are enforceable against local governments under
section 271.154 of the Local Government Code, do not serve as limits on
the waiver of immunity set out in section 271.152. Nor does the parties’
agreement to mediate apply to the authority’s claims. We also reject the
cities’ alternative position that the agreements do not fall within the
waiver because they fail to state their essential terms. Accordingly, we
reverse and remand to the trial court for further proceedings to resolve
the authority’s claims on the merits.
BACKGROUND
As we explained in more detail in our last opinion involving these
parties, the Legislature created the Lone Star Groundwater
Conservation District to address concerns about the growing population
in Montgomery County and that region’s reliance on groundwater. See
City of Conroe v. San Jacinto River Auth., 602 S.W.3d 444, 448 (Tex.
2020). Lone Star developed a Regulatory Plan to reduce groundwater
usage. The Regulatory Plan encourages water providers to work
together to reduce groundwater usage, establishes goals for
groundwater use reduction, and requires water providers to report on
their groundwater use. Under the Regulatory Plan, Lone Star set
2
groundwater pumpage limits for all high-volume groundwater users in
Montgomery County, including cities and other utilities.
Petitioner San Jacinto River Authority (SJRA), a preexisting
entity, developed a groundwater reduction plan (GRP) to draw surface
water from Lake Conroe—which it controls—and sell the water to cities
and utilities to help them comply with Lone Star’s Regulatory Plan.
SJRA invited all water providers in Montgomery County to participate
so that they could share the costs and benefits of transitioning from
groundwater use to surface water use. Under the GRP, SJRA would
design, construct, and operate a treatment plant and related systems,
which it would finance by issuing over $550 million in bonds.
Many cities and utilities within Lone Star’s district, including
Respondents Conroe and Magnolia, opted to join the GRP and signed
decades-long contracts with SJRA. These GRP contracts secured
SJRA’s outstanding bonds. By entering into the contracts, the
participants sought to reduce the overall cost of complying with Lone
Star’s Regulatory Plan while obtaining favorable financing terms.
Certain features of the GRP contracts are in dispute. As relevant
here, these features include: procedural and substantive requirements
that SJRA must follow in setting the price of water, limits on SJRA’s
authority to set the quantity of water a municipality or utility must take,
and procedures for handling different types of defaults. The GRP
contracts provide that a “payment default” occurs when any party “fails
to timely pay any fees, rates, charges, or other amounts due” under the
GRP contracts. A “performance default” occurs when any party “fails to
perform or is in breach or violation of any of its other obligations” under
3
the GRP contracts. The contracts require the parties to engage in
pre-suit mediation for performance defaults but not payment defaults.
SJRA began supplying water under the GRP contracts in 2015.
Conroe received water from SJRA, but Magnolia did not. Conroe paid
for the surface water it took from SJRA, and both it and Magnolia paid
“pumpage fees” as required by their GRP contracts. When SJRA
increased both water rates and pumpage fees in 2017, Conroe and
Magnolia (collectively, the Cities) objected. The Cities have short-paid
SJRA—refusing to pay the new higher rates or fees—ever since. See
Conroe, 602 S.W.3d at 449-450.
Meanwhile, several utilities and cities sued Lone Star and its
officials, seeking to invalidate the Regulatory Plan that had motivated
the GRP contracts. The trial court in that case signed a final judgment
invalidating the pumpage limits contained in the Regulatory Plan,
concluding that the limits were made “without legal authority and
consequently [were] . . . unlawful, void, and unenforceable.” But the
trial court left the remainder of the Regulatory Plan in place.1
As for the GRP contracts, SJRA initially responded to the Cities’
partial refusal to pay by suing them in Travis County under the
Expedited Declaratory Judgments Act, which resulted in the parties’
first visit to this Court in 2020. Id. at 450. We held that SJRA could
1The parties to the Lone Star suit reached a settlement while the case
was on interlocutory appeal. See Lone Star Groundwater Conserv. Dist. v. City
of Conroe, No. 09-18-00383-CV, 2019 WL 611519 (Tex. App.—Beaumont Feb.
14, 2019, no pet.) (dismissing appeal due to settlement). The final judgment
was the product of that settlement. No issues regarding the validity of the
Regulatory Plan are before us.
4
obtain declarations regarding the valid execution of the GRP contracts
but not regarding compliance with those contracts. Id. at 448, 458-59.
