City of Ames, Texas v. City of Liberty, Texas ( 2023 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
__________________
NO. 09-22-00092-CV
__________________
CITY OF AMES, TEXAS, Appellant
V.
CITY OF LIBERTY, TEXAS, Appellee
________________________________________________________________
On Appeal from the 75th District Court
Liberty County, Texas
Trial Cause No. CV1813452
__________________________________________________________________
MEMORANDUM OPINION
In this interlocutory accelerated appeal, Appellant the City of Ames appeals
the trial court’s denial of its plea to the jurisdiction based on governmental immunity.
See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8); (permitting interlocutory
appeals from rulings on a governmental unit’s plea to the jurisdiction); Tex. Loc.
Gov’t Code Ann. §§ 271.151-160 (“Chapter 271, Subchapter I” setting forth the
requirements for the adjudication of claims arising under written contracts with local
governmental entities). Because the contract at issue is covered by Chapter 271 and
1
governmental immunity for this matter has been waived as provided therein, we
affirm.
Procedural History
Original Petition
On June 26, 2018, the City of Liberty (“Liberty” or “Appellee”) as Plaintiff
filed its Original Petition against Defendants City of Ames (“Appellant” or “Ames”)
and City of Hardin (“Hardin”) (collectively “Defendants”).1 The petition alleged that
Liberty owns and operates a wastewater collection system and treatment plant, that
Liberty receives wastewater from its own collection system and it receives
wastewater from Hardin and Ames, and that Liberty had separate wastewater
disposal contracts with Hardin and Ames. The Liberty-Hardin contract was executed
December 9, 2003, and the Liberty-Ames contract (the “Contract”) was dated March
14, 2001.
According to Liberty, the contracts require Defendants to operate their
respective wastewater collection systems in a way that complies with Liberty’s
plumbing code, ordinances, and standards, and the contracts also require the cities
to prevent “Seepage and Infiltration” into the collection systems that flow to the
Liberty wastewater treatment plant because the plant has finite capacity. Liberty
1
The City of Hardin (“Hardin”) is not a party to this appeal, and we discuss
Hardin only as necessary.
2
alleged that Defendants had violated the contracts, which resulted in Liberty facing
Texas Commission on Environmental Quality (“TCEQ”) enforcement and that
Defendants’ “ongoing breaches” of the contracts subject Liberty to additional
regulatory enforcement.
The Petition states that the contracts require Defendants to pay Service
Charges for wastewater volumes that exceed Total Acceptable Volumes, and the
contracts state each city’s daily and monthly Total Acceptable Volume. Liberty
alleged that Ames and Hardin had not paid Service Charges owed to Liberty, despite
Liberty having sent demand letters. Liberty alleged that each contract was “a written
contract for the provision of goods and services” for which the Legislature had
waived immunity for the claims asserted, and it asserted a claim for breach of
contract against Defendants. Liberty also sought costs and attorney’s fees.
Ames’s Plea to the Jurisdiction
Ames filed an Answer and Second Amended Answer asserting a general
denial and various affirmative defenses and filed a Plea to the Jurisdiction. At the
trial court and on appeal, Ames contends that Liberty failed to plead a valid waiver
of governmental immunity and that immunity has not been waived for several
reasons.
First, Ames argues that section 271.152 of the Texas Local Government Code
applies to contract disputes between governmental entities and private parties, and
3
not to a dispute between governmental entities. Ames relies upon a quote from a
Texas Supreme Court case wherein the Court stated that Subchapter I of Chapter
271 “is a framework for resolving contract disputes between governmental entities
and private parties.” San Antonio River Auth. v. Austin Bridge & Rd., L.P., 601
S.W.3d 616, 623 (Tex. 2020) (hereinafter “Austin Bridge”). Ames argues that
Subchapter I is not a framework for resolving disputes among cities relating to a
contract between those cities.
Next, Ames contends the contract does not meet the requirements of the
statute because the Contract is not a contract “for goods and services” under Chapter
271 but rather one for the performance of a governmental function governed by the
Interlocal Cooperation Act under Chapter 791 of the Government Code. See Tex.
Gov’t Code Ann. §§ 791.001-.037. According to Ames, the Interlocal Cooperation
Act distinguishes between contracts to purchase goods and services and contracts to
provide governmental functions. Ames contends that it specifies that an agreement
for the provision of a governmental function must specify that payments shall be
made from current revenues. See id. §§ 791.011(d)(3), 791.025, 791.026. In contrast,
when the contract is for goods and services, it does not have to specify that payments
must be made from current revenues. According to Ames, this Contract specifies
that payments must be made from current revenues, and therefore it is one for the
performance of a governmental function and not one for goods and services.
4
Ames also argues that Liberty failed to establish that the Contract was
properly executed, as required by section 271.151. See Tex. Loc. Gov’t Code Ann.
§ 271.151(2)(A).2 Ames emphasizes that Liberty failed to establish that the Contract
was properly executed—that Liberty provided “no city council resolutions or other
documents indicating that the mayors of both cities had the necessary authority to
properly execute the purported contract.” Therefore, according to Ames, Liberty
failed to overcome the “heavy presumption” that a plaintiff’s claims against a
governmental immunity are barred.
Finally, Ames argues that the damages sought are not recoverable under
Chapter 271. Ames contends the damages Liberty seeks for TCEQ-related expenses
are consequential damages that are not recoverable under section 271.153(b)(1).3
According to Ames, Liberty’s interpretation of the Contract “attempts to illegally
penalize Defendant by charging [] (in some invoices) seven times the normal rate
2
Section 271.151(2)(A) states that a “‘[c]ontract subject to this subchapter’”
means “a written contract stating the essential terms of the agreement for providing
goods or services to the local governmental entity that is properly executed on behalf
of the local governmental entity[.]” Tex. Loc. Gov’t Code Ann. § 271.151(2)(A).
3
Section 271.153(b) provides:
Damages awarded in an adjudication brought against a local
governmental entity arising under a contract subject to this subchapter
may not include:
(1) consequential damages, except as expressly allowed under
Subsection (a)(1);
(2) exemplary damages; or
(3) damages for unabsorbed home office overhead.
