Five Corners Improvement District v. JKO Enterprises, LLC ( 2021 )

Reversed and Rendered and Memorandum Opinion filed May 4, 2021.
In The
Fourteenth Court of Appeals
NO. 14-20-00116-CV
FIVE CORNERS IMPROVEMENT DISTRICT, Appellant
V.
JKO ENTERPRISES, LLC, Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Cause No. 2017-28556
MEMORANDUM OPINION
In this interlocutory appeal from an order denying summary judgment on
jurisdictional grounds, the question presented is whether JKO Enterprises, LLC
affirmatively demonstrated that the trial court had jurisdiction by establishing that
the Five Corners Improvement District had waived its governmental immunity.
Because we conclude that JKO failed to satisfy its burden, we reverse the trial court’s
order and render judgment dismissing JKO’s counterclaims.
BACKGROUND
This case began when Harris County filed an original petition against JKO
Enterprises, LLC, alleging that JKO was liable for several thousand dollars in
delinquent ad valorem taxes. Harris County filed that petition on behalf of itself and
several other county-wide taxing authorities. Additional taxing authorities with
smaller jurisdictions, including the Five Corners Improvement District, were
notified that they might also have claims against JKO.
The District intervened in Harris County’s suit, claiming that JKO was also
liable for several hundred dollars in delinquent assessments. JKO filed an answer,
generally denying all claims.
During the discovery period, JKO learned that the District had previously
exercised its statutory authority to exclude certain properties that were once within
its jurisdiction and to retroactively waive all assessments against those properties.
JKO submitted a letter to the District requesting that its property receive the same
treatment as the excluded properties. The District responded that a hearing is a
prerequisite to an exclusion, and that the District will decide at a future meeting of
its board of directors whether a hearing is merited.
The District’s board of directors met one month later. The meeting was open
to the public, but JKO did not attend. The board was advised by its counsel that a
hearing on a request for exclusion is mandatory when the request satisfies a certain
statutory requirement, but that JKO’s request did not fulfill that requirement. The
board was further advised that it had the discretion to call for a hearing, even without
a statutorily compliant request, if the board determined that the requested exclusion
would be practicable, just, or desirable. The board declined to exercise that
discretion in JKO’s case.
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After learning that the District had decided to take no action on its request for
exclusion, JKO filed counterclaims in the still-pending litigation, alleging that the
District had violated JKO’s constitutional rights to equal protection and due process.
In its live pleading, JKO sought a judgment excluding its property from the District
and a cancellation of all of the District’s assessments.
The District moved for summary judgment on jurisdictional grounds, arguing
that it was shielded by governmental immunity and that JKO had failed to establish
a valid waiver of that immunity. The trial court denied the District’s motion, and
now the District challenges that ruling in this interlocutory appeal.
ANALYSIS
Before we address the parties’ appellate arguments, we briefly discuss the
origin of the District, because that origin explains the legal basis for the District’s
claim of governmental immunity.
In 2007, the Texas Legislature created the Harris County Improvement
District No. 10 with the express purpose of promoting, developing, encouraging, and
maintaining employment, commerce, transportation, parking, housing, recreation,
the arts, safety, and the public welfare in the area of the district. See Tex. Spec. Dists.
Code § 3860.003(b). That district was subsequently divided into two districts by
order of its board of directors. See Tex. Spec. Dists. Code § 3860.111(b) (“Not later
than the 60th day after the effective date of the Act creating this chapter, the board
shall adopt an order dividing the district into two districts.”). The second district
became known as the Harris County Improvement District No. 10B, which the
Legislature renamed in 2009 as the Five Corners Improvement District. See Act
effective June 19, 2009, 81st Leg., R.S., ch. 1091, § 2, 2009 Tex. Gen. Laws 2867,
2867.
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The District has all of the powers of the original district, including the power
to impose and collect assessments. See Tex. Spec. Dists. Code §§ 3860.111(f),
3860.204(a). The District is also subject to Chapter 375 of the Local Government
Code, which generally applies to municipal management districts. See Tex. Spec.
Dists. Code § 3860.006.
Under Chapter 375, the District is considered a political subdivision of the
state. See Tex. Loc. Gov’t Code § 375.004(a). And as a political subdivision, the
District shares in the state’s sovereign immunity, though the District’s immunity is
known as governmental immunity. See City of Houston v. Williams, 353 S.W.3d
128, 134 (Tex. 2011) (“When performing governmental functions, political
subdivisions derive governmental immunity from the state’s sovereign immunity.”).