While that suit was pending, several private utilities sued SJRA
in Montgomery County for breach of GRP contracts. SJRA brought
counterclaims against the utilities and third-party claims against the
Cities, alleging they breached the contracts by failing to pay the required
rates and fees.
The Cities then filed the pleas to the jurisdiction at issue here,
arguing that their immunity had not been waived under the Local
Government Contract Claims Act (the Act)—sections 271.151 through
271.160 of the Local Government Code—for two reasons: SJRA failed to
submit its claims to pre-suit mediation, and the GRP contracts failed to
state their essential terms. The trial court ordered the parties to confer
regarding mediation, but no party asked the court to order mediation.
The court eventually granted the pleas and dismissed SJRA’s claims
against the Cities, though without ordering a severance.
SJRA filed an interlocutory appeal, and the court of appeals
affirmed. The court held that the waiver of immunity in section 271.152
of the Act is limited by section 271.154, which provides that dispute
adjudication procedures stated or incorporated in the contract are
enforceable, and that immunity was not waived because SJRA failed to
engage in pre-suit mediation as required by the GRP contracts. The
court did not reach the issue of essential terms. 683 S.W.3d 1, 12-13
(Tex. App.—Beaumont 2022). SJRA then filed a petition for review,
which we granted.
5
ANALYSIS
SJRA raises three issues in its petition. First, it argues that
contractually agreed procedures for adjudicating disputes, such as the
pre-suit mediation requirements in the GRP contracts, do not limit the
Act’s waiver of a local government entity’s immunity. Second, SJRA
contends that its claims are not covered by the contracts’ pre-suit
mediation requirements. Third, SJRA asserts that the GRP contracts
state their essential terms, so the Act’s waiver of governmental
immunity applies. We address each issue in turn. Because these issues
concern whether governmental immunity has been waived, we review
them de novo. Fraley v. Tex. A&M Univ. Sys., 664 S.W.3d 91, 97 (Tex.
2023).
I. Contractual adjudication procedures made enforceable by
section 271.154 are not limitations on section 271.152’s
waiver of immunity.
Governmental units, including political subdivisions like
municipalities and river authorities, are generally immune from suit
absent a legislative waiver. City of San Antonio v. Maspero, 640 S.W.3d
523, 528 (Tex. 2022). Whether governmental immunity has been waived
in a given case implicates subject-matter jurisdiction. Univ. of Tex. M.D.
Anderson Cancer Ctr. v. McKenzie, 578 S.W.3d 506, 512 (Tex. 2019). In
response to SJRA’s claims under the contracts, the Cities filed pleas to
the jurisdiction asserting that their governmental immunity has not
been waived. We begin our analysis by considering the Cities’ argument
that contractual dispute-resolution procedures made enforceable by
6
section 271.154 of the Act limit the scope of the immunity waiver in
section 271.152.
A. When section 271.152 waives immunity for
adjudicating a claim, section 271.154 provides that
the waiver includes enforcement of agreed
procedures for that adjudication.
The Act’s waiver of immunity for certain breach-of-contract suits
against local government entities “alter[ed] decades of one-sided
bargains, in which local governments were wholly immune from
breaches of their obligations.” San Antonio River Auth. v. Austin Bridge
& Rd., L.P., 601 S.W.3d 616, 625 (Tex. 2020). Section 271.152 provides
that when a local government entity authorized to make contracts—
including a city or a river authority—“enters into a contract” for goods
or services that meets certain requirements, that entity “waives
sovereign immunity to suit for the purpose of adjudicating a claim for
breach of the contract, subject to the terms and conditions of [the Act].”
TEX. LOC. GOV’T CODE § 271.152 (emphasis added); see id. § 271.151(2),
(3) (defining which contracts and local government entities are covered).
In situations where this waiver applies, section 271.154 recognizes that
the parties may state or incorporate in their contract “[a]djudication
procedures”—that is, procedures for adjudicating the breach-of-contract
claim expressly permitted by section 271.152—and provides that those
procedures generally “are enforceable” by a court or arbitrator.
Id. § 271.154.
In effect, the Act establishes an order of operations: if the waiver
of immunity in section 271.152 applies to the claim for breach of
contract, then the contractual procedures for adjudicating that claim
7
referenced in section 271.154 are enforceable. This understanding is
supported by our opinion in Zachry Construction Group v. Port of
Houston Authority, where we recognized that section 271.154 relates “to
the litigation and adjudication of a claim” rather than to “the scope of
immunity,” and that the concluding “subject to” phrase in section
271.152 “does not preclude . . . other contractual procedures.” 449
S.W.3d 98, 107-08 (Tex. 2014); see also Austin Bridge, 601 S.W.3d at 625
(“Before [the Act], there was no ‘adjudication’ of a contract claim against
a local government. Now, a local government can be held to promises
made within the chapter’s framework.” (citation omitted)).