Tex. Loc. Gov’t Code Ann. § 271.153(b).
5
charged by the Plaintiff for wastewater[,]” which constitutes an illegal penalty not
recoverable under section 271.153(a)(1).
Liberty’s Notice of Non-Suit Without Prejudice and Its Second Amended Petition
Liberty filed a non-suit without prejudice, non-suiting its claims for:
. . . consequential damages are damages tied to the Agreed Order in
TCEQ Docket No. 2015-1549-MWD-E and the Agreed Order in TCEQ
Docket No. 2018-1495-MWD-E, as specifically referenced in
Plaintiff’s First Amended Petition at Paragraph 9 (costs of regulatory
enforcement), and in portions of Paragraph 11 (only with respect to
wastewater treatment plant operating costs).
Liberty filed a Second Amended Petition, which omitted the allegations about the
TCEQ enforcement costs Liberty incurred due to Defendants’ alleged breach of
contract. Liberty’s amended petition also pleaded that immunity had been waived
under section 271.152 of the Texas Local Government Code. The Second Amended
Petition was the live pleading at the time of the hearing on the plea to the jurisdiction.
Liberty’s Response to Defendants’ Pleas to the Jurisdiction
and Argument on Appeal
In its response to the plea to the jurisdiction and on appeal, Liberty argues that
the Defendants’ arguments are based on two fictions: (1) that the Legislature only
waived immunity for situations where a private entity sues a public entity and not
when a lawsuit is between two local governmental entities and (2) that a contract for
goods and services under section 271.151 of the Texas Local Government Code does
not apply to an interlocal agreement under Chapter 791 of the Texas Government
6
Code. According to Liberty, section 271.152 does not exclude contracts between
governmental entities or limit the waiver of immunity to lawsuits where a private
entity sues a local governmental entity. Liberty contends that Defendant’s plea to
the jurisdiction relies on dicta in Austin Bridge that did not “in any way shrink the
scope of the Legislature’s immunity waiver for breach of contract claims against
local government entities.” Liberty cites cases where the Chapter 271 immunity
waiver has been applied to breach of contract cases between local governmental
entities.4 And Liberty also argues that, to determine whether Chapter 271 applies,
the test is whether the entity allegedly in breach of contract is a governmental entity
and not whether the party claiming breach is a governmental entity.5 In addition,
Liberty argues that the Texas Supreme Court has explained that whether a contract
is an interlocal agreement under Chapter 791 has no bearing on whether
4
See Tex. Mun. League Intergovernmental Risk Pool v. City of Hidalgo, No.
13-19-00096-CV, 2020 Tex. App. LEXIS 2093 (Tex. App.—Corpus Christi-
Edinburg Mar. 12, 2020, no pet.) (mem. op.); Tex. Mun. League Intergovernmental
Risk Pool v. City of Abilene, 551 S.W.3d 337 (Tex. App.—Eastland 2018, pet.
dism’d); San Patricio Mun. Water Dist. v. City of Corpus Christi, No. 13-10-00272-
CV, 2011 Tex. App. LEXIS 262 (Tex. App.—Corpus Christi-Edinburg Jan. 13,
2011, pet. denied) (mem. op.); Tex. Ass’n of Sch. Bds. Risk Mgmt. Fund v. Benavides
Indep. Sch. Dist., 221 S.W.3d 732 (Tex. App.—San Antonio 2007, no pet.).
5
Citing San Patricio Mun. Water Dist., 2011 Tex. App. LEXIS 262, at **29-
30 (“We need not determine whether the waiver of immunity in section 271.152 is
applicable to contracts calling for the provision of goods and services from a local
government entity, because the contracts at issue here clearly call for the provision
of goods and services to a local government entity, as explicitly contemplated in the
statute.”) (emphasis omitted).
7
governmental immunity has been waived under Chapter 271.6 Liberty further
explained “there is no statutory language or case law that carves out or renders
inapplicable the Chapter 271 waiver for goods/services contracts if said contract also
happens to serve as an interlocal agreement.”
According to Liberty, there is “no question that Liberty provides services to
Defendants pursuant to the Contracts,[] as it collects and treats wastewater flows
from Ames and Hardin[,]” and the contracts at issue are “agreements between
governmental entities by which Liberty provides wastewater collection and
treatment services to Defendants in exchange for payments, including volumetric
adjustments[.]”
Finally, Liberty argues that the rates charged for volumes greater than the
Total Acceptable Volumes (“TAV”)—the thresholds of wastewater discharge
specified by the contracts—are not consequential damages “because the volumetric
rates are agreed-upon amounts due and owed under the Contracts[.]” Rather, Liberty
argues that the TAV charges are “a classic volumetric adjustment” designed to cover
expenses Liberty accrues when the Defendants contribute more than the baseline
sewage quantity and for which the Defendants agreed to pay additional charges.
6
Citing Ben Bolt-Palito Blanco Consol. Indep. Sch. Dist. v. Tex. Political
Subdivisions Prop./Cas. Joint Self-Ins. Fund, 212 S.W.3d 320, 322, 327-28 (Tex.
2006) (explaining that because the Court held that immunity was waived under
Chapter 271 of the Texas Local Government Code, the Court did not consider
whether immunity was waived under Chapter 791 of the Texas Government Code).
8
Therefore, according to Liberty, characterizing such charges as “penalties” ignores
the plain language of the contracts. Liberty also argues that, by its nature, capacity
for wastewater treatment is finite and that excess flow from Ames will risk
overloading the system or cause higher incremental costs.
As to Ames’s contention that there is no evidence its Contract with Liberty
was properly executed, Liberty argues that the burden shifted to Ames to prove that
the Contract was not properly executed because Liberty presented prima facie
evidence of contract formation and execution. Liberty contends that because the
contract was signed by the mayor of Ames and the mayor of Liberty, the presence
of their signatures is strong evidence that the parties assented to an agreement.7
After a hearing, the trial court signed an order denying the pleas to the
jurisdiction. Ames appealed.
