Romulus Group, Inc. v. City of Dallas ( 2017 )

Reverse and Remand and Opinion Filed May 2, 2017
S In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-16-00088-CV
ROMULUS GROUP, INC., Appellant
V.
CITY OF DALLAS, Appellee
On Appeal from the 191st Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-14-15032
MEMORANDUM OPINION
Before Justices Francis, Lang-Miers, and Whitehill
Opinion by Justice Francis
Romulus Group, Inc. challenges the trial court’s orders granting the City of Dallas’s pleas
to the jurisdiction and dismissing its claims for breach of contract and attorney’s fees. For
reasons set out below, we reverse the trial court’s orders and remand the case to the trial court for
further proceedings consistent with this opinion.
In 2011, the City solicited bids for a thirty-six-month contract to provide temporary
clerical and professional labor. The contract specifications requested unit prices, or hourly rates,
for a specific quantity of hours at which the bidders could provide temporary employees in
twenty-five specific categories based on a skill level/classification criterion set by the City. All
fees and charges were to be included in the bid rate.
Romulus submitted a bid of $13,503,090. The bid was calculated by multiplying the unit
cost, or hourly rate, by the annual quantity of hours for each category requested by the City.
Romulus was the lowest bidder and was awarded the contract in January 2012. Under the
contract, the City agreed to pay Romulus “in accordance with the Specifications and Bid.” The
contract also expressly disallowed any modifications “without written supplemental agreement
executed by both parties.” The contract could be terminated by the City with ten days advance
written notice for cause or for convenience, but in such an event, the City was required to
compensate Romulus “in accordance with the terms of this Contract for Contract Work properly
performed prior to the date of termination . . . . ”
Romulus began performance, screening candidates for the positions and then supplying
employees who provided services to the City. At some point, a dispute arose between Romulus
and the City over the payment of some of these workers. The City complained Romulus failed to
“meet its payroll obligations” to some employees. According to the City, Romulus designated
some employees as “professional contractors” and paid these employees as “1099 contractors
instead of W2 Romulus employees” in violation of the contract. Romulus complained the City
had begun designating employees into a new category, “Clerical Positions Not Listed,” and was
setting the pay rate for them and then adding a 21.8 percent markup, which Romulus said was
below the contract rate and below a number at which it could “do business.”
In November 2013, the City terminated the contract and requested Romulus remit all
invoices for services prior to the termination date for payment. Four months later, Romulus
made written demand for almost $1.6 million in damages for the “underpayment for services
provided.” When the City failed to pay, Romulus sued the City for breach of a services contract
and sought damages and attorney’s fees under section 271.153 of the Texas Local Government
Code. Attached to the petition were copies of the bid specifications and the contract.
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The City filed an answer that included special exceptions and a plea to the jurisdiction.
In its plea, the City first asserted that Romulus’s petition affirmatively demonstrated the alleged
conduct did not constitute a breach of the contract. Specifically, the City argued Romulus
alleged it “acceded to demands by the City to provide labor that was not contracted for, at rates
that were below [Romulus’s] costs to provide the labor.” Thus, the City asserted the “alleged
demands were not a breach of any promise in the contract.” Second, the City alleged the
requested damages were not contract damages and were not within the limitations required under
section 271.153 of the local government code. Finally, the City argued Romulus did not have a
valid claim for attorney’s fees because such fees were not provided by contract or statute.
At a hearing on the plea, the City continued its argument that the nature of Romulus’s
complaint was that the City demanded it provide services “outside the contract” and any
damages were not in connection with the contract. Romulus responded the “demands” made by
the City required “no different type of work” than under the contract, but the City “just called it
something different.” The trial court ordered Romulus to replead “due to ambiguous statements
in the pleadings.” Additionally, the trial court granted the plea as to attorney’s fees and dismissed
that claim for lack of subject matter jurisdiction.
In response to the trial court’s order, Romulus filed an amended pleading that alleged in
part the following:
14. When it came time to pay [Romulus] for the services provided, however,
[the City] re-designated certain of the temporary employees to a non-listed
category called “Clerical Positions Not Listed,” and paid for them at a lower rate,
even though the skill set and work required, in substance, was no different than
that already encompassed by one of the other category designations and should
have been paid for at the contracted-for rates.