The Cities and the court of appeals point out that we have also
referred to the other provisions of the Act collectively as “limitations on
the waiver of immunity.” Hays St. Bridge Restoration Grp. v. City of
San Antonio, 570 S.W.3d 697, 706 (Tex. 2019) (quoting Zachry, 449
S.W.3d at 108). On that basis, the court of appeals held that “to show
waiver of immunity, a claimant must plead facts showing that
conditions of section 271.154 have been met.” 683 S.W.3d at 12 (quoting
Mission Consol. Indep. Sch. Dist. v. ERO Int’l, LLP, 579 S.W.3d 123, 128
(Tex. App.—Corpus Christi—Edinburg 2019, no pet.)). We disagree.
Nothing in section 271.154 indicates that it is narrowing section
271.152’s waiver of immunity to exclude cases in which parties have not
complied with the agreed-upon adjudication procedures. Instead,
section 271.154 provides that such procedures—which may include
“requirements for . . . engaging in alternative dispute resolution
proceedings before bringing a suit”—“are enforceable.” TEX. LOC. GOV’T
C ODE § 271.154. The word “enforceable” makes clear that the waiver of
8
immunity for a court or arbitrator to adjudicate the claim includes the
ability to require parties to comply with their agreed procedures for that
adjudication.
If there were no waiver of immunity, local government entities
could enforce agreements for mandatory pre-suit alternative dispute
resolution (ADR) against private parties, but the reverse would not be
true. Section 271.154 ensures that under the waiver, both sides are on
equal footing so that private parties can similarly enforce pre-suit ADR
agreements against local government entities. As we said in Austin
Bridge, this section “is better read to authorize contracting parties to
devise methods for dispute resolution in their contracts for claims now
viable through the subchapter’s limited waiver of immunity.” 601
S.W.3d at 625 n.45 (emphasis added).
In contrast, the court of appeals’ interpretation would thwart
enforcement of contractual ADR and other agreed adjudication
procedures. Absent a waiver of immunity, a court lacks subject-matter
jurisdiction and must dismiss the suit—it cannot order the parties to
engage in ADR procedures. The Cities maintain that courts can, in some
sense, enforce the agreed-upon mediation procedure by dismissing
SJRA’s claims, but that view is contrary to the common understanding
of the word “enforceable.” The Legislature’s choice of that word signals
that enforcement of agreed adjudication procedures falls within the
scope of section 271.152’s waiver of immunity for adjudicating the claim
for breach of contract, enabling a court or arbitrator to order compliance
with those procedures.
9
B. Section 311.034 of the Government Code is
inapplicable because these adjudication procedures
are neither statutory nor a prerequisite to suit.
In support of its contrary holding, the court of appeals cited
section 311.034 of the Government Code, which provides that
“[s]tatutory prerequisites” to suit “are jurisdictional requirements in all
suits against a governmental entity.” TEX. GOV’T C ODE § 311.034; see
683 S.W.3d at 12 n.48. We conclude that this statute does not apply to
section 271.154 of the Local Government Code because contractually
selected adjudication procedures are not statutory and their
enforcement by a court would necessarily occur after suit is brought.
Although section 271.154 is a statute, it simply provides that
certain agreements to adjudication procedures are enforceable by a
court or arbitrator; those procedures need not be prerequisites to suit.
Here, the parties did agree to mediate certain claims prior to suit, but
that agreement is a contractual prerequisite, not a statutory one. And
as this case shows, a court must determine after suit is filed whether a
party was required to comply with the mediation procedure—including
disputes about whether the claim was within the procedure’s scope and
any defenses to the procedure’s application, as well as what the proper
remedy would be for failure to comply. For example, that remedy could
be an order compelling mediation—perhaps coupled with abatement of
the ongoing suit—rather than dismissal,2 which further demonstrates
2Cf. In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 412
& n.5 (Tex. 2011) (holding contractual requirement that parties engage in
appraisal process for dispute resolution before filing suit is enforceable by
motion to compel but declining to order abatement of pending suit); In re U.S.
10
that compliance with the procedure is not an absolute prerequisite to
suit.