Issues
Ames states four issues in its brief, but it does not include a separate argument
for each issue. In its first issue, it states that the trial court erred in denying its plea
to the jurisdiction. In its second issue, Ames argues that the Act does not waive its
immunity from suit because the damages Liberty seeks are “an unenforceable
penalty, consequential damages or exemplary damages[]” not covered by section
7
Citing Ridge Nat. Res., L.L.C. v. Double Eagle Royalty, L.P., 564 S.W.3d
105, 120-21 (Tex. App.—El Paso 2018, no pet.) (citing Wright v. Hernandez, 469
S.W.3d 744, 757 (Tex. App.—El Paso 2015, no pet.)).
9
271.153. See Tex. Loc. Gov’t Code Ann. § 271.153. In its third issue, Ames argues
that its Contract with Liberty is not a contract subject to the Act because it does not
contain the “essential terms” of the agreement, including the price for volumes in
excess of the TAV and the time for performance, that the Contract was an interlocal
agreement for performance of a governmental function and not a contract for “goods
and services” as Liberty pleaded, and that Liberty failed to meet its burden to prove
that the Contract was properly executed on behalf of Ames. In its fourth issue, Ames
argues that Subchapter I only applies to a contract dispute between a governmental
entity and a private party and it does not apply to a contract dispute between two
governmental entities. We address the issues together below as stating a challenge
to the trial court’s denial of the plea to the jurisdiction. We address the individual
arguments made by Ames as to whether the Contract is governed by Subchapter I of
Chapter 271.
Applicable Law
Governmental units, including municipalities, are immune from suit unless
the State consents. See Alamo Heights Indep. Sch. Dist. v. Clark, 544 S.W.3d 755,
770 (Tex. 2018) (citing Mission Consol. Indep. Sch. Dist. v. Garcia, 372 S.W.3d
629, 636 (Tex. 2012); Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217,
224 (Tex. 2004)). The Local Government Contract Claims Act outlines the
conditions under which immunity is waived from contract suits for local
10
governmental entities. See Tex. Loc. Gov’t Code Ann. §§ 271.151-.160 (“Chapter
271, Subchapter I”). There is a “heavy presumption in favor of immunity[,]” and a
statutory waiver of sovereign immunity must be “clear and unambiguous[.]” See
Tex. Gov’t Code Ann. § 311.034; City of Galveston v. State, 217 S.W.3d 466, 469
(Tex. 2007). A plea to the jurisdiction challenges the trial court’s subject-matter
jurisdiction over a case. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.
2000); Pineda v. City of Houston, 175 S.W.3d 276, 279 (Tex. App.—Houston [1st
Dist.] 2004, no pet.). Where the jurisdictional facts are not in dispute, we review the
trial court’s ruling on a plea to the jurisdiction under a de novo standard of review,
liberally construing the plaintiff’s pleadings and construing the evidence in favor of
the nonmovant. See Miranda, 133 S.W.3d at 226.
Statutory waivers of immunity are to be construed narrowly. See Tex. Adjutant
General’s Office v. Ngakoue, 408 S.W.3d 350, 353 (Tex. 2013) (citing Tex. Gov’t
Code Ann. § 311.034). When construing a statute that purportedly waives immunity,
we generally engage in a heavy presumption in favor of immunity and resolve
ambiguities in favor of retaining immunity. See Harris Cty. Hosp. Dist. v. Tomball
Reg’l Hosp., 283 S.W.3d 838, 844 (Tex. 2009) (citing Wichita Falls State Hosp. v.
Taylor, 106 S.W.3d 692, 697 (Tex. 2003)); Gay v. City of Wichita Falls, 457 S.W.3d
499, 504 (Tex. App.—El Paso 2014, no pet.) (“There is a ‘heavy presumption’ in
favor of immunity.”) (quoting City of Galveston, 217 S.W.3d at 469).
11
Under Chapter 271, Subchapter I, the Legislature has expressly waived
governmental immunity for certain contracts with a governmental entity. Tex. Loc.
Gov’t Code Ann. § 271.152. For immunity to be waived under the statute, “(1) the
contract must be in writing, (2) state the essential terms of the agreement, (3) provide
for goods or services, (4) to the local governmental entity, and (5) be executed on
behalf of the local governmental entity.” See City of Houston v. Williams, 353
S.W.3d 128, 135 (Tex. 2011) (citing Tex. Loc. Gov’t Code Ann. § 271.151(2)); see
also ICI Constr., Inc. v. Orangefield Indep. Sch. Dist., 339 S.W.3d 235, 239-40 (Tex.
App.—Beaumont 2011, no pet.).
Is the Additional Service Charge a claim for consequential damages?
Section 271.153(b) limits damages that may be awarded:
Damages awarded in an adjudication brought against a local
governmental entity arising under a contract subject to this subchapter
may not include:
(1) consequential damages, except as expressly allowed under
Subsection (a)(1);
(2) exemplary damages; or
(3) damages for unabsorbed home office overhead.
Tex. Loc. Gov’t Code § 271.153(b).8 The Texas Supreme Court has explained,
8
Subsection (a)(1) of section 271.153 permits consequential damages “owed
as compensation for the increased cost to perform the work as a direct result of
owner-caused delays or acceleration[.]” Tex. Loc. Gov’t Code Ann. § 271.153(a)(1).
Because the contract at issue in this lawsuit is not a contract for construction, owner-
caused delays or acceleration are not involved. See Zachry Constr. Corp. v. Port of
Houston Auth., 449 S.W.3d 98, 101 (Tex. 2014) (holding that immunity is waived
for lawsuits involving construction contracts that seek damages for owner-caused
delays).
12
A contractual breach may give rise to either “direct” or “consequential”
damages. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d
812, 816 (Tex. 1997). Direct damages are damages a defendant is
“conclusively presumed” to have foreseen as a result of its breach
because they “are the necessary and usual result of,” and “flow
naturally and necessarily from,” that wrongful act. Id. (emphases
added). By contrast, consequential damages “result naturally, but not
necessarily,” from the defendant’s breach, and are not “the usual result
of the wrong.” Id.Dallas/Fort Worth Int’l Airport Bd. v. Vizant Techs., LLC, 576 S.W.3d 362, 373
(Tex. 2019) (hereinafter “Vizant”).