Because of this governmental immunity, the District remains immune from suit and
the trial court lacks jurisdiction over claims against it, absent a valid waiver of that
immunity. See Tex. Dep’t of Transp. v. Jones, 8 S.W.3d 636, 639 (Tex. 1999) (per
curiam).
As the counter-plaintiff below, JKO had the burden of affirmatively
demonstrating that the trial court had jurisdiction over the claims against the District.
See Town of Shady Shores v. Swanson, 590 S.W.3d 544, 550 (Tex. 2019). This
burden necessarily included the burden of establishing that the District’s
governmental immunity had been waived. Id. JKO contends that it satisfied this
burden because it pleaded for equitable remedies arising out of constitutional
violations, for which the District is not immune.
JKO correctly observes that governmental immunity does not deprive a trial
court of jurisdiction over constitutional claims for equitable relief. See City of Elsa
v. M.A.L., 226 S.W.3d 390, 392 (Tex. 2007) (per curiam). But to affirmatively
demonstrate the trial court’s jurisdiction, JKO had to do more than simply invoke
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the Constitution. See Dir. of Dep’t of Agric. & Env’t v. Printing Indus. Ass’n of Tex.,
600 S.W.2d 264, 265 (Tex. 1980) (rejecting the lower court’s conclusion that a
plaintiff need only plead a generic invasion of rights to maintain a suit against a
governmental defendant). JKO had to establish that its constitutional claims were
also viable. See Andrade v. NAACP of Austin, 345 S.W.3d 1, 11 (Tex. 2011).
JKO asserted a combined cause of action for “Equal Protection and Due
Process.” Though this label mentions two separate constitutional rights, JKO’s
pleadings and briefing contain no references to either procedural or substantive due
process. Instead, they focus exclusively on equal protection. We limit our review
accordingly. See Odutayo v. City of Houston, No. 01-12-00132-CV, 2013 WL
1718334, at *4 (Tex. App.—Houston [1st Dist.] Apr. 18, 2013, no pet.) (mem. op.)
(concluding that the plaintiff had not established a viable due process claim against
a governmental defendant where the plaintiff “failed to plead what specific property
right or liberty interest she had been deprived of, or what procedure she is entitled
to”).
To assert a viable equal protection claim, JKO had to demonstrate that it was
treated differently than other similarly situated parties without a reasonable basis.
See Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 939 (Tex. 1998).
The District challenged whether JKO had satisfied this burden in its motion
for summary judgment. Such motions are one means of challenging the trial court’s
jurisdiction over a claim. See Thomas v. Long, 207 S.W.3d 334, 339 (Tex. 2006).
When as here the motion challenges the existence of jurisdictional facts, we consider
relevant evidence submitted by the parties. See Tex. Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 227 (Tex. 2004). If the evidence raises a fact question
regarding the jurisdictional issue, then we cannot decide the jurisdictional issue
ourselves and the case must be allowed to proceed so that the fact issue can be
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resolved by the finder of fact. Id. at 227–28. However, if the relevant evidence is
undisputed or fails to raise a genuine issue of material fact, then we can rule on the
jurisdictional issue as a matter of law. Id. at 228. Our review of the trial court’s ruling
is de novo. Id.
In support of its equal protection claim, JKO produced evidence that the
District had previously excluded other properties from its jurisdiction. The evidence
showed that the District agreed to these exclusions in order to settle two separate
legal proceedings.
The first proceeding was initiated by Casco Hauling & Excavating, Inc., and
the second proceeding was initiated by 2JM Land & Cattle Company, LLC. In each
proceeding, there were more than a dozen additional plaintiffs, and when combined,
they represented more than a hundred different properties within the District’s
jurisdiction.
Both of those proceedings began as challenges to the District’s adoption of an
assessment. The parties brought administrative appeals first, and after receiving
adverse decisions there, they then pursued judicial contests in the trial court.
The Casco suit settled early in the proceedings, whereas the 2JM suit
proceeded to a full trial by jury. The jury in that case returned findings against the
District, and based on those findings, the trial court rendered a final judgment
declaring the District’s assessment void. The District appealed the trial court’s
judgment to our court, but shortly before the appeal submitted, the parties reached a
settlement. We dismissed the appeal without ever addressing the merits of the
District’s appellate arguments.
Pursuant to each settlement, the District executed an order excluding the
plaintiffs’ properties from its jurisdiction. The order in the Casco suit contains a
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recital stating that the District agreed to the exclusion because it “would avoid the
costs of the existing appeals and litigation, potential further contests and litigation
and the direct and indirect costs associated with landowners who are not supportive
of the District.” The order in the 2JM suit contains a similar recital stating that the
District agreed to the exclusion because “settlement of the appeal is in the best
interests of the District as avoiding significant expense and delay.” Both orders were
publicly recorded with the county clerk.