For these reasons, we conclude that compliance with any
contractually agreed adjudication procedures is not a condition
precedent to the waiver of immunity in section 271.152. Section 271.154
provides that a court or arbitrator may enforce those procedures, not
that it must dismiss a claim for breach of contract unless a party
complies with them.
II. SJRA’s claims were for payment defaults, so the pre-suit
mediation procedures in the GRP contracts do not apply.
The Cities’ argument that SJRA’s claims should be dismissed for
failure to comply with the contractual pre-suit mediation procedure also
falls short because that procedure does not apply to these claims. The
GRP contracts require mediation of claims for “performance default” but
not claims for “payment default.” A payment default occurs when a
party “fails to timely pay any fees, rates, charges, or other amounts due.”
A performance default occurs when a party “fails to perform or is in
breach or violation of any of its other obligations” under the contracts.
In determining whether the type of default claimed by SJRA
triggered the pre-suit mediation requirement, the court of appeals
looked in part to “allegations between the parties”—that is, beyond
SJRA’s claims for breaches by the Cities to allegations regarding
Home Corp., 236 S.W.3d 761, 764 (Tex. 2007) (finding no indication in contract
that parties who agreed to mediate prior to arbitration intended to dispense
with arbitration if mediation did not occur first, although defendant could have
sought to delay arbitration pending mediation).
11
breaches by SJRA. 683 S.W.3d at 11. But jurisdiction is determined on
a claim-by-claim basis. Heckman v. Williamson County, 369 S.W.3d 137,
152-53 (Tex. 2012). Accordingly, we focus on the “nature” or “gravamen”
of SJRA’s third-party claims against the Cities to determine whether
those claims fall under the GRP contracts’ mandatory pre-suit ADR
procedure. In re Breviloba, LLC, 650 S.W.3d 508, 512 (Tex. 2022).
SJRA alleged that the Cities “breached their respective GRP
contracts by refusing to pay the GRP rates adopted in accordance with
their GRP contracts.” These claims fall within the contracts’ definition
of “payment default” because they concern a failure to pay rates due.
The court of appeals noted that SJRA has also alleged a “controversy . . .
between the parties concerning the compliance of SJRA’s rates with the
GRP Contracts.” But SJRA is asserting that it did not default in setting
those rates, which is a necessary predicate for its claim that the Cities
did default by failing to pay them. SJRA does not allege any other basis
for relief and does not contend that the Cities face liability for any reason
other than their failure to remit the full payment due under the GRP
contracts’ rate and fee provisions. Thus, the contracts did not require
SJRA to mediate its claims before filing suit, which confirms that the
courts below erred in holding that the Cities were entitled to dismissal
based on SJRA’s failure to mediate.
III. Because the GRP contracts state their essential terms,
executing them waived the Cities’ immunity.
As relevant here, the Act limits its waiver of immunity to properly
executed “written contract[s] stating the essential terms of the
agreement for providing goods or services to the local governmental
12
entity.” TEX. LOC. GOV’T C ODE § 271.151(2)(A). The Cities argue that
their contracts with SJRA do not state their essential terms, which
provides a separate reason that their immunity has not been waived
under section 271.152.
Although the court of appeals did not address this issue, the Cities
raised it in their plea to the jurisdiction, which the trial court granted.
Because this issue of law relates to jurisdiction and reaching it now will
help resolve the remainder of this litigation efficiently, we address the
issue ourselves rather than remanding for the court of appeals to do so.
See Jones v. Turner, 646 S.W.3d 319, 325 (Tex. 2022).
A. A contract states its essential terms if it satisfies the
common law and complies with the Act’s
requirements.
We have explained that the Act’s reference to “essential terms”
incorporates the requirements of the common law. See Dall./Fort Worth
Int’l Airport Bd. v. Vizant Techs., 576 S.W.3d 362, 368-69 (Tex. 2019)
(citing Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 237 (Tex. 2016)). For
example, the common law addresses which terms must be stated: those
that are “basic obligations” of the type of contract at issue, as well as
particular terms that the parties to the specific contract would
reasonably regard as “vitally important ingredients of their bargain.”
Campbellton Rd., Ltd. v. City of San Antonio, ___ S.W.3d ___, ___,
No. 22-0481, slip op. at 20 n.63 (Tex. Apr. 12, 2024) (quoting Kirby Lake
Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 838 (Tex.