According to Ames, Liberty’s claim for damages is not recoverable under
section 271.153 because the damages that Liberty seeks are “an unenforceable
penalty, consequential damages or exemplary damages[]” for which Chapter 271
does not waive immunity. At issue are the damages Liberty seeks under section
5.2(c) of the Contract, which provides:
Additional Service Charge. AMES agrees to pay an additional charge
for those volumes delivered in excess of the “Total acceptable Volume”
(“TAV”). The TAV shall be defined as 200,000 gallons per day and an
aggregate of 6,000,000 gallons per month. Volumes in excess of the
TAV shall be charged at three (3) times the highest rate, calculated on a
per gallon basis, then existing for sewer service within LIBERTY, or
FIVE HUNDRED AND NO/100 ($500.00) DOLLARS per month,
whichever amount is greater.
Ames argues that the Additional Service Charge is a penalty because the Contract
makes it clear that delivering more than the TAV constitutes a breach of contract.
Section 3.5 states,
13
These provisions for additional charges shall not be construed as giving
AMES any rights by virtue of the payment of such amounts and any
payment by AMES shall not prejudice the right of LIBERTY to
exercise any other right or remedy available to it under this contract,
including the right to declare the contract in breach or to seek injunctive
relief for compliance with its provisions.
In addition, section 4.1 provides,
LIBERTY has reserved capacity for AMES in its sewer plant only for
the volumes of sewage stated herein. Should the needs of AMES, for
whatever reason (including infiltration), exceed the maximum, based
on daily readings for total throughput, then LIBERTY shall be exposed
to an inordinate cost of treatment by virtue of such excess, and AMES
agrees to pay the additional compensation as provided in Section 5.2
(c) of this contract. However, such payment by AMES will not
authorize or permit any excess volume. This provision for additional
compensation shall not limit any right of LIBERTY to respond or
remedy such violation of the maximum level of capacity.
Liberty’s claim for damages alleges,
The Contracts [] require Defendants to pay service charges (“Service
Charges”) for wastewater volumes in excess of identified Total
Acceptable Volumes (Section 5.2(c)). [] Ames’ Total Acceptable
Volume is also established at “200,000 gallons per day and an
aggregate of 6,000,000 gallons per month” (Section 5.2(c)). Defendants
have not paid Liberty owed Service Charges, as required under the
Contracts.
In addition, Liberty alleged that it sought “[a]ctual damages of the balance
due and owed under the Contracts[.]” In its appellate brief, Liberty described the
Contract as imposing “volume-based rates[,]” and it characterizes the Additional
Service Charge as “a classic volumetric adjustment for agreed-upon amounts due
and owed under the Contract.” Both parties discuss the Austin Bridge case. See 601
14
S.W.3d 616, 623. In that case the Texas Supreme Court addressed the question of
whether the damages that Austin Bridge claimed were consequential damages or
whether the amounts were due under the contract and for which immunity had been
waived. See id. at 631. The Court explained the issue turned on “whether the contract
in fact required the River Authority to pay for these additional costs.” Id. The Court
concluded that Austin Bridge had alleged some damage that flowed naturally and
necessarily from the River Authority’s alleged breach. Id. The Court then concluded
that the damages claimed were direct damages for amounts Austin Bridge alleged
which were due and owed by the local governmental entity under the contract and
for which section 271.153 waives immunity. See id.The Contract stated that Liberty’s wastewater treatment plant had finite
capacity and that Liberty had reserved capacity for Ames “only for the volumes of
sewage stated” by the Contract. The Contract further provided that excess volumes
would “expose[] [Liberty] to an inordinate cost of treatment[.]” The Contract then
provided that an Additional Service Charge would be charged for volumes delivered
by Ames that exceeded the Total Acceptable Volume. Applying the rationale from
Austin Bridge, we conclude that the Additional Service Charge “flow[s] naturally
and necessarily from” Ames delivering volumes that exceed the Total Acceptable
Volume specified by the Contract, and the Contract required Ames to pay the
Additional Service Charge. See id. Therefore, we conclude that the damages Liberty
15
sought for unpaid Additional Service Charges were amounts due and owing under
the Contract for which section 271.153 waives immunity, and they are not
consequential damages. See id.; see also Vizant, 576 S.W.3d at 373.
Ames also argues that the Additional Service Charge constitutes exemplary
damages because it is a penalty. Generally, exemplary damages are those that are
“‘awarded as a penalty or by way of punishment.’” See Flores v. Millennium
Interests, Ltd., 185 S.W.3d 427, 434 (Tex. 2005) (quoting Tex. Civ. Prac. & Rem.
Code Ann. § 41.001(5)). We have already explained that the Contract provides that
the Additional Service Charge results from delivering volumes that exceed the Total
Acceptable Volumes because the excess volumes expose Liberty to a higher cost of
treatment. We reject Ames’s argument that the Additional Service Charge is a
penalty or exemplary damage for which immunity is not waived. See Tex. Loc.
Gov’t Code Ann. § 271.153.
Does the Contract contain the
essential terms of the agreement?
Ames did not argue in the trial court that the Contract lacked the essential
terms of the agreement, but it makes that argument on appeal. The Texas Supreme
Court has explained that while appellate courts do not consider issues that were not
raised in the trial court, the parties may construct new arguments in support of issues
that were raised below. See Li v. Pemberton Park Cmty. Ass’n, 631 S.W.3d 701, 704
(Tex. 2021) (citing Greene v. Farmers Ins. Exch., 446 S.W.3d 761, 764 n.4 (Tex.
16
2014)). Because all the arguments Ames raises on appeal relate to the issue of
whether governmental immunity has been waived, we construe Ames’s second issue
as relating to the issue Ames raised at trial court. See id. In addition, whether
governmental immunity has been waived determines subject-matter jurisdiction,
which may be raised at any time. See Reata Const. Corp. v. City of Dallas, 197
S.W.3d 371, 374 (Tex. 2006) (“We have held that sovereign immunity from suit
deprives a trial court of subject-matter jurisdiction.”); see also Rusk State Hosp. v.