The District now argues that JKO has failed to state a viable equal protection
claim because JKO has not shown that it is similarly situated to the Casco and 2JM
plaintiffs and because JKO has not negated a rational basis for its differential
treatment. We agree.
JKO is not similarly situated to the Casco and 2JM plaintiffs because their
cases proceeded on different grounds and exposed the District to different risks. JKO
filed its suit to challenge the District’s refusal to take action on its request for
exclusion, whereas the Casco and 2JM plaintiffs filed their suits to challenge the
District’s adoption of an assessment. There is no statutory procedure for appealing
the District’s exclusion decisions, but there is a statutory procedure for appealing the
District’s adoption of an assessment. See Tex. Loc. Gov’t Code § 375.123(a)–(b) (an
administrative appeal must be filed no later than thirty days after the assessment is
adopted, and the judicial contest must be filed no later than thirty days after the
administrative appeal is decided). The Casco and 2JM plaintiffs timely followed that
procedure, which meant that they had the statutory right to engage the District in
litigation. By contrast, JKO never exercised that same procedure, and because the
time for doing so has long since passed, JKO has lost the right to appeal the
assessment. See Tex. Loc. Gov’t Code § 375.123(c) (failure to follow the two-step
appeal procedure “results in a loss of the right to appeal the assessment”).
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The District had a rational basis for offering exclusions as a term of settlement
with the Casco and 2JM plaintiffs because their litigation had the potential for being
protracted and costly. And with the 2JM case in particular, the District had a rational
basis for agreeing to the exclusions because the District faced the riskier potential of
an adverse appellate decision. See Transport Ins. Co. v. Faircloth, 898 S.W.2d 269,
280 (Tex. 1995) (“Public policy favors the amicable settlement of controversies.”).
The District does not face the same risk of protracted and costly litigation with
JKO because there is no comparable statutory procedure for appealing the exclusion
decision that JKO has challenged. Even though litigation has actually resulted with
the filing of JKO’s counterclaim, that counterclaim cannot continue under the
current posture unless JKO demonstrated a viable equal protection claim, and JKO
has failed to make the initial showing that it is similarly situated to a party who
received differential treatment. JKO has not pleaded or produced any evidence that
the District has granted an exclusion to another party who, like JKO, did not also
have a contemporaneous challenge to the adoption of an assessment. See City of
Dallas v. Jones, 331 S.W.3d 781, 787–88 (Tex. App.—Dallas 2010, pet. dism’d)
(holding that the plaintiffs had failed to establish a waiver of the defendant’s
governmental immunity where the plaintiffs did not demonstrate that the defendant
had acted differently with respect to any other similarly situated person).
JKO responds with several points, arguing first that its counterclaim should
be allowed to proceed because its case is “identical” to Spring Branch Management
District v. Valco Instruments Co., No. 01-11-00164-CV, 2012 WL 2923151 (Tex.
App.—Houston [1st Dist.] July 12, 2012, no pet.) (mem. op.). That case is factually
similar insofar as a property owner challenged the denial of its request for exclusion
after the municipal management district granted other requests for exclusion. Id. at
*1. However, that case has no legal application here because the appellate court
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declined to address whether the property owner had asserted a viable equal
protection claim. Id. at *9–11.
In another point, JKO asserts that the District continues to provide services
and street improvements along the properties that were excluded in the Casco and
2JM settlements. Even if we assumed for the sake of argument that this assertion
were true, JKO does not explain how this fact affirmatively demonstrates the trial
court’s jurisdiction. JKO’s equal protection claim is based on the District’s disparate
treatment with exclusions, not with services and street improvements. Besides, the
District is specifically empowered to provide services that benefit property in the
district, “regardless of whether the improvements or services are located inside or
outside its boundaries.” See Tex. Loc. Gov’t Code § 375.092(f).
In one last point, JKO seems to challenge certain terms in the 2JM settlement
that restrict the rights of the 2JM plaintiffs to participate in the political process. But
JKO has no standing to make that challenge, and its argument does not otherwise
negate the District’s rational basis for agreeing to the exclusion as a term of the
settlement.
Based on the foregoing, we conclude that JKO has failed to establish that its
equal protection claim is viable.
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CONCLUSION
The trial court’s order is reversed and judgment is rendered dismissing JKO’s
counterclaims against the District for want of jurisdiction.
/s/ Tracy Christopher
Chief Justice
Panel consists of Chief Justice Christopher and Justices Jewell and Poissant.
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