2010), and Vizant Techs., 576 S.W.3d at 369). The common law also
speaks to how these terms must be stated: with “a reasonable degree of
certainty and definiteness” sufficient to confirm the parties’ intent to be
13
bound, and to “enable a court to understand and enforce” the obligations
“and provide an appropriate remedy when breached.” Vizant Techs., 576
S.W.3d at 369 (citing Fischer, 479 S.W.3d at 237).
The Cities argue that this interpretation renders the language
“essential terms” surplusage because the Act applies only to contracts,
which already must state their essential terms to be enforceable. The
alternative offered by the Cities is that the Act requires a higher, but
unspecified, standard for a contract to state its essential terms. We
adhere to our precedent and reject this alternative.
When the Legislature uses language that tracks the common law,
we generally infer that the Legislature intended to import the
common-law understanding of that language. Sampson v. Univ. of Tex.,
500 S.W.3d 380, 387 (Tex. 2016). Accordingly, we have held that the
Legislature’s use of essential-terms language in section 271.151 was
meant to import the common-law understanding of that language—
namely, the common-law requirements for determining which terms
must be included and whether those terms are stated with sufficient
clarity that they can be enforced.3
Contrary to the Cities’ argument, the reference to essential terms
is not surplusage. The Act requires that a contract state some additional
terms that the common law might not: the contract must be for goods or
services, must be properly executed on behalf of a local government
3 As we explain further below, this reference to “enforced” should not be
read to suggest that a contractual right must ultimately be enforceable or that
any defenses to enforcement must be disproved before immunity will be
waived. See Campbellton Rd., No. 22-0481, slip op. at 23-24; El Paso Educ.
Initiative, Inc. v. Amex Props., LLC, 602 S.W.3d 521, 534 n.66 (Tex. 2020).
14
entity, and must be in writing. See TEX. LOC. GOV’T CODE
§ 271.151(2)(A). Those additional terms are likewise essential for a
contract to be “subject to this subchapter”—that is, to trigger a waiver
of immunity.
The Cities also fail to point to an alternative ordinary meaning
for the essential-terms requirement. To construct a new standard out
of whole cloth based only on the statute’s reference to essential terms
would surely fail to comport with our preference for “ordinary meaning
[over] an unusual meaning that would avoid surplusage.” Stephens v.
Beard, 485 S.W.3d 914, 918 (Tex. 2016) (citation and internal quotation
marks omitted). Moreover, the Cities’ interpretation is circular. In the
Cities’ view, a contract must state its essential terms even if it would be
enforceable at common law without those terms. But that makes no
sense: the concept of “essential” terms only has relevance in our law in
determining whether the contract is enforceable. See Vizant Techs., 576
S.W.3d at 368-69.
With this standard in mind, we turn to the Cities’ specific
arguments that the GRP contracts do not state their “essential terms.”
The price term. The Cities first contend that the GRP contracts’
use of SJRA’s rate orders as a price-setting mechanism renders the
essential price term too indefinite to be enforced. But the GRP contracts
offer a detailed set of procedural and substantive limitations on how
prices are to be set. These limitations include requirements that rates
must be as low as possible while being “consistent with good
management practices,” “necessary and proper” under certain
provisions of the contracts, “consistent with [SJRA’s] statutory and
15
constitutional duties,” and “just, reasonable, and nondiscriminatory.” In
addition, rates may be charged only to recoup the categories of expenses
listed in the GRP contracts.
These limitations, among others, provide sufficient guidance for
a court to determine whether SJRA complied with the GRP contracts’
rate-setting requirements. See Fischer, 479 S.W.3d at 237 (“[T]he
agreement’s terms must also be sufficiently definite to enable a court to
understand the parties’ obligations, and to give an appropriate remedy
if they are breached.” (citations and internal quotation marks omitted)).
Accordingly, the price term is sufficiently definite.
The quantity term. Conroe also argues that the quantity term
in its GRP contract is too indefinite to enforce.4 In addition to signing a
GRP contract, Conroe and SJRA signed a supplemental agreement that
addresses quantity. The GRP contract allows SJRA to set the minimum
quantity of water that Conroe must take from SJRA. Then, the GRP
contract and supplemental agreement together set a floor on that
minimum (“not less than sixty percent . . . of aggregate total
groundwater usage of the City during calendar year 2009 according to
the official records of the Conservation District”), as well as a ceiling on
that minimum (“an amount equal to ninety percent . . . of the average
daily amount of groundwater . . . supplied from any such site during the
4 Magnolia has not argued that the quantity term of its GRP contract is
indefinite, so we do not address that issue. Indeed, the quantity term in
Magnolia’s GRP contract applies only if Magnolia begins taking surface water
from SJRA, which it has not yet done. Magnolia must still pay pumpage fees,
but those fees are not tied to any quantity of water taken from SJRA and have
not been challenged as indefinite.