Black, 392 S.W.3d 88, 103 (Tex. 2012) (Lehrmann, J., concurring and dissenting)
(“Subject matter jurisdiction cannot be waived or conferred by agreement, [and] can
be raised at any time[.]”); Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d
440, 445 (Tex. 1993) (“Subject matter jurisdiction is an issue that may be raised for
the first time on appeal[.]”).
We are guided by principles of contract interpretation to determine whether
the terms of the written contract are sufficiently definite. See Houston Cmty. Coll.
Sys. v. HV BTW, LP, 589 S.W.3d 204, 213 (Tex. App.—Houston [14th Dist.] 2019,
no pet.). We construe the contract as a whole to determine the parties’ intent when
they executed the contract. See Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 239 (Tex.
2016) (citing Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829,
841 (Tex. 2010)). “When ‘the actions of the parties . . . show conclusively that they
have intended to conclude a binding agreement, even though one or more terms are
17
missing or are left to be agreed upon[,] . . . courts endeavor, if possible, to attach a
sufficiently definite meaning to the bargain.’” Id. (quoting Restatement (Second) of
Contracts § 33 cmt. a (1981)).
Chapter 271 does not define “essential terms.” See Tex. Loc. Gov’t Code Ann.
§ 271.151(2); Williams, 353 S.W.3d at 138. An agreement’s essential terms are those
that parties would reasonably regard as “vitally important ingredient[s]” of their
bargain. See Fischer, 479 S.W.3d at 237. Whether particular terms are essential
generally depends on the specific contract at issue. Id.; see also T.O. Stanley Boot
Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992) (“Each contract should be
considered separately to determine its material terms.”).
An agreement’s essential terms are those that parties would reasonably
regard as “vitally important ingredient[s]” of their bargain. Whether
particular terms are essential generally depends on the specific contract
at issue. A contract must state its essential terms with “a reasonable
degree of certainty and definiteness,” sufficient to confirm that both
parties actually intended to be contractually bound and to enable a court
to understand and enforce the parties’ obligations and provide an
appropriate remedy when breached.
Vizant, 576 S.W.3d at 368-69 (quoting Fischer, 479 S.W.3d at 237) (citations
omitted). The Texas Supreme Court has stated that “essential terms” generally
include the names of the parties, the property at issue, the basic obligations, the time
of performance, the price to be paid, and the service to be rendered. See Kirby Lake
Dev., Ltd., 320 S.W.3d at 838.
18
Ames argues that the Additional Service Charge cannot be calculated from
the Contract because it does not include “the highest rate, calculated on a per gallon
basis, then existing for sewer service within” the City of Liberty. Ames also argues
that the Contract does not state the time for performance and only refers to Liberty’s
time for performance as “[u]pon completion of the construction” of Ames’s sewer
collection system.
The Additional Service Charge provision of the Contract states that the charge
“shall be charged at three (3) times the highest rate, calculated on a per gallon basis,
then existing for sewer service within LIBERTY, or FIVE HUNDRED AND
NO/100 ($500.00) DOLLARS per month, whichever amount is greater.” An
essential term need not be stated with exactness or precision, but only with “a
reasonable degree of certainty and definiteness[.]” See Vizant, 576 S.W.3d at 368-
69; Fischer, 479 S.W.3d at 237. We find this term is reasonably certain and definite
for the parties to understand their obligations and for a court to enforce the Contract.
See Vizant, 576 S.W.3d at 368-69; Fischer, 479 S.W.3d at 237.
As to Liberty’s time for performance, the Contract defines the Total
Acceptable Volume as “200,000 gallons per day which is twice the normal dry
weather flow per day and an aggregate of 6,000,000 gallons per month.” The
Contract also states that Ames shall install a meter “capable of recording total
throughput on a daily basis” and produce an “accurate constant flow
19
measurement[.]” The Contract also refers to “daily readings for total throughput” in
connection to whether Ames exceeds the maximum volumes of sewage. Taking
these terms together with the nature and purpose of the Contract as a whole, we find
that the Contract pertains to the flow of wastewater and sewage on a continual,
ongoing basis, which is reflected by the use of the terms “daily” and “constant,” and
is sufficiently definite to confirm that the parties intended to be bound and would
enable a court to enforce the Contract. See Vizant, 576 S.W.3d at 368-69; Fischer,
479 S.W.3d at 237. We conclude the Contract contains the essential terms of the
parties’ agreement.
Is the Contract for “goods or services”
under Chapter 271?
Ames raises several arguments in support of its contention that the Contract
was not one for “goods and services” under Chapter 271, arguing: (1) Liberty
pleaded that the Contract was “for goods and services, but the Contract reflects that
it was not “a contract for goods and services[]” and nothing in the Contract provided
for “any provision of goods to Ames[]”; (2) the term “services” does not cover what
Liberty is obligated to do under the Contract because “[t]he Contract only obligated
Liberty to passively ‘receive and take’” volumes of sewage from Ames, the term
“services” relates to action, conduct, performance, or deeds, and “[p]assively
receiving sewage [] is not an ‘activity,’ ‘conduct,’ ‘performance,’ or ‘deed[]’”;
(3) the Contract is an interlocal agreement for performance of a governmental
20
function and not one for a service; (4) the Contract did not obligate Liberty to take
volumes in excess of the TAV, and immunity is not waived for “‘contracts in which
the benefit that the local governmental entity would receive is an indirect, attenuated
one’” or “‘[w]hen a party has no right under a contract to receive services’”9; and
(5) Liberty did not affirmatively demonstrate that the Contract was properly
executed by Ames.
1. Is the contract for “goods or services”?
When reviewing a plea to the jurisdiction, we “construe the pleadings liberally
in favor of the plaintiffs and look to the pleaders’ intent.” Miranda, 133 S.W.3d at
226. In our de novo review of the trial court’s ruling, we take as true all evidence
favorable to the nonmovant, indulging in every reasonable inference and resolving
all doubt that favors the nonmovant. Id. Section 271.153 requires that to be “subject
to” the waiver of immunity, a contract must meet five elements: “(1) the contract
must be in writing, (2) state the essential terms of the agreement, (3) provide for
goods or services, (4) to the local governmental entity, and (5) be executed on behalf
of the local governmental entity.” See Williams, 353 S.W.3d at 135 (citing Tex. Loc.