16
low-demand period preceding the date of calculation of the Contract
Quantity”). The supplemental agreement also provides that SJRA will
give “due deference” to Conroe’s director of public works and his
“preferences and decisions” in setting the minimum. Under the GRP
contract and the supplemental agreement, Conroe is free to take more
than that minimum as its needs require.
Taken together, these provisions provide enough guidance for a
court to determine whether SJRA complied with its requirements in
setting the contract quantity. Indeed, courts routinely uphold
requirements contracts, in which there is no set quantity term and the
conduct of the parties determines the quantity they are required to give
or take. See, e.g., Pace Corp. v. Jackson, 284 S.W.2d 340, 345 (Tex.
1955). Accordingly, the quantity term in Conroe’s GRP contract and
supplemental agreement is sufficiently definite.
Conroe also argues that the quantity term’s definiteness was
undermined post-contract by the separate court judgment invalidating
Lone Star’s groundwater pumpage limits. But the quantity provisions
of the GRP contract and supplemental agreement are not directly tied
to the groundwater pumpage limits. Instead, they reference Lone Star’s
Regulatory Plan as a whole. Yet even if the quantity term were tied to
those limits, that fact would not support the conclusion that the contract
fails to state its essential terms.
The language of section 271.152 reveals that whether there is a
“contract”—including essential terms—is a question asked at the time
of formation. See Campbellton Rd., No. 22-0481, slip op. at 13-15.
Section 271.152 provides that immunity is waived when an authorized
17
government entity “enters” into a contract subject to the Local
Government Code, and section 271.151(2)(A) requires that the contract
“stat[e]” its essential terms. Accordingly, the relevant time for
determining an immunity waiver is the time of contract formation, and
courts evaluate compliance with the “essential terms” requirement
based on the state of the contract at that time. See also RESTATEMENT
(SECOND) OF CONTRACTS § 33 (AM. L. I NST. 1981) (listing certainty of
contractual terms as element of formation).
Of course, later events could render the contract unenforceable on
the merits, but that does not affect whether there was—at formation—
a contract stating its essential terms for purposes of the immunity
waiver. See Campbellton Rd., No. 22-0481, slip op. at 23-24; El Paso
Educ. Initiative, Inc. v. Amex Props., LLC, 602 S.W.3d 521, 534 n.66
(Tex. 2020) (explaining that our precedent does not “require that a
contract ultimately be enforceable to clear the jurisdictional hurdle”).
For example, a contract could be held to be unconscionable, or a court
might find that a condition precedent to an obligation has not been
satisfied, thus rendering a contract unenforceable even though there
was a contract stating its essential terms at formation. Similarly, the
failure of an initially definite term may simply present grounds for a
court to reform the contract or else substitute a reasonable term, such
as when a bank rate that the parties selected as a reference point for
interest later becomes unavailable. See, e.g., Bailey, Vaught, Robertson
& Co. v. Remington Invs., Inc., 888 S.W.2d 860, 866-67 (Tex. App.—
Dallas 1994, no writ); F.D.I.C. v. Ambika Inv., No. 94-10287, 1994 WL
18708818, at *2-3 (5th Cir. Dec. 1, 1994); see also R ESTATEMENT (SECOND)
OF C ONTRACTS § 204.
Ultimately, as long as the contract meets the common-law
“essential terms” standard and the Act’s other stated requirements at
the time it is formed, that is enough to show a waiver of immunity.
Because those requirements were met here as we have explained, the
court of appeals erred in affirming the trial court’s order granting the
Cities’ pleas to the jurisdiction.
CONCLUSION
Contractual ADR provisions and other agreed adjudication
procedures made enforceable against local governments by the Act’s
waiver of sovereign immunity do not serve as limits on that waiver. And
in any event, the parties’ agreement to pre-suit mediation did not apply
to SJRA’s claims. In addition, the GRP contracts sufficiently state their
essential terms as required by the common law and the Act. We
therefore hold that the Act waived the Cities’ immunity when they
entered into the GRP contracts, and we reverse the court of appeals’
judgment and remand the case to the trial court for further proceedings
to resolve SJRA’s claims on the merits.
J. Brett Busby
Justice
OPINION DELIVERED: April 12, 2024
19