Gov’t Code Ann. § 271.151(2)).
In its Amended Petition, Liberty pleaded as follows:
9
Citing and quoting Lubbock Cty. Water Control & Improvement Dist. v.
Church & Akin, L.L.C., 442 S.W.3d 297, 303 (Tex. 2014).
21
[] The Legislature has waived immunity for the claims brought
in this action pursuant to Section 271.152 of the Texas Local
Government Code.
[] Each of the Contracts is a written contract for the provision of
goods and services by Plaintiff to each defendant, properly executed on
behalf of each defendant, consistent with the provisions of Section
271.151(2)(A) of the Texas Local Government Code.
Liberty pleaded that it has accepted wastewater from Ames for conveyance to its
wastewater collection system and wastewater treatment plant. And Liberty pleaded
that it “has furnished and continues to furnish services to the Defendants in the form
of wastewater collection, treatment, and disposal.”
Section 271.151(2) requires that a contract be for “goods or services” (among
other requirements) to waive governmental immunity. Tex. Loc. Gov’t Code Ann.
§ 271.151(2). Liberty’s Amended Petition reflects that it pleaded that the contracts
at issue were for the provision of services to Ames. Section 271.151(2) does not
require the plaintiff to plead both “goods” and “services.” See id.; Williams, 353
S.W.3d at 135. Ames has cited no legal authority for its argument that a pleading
that states it supplied “goods and services”10 disqualifies the Contract from the
waiver of immunity under section 271.151, and we are aware of none. See Tex. R.
App. P. 38.1(i) (requiring an appellate brief to cite to applicable legal authority).
Therefore, we reject this argument.
10
Emphasis added.
22
2. Was Liberty’s Contract which provided for the receipt of wastewater, and
treatment of such water at Liberty’s wastewater treatment plant, a contract for
“services”?
Ames argues that the term “services” means “to perform an ‘activity’ on
behalf of another[]” and “is described in terms of ‘action,’ ‘conduct,’ ‘performance’
and ‘deeds[,]’” citing to Riverside National Bank v. Lewis, 603 S.W.2d 169, 174
(Tex. 1980). In Lewis, the plaintiff alleged a claim for fraud under the Deceptive
Trade Practices Act, and the matter did not involve nor address governmental
immunity. See generally id. Ames argues that all this Contract calls for is a “passive”
receipt of wastewater by Liberty. Even assuming without deciding that the Contract
at issue in this case only required a passive receipt by Liberty, we do not agree that
Lewis dictates the services provided here do not qualify as “services” under
271.151(2). As we have already explained, Liberty’s Amended Petition stated that it
provided “wastewater collection, treatment, and disposal[]” to Ames in performance
of the Contract. See, e.g., Partners Dewatering Int’l, L.C. v. City of Rio Hondo, No.
13-13-00340-CV, 2015 Tex. App. LEXIS 5861, at *14 (Tex. App.—Corpus Christi-
Edinburg June 11, 2015, pet. denied) (mem. op.) (concluding that a contract for
collecting, hauling, and disposing of all sludge generated by the city’s wastewater
treatment plant constituted a service under Chapter 271). Further, the Texas Supreme
Court has stated that “services” under Chapter 271 is “‘broad enough to encompass
a wide array of activities’ and ‘includes generally any act performed for the benefit
23
of another.’” Austin Bridge, 601 S.W.3d at 628-29 (quoting Kirby Lake Dev., Ltd.,
320 S.W.3d at 839). Here, Liberty not only receives wastewater from Ames, but it
also treats the wastewater it receives at Liberty’s wastewater facility, and that
treatment is an act performed for the benefit of Ames. We reject Ames’s argument
and conclude that the Contract was for “services” under Chapter 271.
3. Was the Contract solely an interlocal agreement and not governed by Chapter
271?
Next, Ames argues that the Contract under which Liberty sued is merely an
interlocal agreement under Chapter 791 of the Government Code11 for the
performance of a governmental function and not one for provision of a “service” as
provided for under Chapter 271. The Texas Interlocal Cooperation Act provides the
following definition:
“Governmental functions and services” means all or part of a function
or service in any of the following areas:
(A) police protection and detention services;
(B) fire protection;
(C) streets, roads, and drainage;
(D) public health and welfare;
(E) parks and recreation;
(F) library and museum services;
(G) records center services;
(H) waste disposal;
(I) planning;
(J) engineering;
(K) administrative functions;
11
See Tex. Gov’t Code Ann. §§ 791.001-.037 (“Texas Interlocal Cooperation
Act,” which allows political subdivisions to contract with one another to more
efficiently share resources and responsibilities).
24
(L) public funds investment;
(M) comprehensive health care and hospital services; or
(N) other governmental functions in which the contracting
parties are mutually interested.
Id. § 791.003(3). Ames argues that the Texas Interlocal Cooperation Act
distinguishes between governmental functions and governmental services because it
refers to “all or part of a function or service[.]” See id. (emphasis added). Ames
further argues that the Legislature has identified the operation of sanitary sewers and
sewer service as a “governmental function.” See Tex. Civ. Prac. & Rem. Code Ann.
§ 101.0215(a). Ames argues the Contract provides that payments must be made from
current revenue, and that under the Interlocal Cooperation Act, a contract for the
performance of a governmental function must specify that payments must be made
from current revenues. See Tex. Gov’t Code Ann. § 791.011(d)(3).
Liberty responds that there is no statutory language or case law that carves out
or renders inapplicable the waiver of immunity under Chapter 271 for goods or
services contracts when the contract also happens to serve as an interlocal
agreement. We agree. Ames has cited no legal authority to support its argument that
Chapter 271 does not apply to an interlocal agreement under Chapter 791 of the
Government Code. See Tex. R. App. P. 38.1(i). The Texas Supreme Court declined
to consider a similar argument in a lawsuit brought by a school district against a joint
self-insurance fund composed of local political subdivisions, stating “[b]ecause we
hold that Section 271.152 of the Local Government Code waives the Fund’s
25
immunity from suit, we do not consider” the school district’s argument that
immunity is waived under the Interlocal Cooperation Act. See Ben Bolt-Palito
Blanco Consol. Indep. Sch. Dist. v. Tex. Pol. Subdivisions Prop./Cas. Joint Self-Ins.
Fund, 212 S.W.3d 320, 322, 327-38 (Tex. 2006) (hereinafter “Ben Bolt”). Similarly,
because we hold that section 271.152 of the Local Government Code waives Ames’s
immunity from suit, we do not consider the argument relating to the Texas Interlocal
Cooperation Act.
4. Did the Contract provide only an indirect, attenuated benefit?
The Texas Supreme Court has explained that “[w]hen a party has no right
under a contract to receive services, the mere fact that it may receive services as a
result of the contract is insufficient to invoke chapter 271’s waiver of immunity. At
best, such services are only an ‘indirect’ and ‘attenuated’ benefit under the contract.”
See Lubbock Cty. Water Control & Improvement Dist. v. Church & Akin, L.L.C.,
442 S.W.3d 297, 303 (Tex. 2014). The waiver of immunity under Chapter 271
typically only applies to contracts in which the governmental entity agrees to pay
the claimant for the goods or services that the claimant agrees to provide to the
governmental entity. Id. at 304. “[T]he absence of any agreement by the
governmental entity to pay for goods or services may indicate that the claimant did
not in fact agree to provide goods or services to the governmental entity.” Id. at 305.
In determining whether the services to be provided under a contract are only an
26
indirect or attenuated benefit, we look at the contract as a whole. Id. at 306 n.10; see
also Kirby Lake Dev., Ltd., 320 S.W.3d at 841 (“[W]e must evaluate the overall
agreement to determine what purposes the parties had in mind at the time they signed
the Agreements.”).
Ames argues that the ultimate consumer of the sewer service “was not Ames,
but rather those residents of Ames who connected to Ames’[s] sewer collection
system[.]” Ames references section 13.002(25) of the Water Code, which states,
“‘Wholesale water or sewer service’ means potable water or sewer service, or both,
provided to a person, political subdivision, or municipality who is not the ultimate
consumer of the service.” Tex. Water Code Ann. § 13.002(25). Ames cites no legal
authority explaining how the Water Code provision applies to Chapter 271. See Tex.
R. App. P. 38.1(i). The Contract states that its primary purpose is “to provide sewer
service to the CITY OF AMES and to allow AMES to provide sewer service within
AMES’ extraterritorial jurisdiction and the territory encompassed in the AMES-
MINGLEWOOD WATER SUPPLY CORPORATION certificate of convenience
and necessity.”
Section 2.4 of the Contract provides,
[] Upon completion of the construction of the system, LIBERTY agrees
to receive and take from AMES, for the price and at the point of
deliver[y] hereinafter provided, and AMES agrees to discharge, for
such price as provided in Article 5 of this contract and at such point of
delivery, such volumes of sewage at such times as hereinafter
27
provide[d] in Article 4 of this contract, consistent with other limitations
as stated herein.
The Contract further provides that Liberty has no responsibility “to accept prohibited
waste that does not conform to the quality or quantity standards specified herein or
materials that are in violation of the standards required under LIBERTY’s discharge
permits.” The Contract further explains that Liberty’s sewer plant has finite capacity,
that Liberty has reserved capacity for Ames’s needs, and that if Ames exceeds the
maximum volumes, Ames agrees to pay an additional charge to compensate Liberty
for the extra cost of treatment.
The main thrust of the Contract is the provision of sewer service to the City
of Ames for which Ames agreed to pay. The Contract provides certain adjustments
for volumes that exceed the normal flows expected by both Ames and Liberty.
Construing the pleadings and Contract in favor of the nonmovant, we do not read
the Contract as providing only an indirect or attenuated benefit to Ames. See Church
& Akin, L.L.C., 442 S.W.3d at 303, 306 n.10; Kirby Lake Dev., Ltd., 320 S.W.3d at
841.
5. Was the Contract properly executed?
Ames argues that Liberty did not meet its burden “to affirmatively
demonstrate that the Contract was ‘properly executed’ by Ames.” Ames argued to
the trial court that Liberty had provided no city council resolutions or other
documents indicating that the mayors of both cities had the necessary authority to
28
properly execute the Contract, and Liberty produced no resolutions, minutes, or
ordinances showing “the governing bodies’ assent to the contract.”12 Liberty argues
that because it alleged in its live pleading that the Contract was executed by the
mayor for each City, and that it was properly executed, the burden shifted to Ames
to prove that the Contract was not properly executed. Liberty also contends that the
presence of the mayors’ signatures on the Contract “‘is strong evidence that the
parties assented to an agreement.’”13 Liberty also argues that Ames has not disputed
the validity of its mayor’s signature nor have they alleged on appeal that the mayors
were not authorized to sign the Contract. According to Liberty, because there is
prima facie evidence of contract formation, the burden is on Ames to offer evidence
that would refute contract formation, which Ames did not do.
Section 271.152 states,
A local governmental entity that is authorized by statute or the
constitution to enter into a contract and that enters into a contract
subject to this subchapter waives sovereign immunity to suit for the
purpose of adjudicating a claim for breach of the contract, subject to the
terms and conditions of this subchapter.
Tex. Loc. Gov’t Code Ann. § 271.152; see also Austin Bridge, 601 S.W.3d at 624;
Williams, 353 S.W.3d at 135. Here, our standard of review generally mirrors the
12
Although Ames’s arguments in the trial court addressed whether the mayors
of both cities had the necessary authority to properly execute the Contract, on appeal
Ames restricts its argument to whether Liberty presented evidence that the Contract
was properly executed by Ames only.
13
Quoting Ridge Nat. Res., 564 S.W.3d 105 at 120-21.
29
summary judgment standard under Texas Rule of Civil Procedure 166a(c). See
Miranda, 133 S.W.3d at 228; see also Tex. R. Civ. P. 166a(c). The burden is on the
defendant to present evidence to support its plea to the jurisdiction, and if it does so,
the burden then shifts to the plaintiff to show that a disputed material fact exists
regarding the jurisdictional issue. Miranda, 133 S.W.3d at 228.
When, as here, a plea to the jurisdiction challenges the pleadings, we
determine if the plaintiff has alleged facts affirmatively demonstrating subject-
matter jurisdiction. See Clark, 544 S.W.3d at 770. Liberty’s Original and Amended
Petitions pleaded that the contracts were properly executed on behalf of the
Defendants. Therefore, we conclude that Liberty’s pleadings alleged facts that
affirmatively demonstrated subject-matter jurisdiction.
When the plea challenges the existence of jurisdictional facts, we move
beyond the pleadings and consider the evidence presented. See id. Liberty attached
to its Original and Amended Petitions copies of the Contract with Ames reflecting
signatures from the mayors of both Liberty and Ames and dated March 4, 2001. The
burden was on Ames to present evidence in support of its plea to the jurisdiction.
See Miranda, 133 S.W.3d at 228. Ames offered no evidence to controvert Liberty’s
pleadings. Therefore, Ames failed to meet its burden to create a disputed fact issue
on this point. See id.
30
Does Chapter 271 apply to a contract dispute
between two governmental entities?
In its final issue, Ames argues that Chapter 271 is designed to resolve contract
disputes between governmental entities and private parties and it is not a framework
for resolving disputes between governmental entities. To support its argument, Ames
cites a quote from Austin Bridge. See generally 601 S.W.3d 616. In that case, Austin
Bridge and Road, L.P. (a private entity) sued the San Antonio River Authority (a
governmental entity) over disagreements about the scope of work and payment. See
id. at 618. In explaining the applicability of Chapter 271 in that case, the Texas
Supreme Court addressed Subchapter I of Chapter 271, which is titled “Adjudication
of Claims Arising Under Written Contracts with Local Government Entities”:
Subchapter I is a framework for resolving contract disputes
between governmental entities and private parties by (1) providing a
limited waiver of governmental immunity “for the purpose of
adjudicating a claim for breach of [a] contract” against local
governments, (2) setting limits on damages for those claims, and
(3) clarifying that “contractual adjudication procedures” to resolve
those claims are “enforceable.”
Id. at 623 (footnotes omitted). Austin Bridge dealt with a contract dispute between a
governmental entity and a private party. See id. at 618. We do not read the Supreme
Court’s description of Subchapter I to say that the chapter only applies to disputes
between a governmental entity and a private party. The title of Subchapter I states it
applies to “claims arising under written contracts with local governmental entities.”
See Tex. Loc. Gov’t Code Ann., Ch. 271, subch. I (emphasis added). Ames has not
31
identified any language in the statute showing that the Legislature intended for
Chapter 271, Subchapter I, to apply only to disputes between governmental entities
and private parties and not to disputes between two (or more) governmental entities.
Although governmental immunity is a common law doctrine, the Texas
Supreme Court has traditionally deferred to the Legislature, “assuming it to be
‘better suited to balance the conflicting policy issues associated with waiving
immunity.’” Travis Cent. Appraisal Dist. v. Norman, 342 S.W.3d 54, 58 (Tex. 2011)
(quoting Taylor, 106 S.W.3d at 695). In construing how Chapter 271 applies in this
case, Legislative intent is the polestar of statutory construction, and “it is the
Legislature’s sole province to waive or abrogate sovereign immunity.” See In re Tex.
Educ. Agency, 619 S.W.3d 679, 687 (Tex. 2021); Tex. Nat. Res. Conservation
Comm’n v. IT-Davy, 74 S.W.3d 849, 853 (Tex. 2002).
Section 271.152 of the Texas Local Government Code provides:
A local governmental entity that is authorized by statute or the
constitution to enter into a contract and that enters into a contract
subject to this subchapter waives sovereign immunity to suit for the
purpose of adjudicating a claim for breach of the contract, subject to the
terms and conditions of this subchapter.
Tex. Loc. Gov’t Code Ann. § 271.152. This “statute’s plain language allows for
enforcement of contracts against local governmental entities by waiving their
immunity from suit.” Ben Bolt, 212 S.W.3d at 327 (emphasis added). In this case,
the City of Liberty seeks to enforce its contracts against a local governmental entity.
32
At the hearing on the pleas to the jurisdiction, the trial court stated:
[W]e have to assume the legislature was fully aware of sovereign
immunity and governmental immunity as it applies; and if that’s the
case them being fully aware they did not intend for this particular matter
to be excluded from the waivers.
They could have easily expressly excluded suits between local
governmental entities, and they didn’t do so.
We find nothing in the language of Chapter 271 that states the Act only applies
to contracts between a private party and a governmental entity, nor does it exclude
contracts between two or more governmental entities. Appellant has not identified
any such language in the statute. The descriptive language in Austin Bridge that
Ames relies on describes the facts in that case, and we do not read the language in
Austin Bridge to place an additional limitation on the type of contracts covered under
section 271.152. As the Supreme Court recently stated, “[w]e defer to the Legislature
in waiving immunity because it is in a better position to weigh the conflicting public
policy interests associated with subjecting the government to liability.” See Dohlen
v. City of San Antonio, 643 S.W.3d 387, 392 (Tex. 2022). The Legislature has
expressly waived immunity for “claims arising under written contracts with local
governmental entities” as defined within the specific legislative provisions and has
not excluded claims between two governmental entities. See Tex. Loc. Gov’t Code
Ann., Ch. 271, subch. I (emphasis added). We conclude that Chapter 271 applies to
this dispute.
33
Having addressed and overruled each of Ames’s arguments, we conclude that
the trial court did not err in denying the plea to the jurisdiction. We overrule
Appellant’s issues on appeal, and we affirm the trial court’s order.
AFFIRMED.
_________________________
LEANNE JOHNSON
Justice
Submitted on October 11, 2022
Opinion Delivered February 23, 2023
Before Golemon, C.J., Johnson and Wright, JJ.
34