15. In other words, [the City] merely used the non-listed label when it came
time to pay [Romulus] so that [the City] could attempt to pay [Romulus] at a
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different rate. As a result, [the City] failed to pay the amount due and owing for
the work [Romulus] actually provided to [the City].
16. [The City’s] actions constitute a breach of the Contract and have resulted
in severe underpayment to [Romulus]. [The City] terminated the Contract
effective November 11, 2013, at which time [the City] failed to pay the balance of
the amount due and payable under the Contract.
The City specially excepted to the amended petition, arguing Romulus needed to identify
at least one employee who had been re-designated to a non-listed category from a specific
category, the rate at which the employee was paid that was below the agreed rate for the listed
category, and when the alleged underpayment occurred. The City also specially excepted to
Romulus’s allegations regarding notice, asserting Romulus needed to allege facts demonstrating
at least one specific breach of contract occurred within 180 days of a specified date of notice of
breach to the City as required by Dallas City Code section 2-86.
Following a hearing, the trial court sustained only the special exception as to notice and
gave Romulus an opportunity to replead to address the notice issue. In response to the court’s
order, Romulus filed supplemental exhibits to its first amended petition. These exhibits included
two “notice” letters dated September 13, 2013 and March 24, 2014 and the City’s termination
letter. One of Romulus’s notice letters attached a spreadsheet showing the amount Romulus
claimed the City owed.
After Romulus filed the supplemental exhibits, the City filed a second plea to the
jurisdiction. As before, the City asserted Romulus did not and could not plead a breach of
contract or damages within the limitation of the statute. In addition, the City argued there was no
jurisdiction over the breach of contract claim because Romulus did not and could not allege facts
demonstrating it complied with the “jurisdictional prerequisite” of giving timely notice of the
claim. Romulus responded with jurisdictional evidence including an example demonstrating the
City refused to pay the contracted unit price for a temporary employee Romulus supplied. After
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a hearing, the trial court granted the second plea and dismissed the cause for lack of subject
matter jurisdiction. This appeal followed.
Governmental immunity from suit defeats a trial court’s subject matter jurisdiction and is
properly asserted in a plea to the jurisdiction. Tex. Dep’t of Parks & Wildlife v. Miranda, 133
S.W.3d 217, 225–26 (Tex. 2004). We review de novo a challenge to the trial court’s subject
matter jurisdiction. Tex. Nat. Res. Conservation Comm’n v. IT–Davy, 74 S.W.3d 849, 855 (Tex.
2002).
Generally, a plea to the jurisdiction may challenge the sufficiency of the plaintiff’s
pleadings or the existence of necessary jurisdictional facts. See Zachry Const. Corp. v. Port of
Houston Auth. of Harris Cty., 449 S.W.3d 98, 110 n.53 (Tex. 2014). When the plea challenges
the plaintiff’s pleadings, we determine whether the claimant has pleaded facts that affirmatively
demonstrate the trial court’s jurisdiction, construing the pleadings liberally and in favor of the
claimant. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). When the
plea appropriately challenges jurisdictional facts, we consider evidence submitted by the parties.
Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000). In performing our review, we
do not look to the merits of the plaintiff’s case, but consider only the pleadings and the evidence
pertinent to the jurisdictional inquiry. Consumer Serv. All. of Tex., Inc. v. City of Dallas, 433
S.W.3d 796, 802 (Tex. App.––Dallas 2014, no pet.). If the jurisdictional evidence creates a fact
question, then the trial court cannot grant the plea to the jurisdiction, and the issue must be
resolved by the fact finder. City of El Paso v. Heinrich, 284 S.W.3d 366, 378 (Tex. 2009). This
standard mirrors our review of summary judgments. Id.
The Local Government Contract Claims Act waives a local governmental entity’s
immunity from suit in certain breach of contract claims. Zachry, 449 S.W.3d at 106; see also
Tooke v. City of Mexia, 197 S.W.3d 325, 345 (Tex. 2006) (including municipality in definition of
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local governmental entity); TEX. LOC. GOV’T CODE ANN. §§ 271.151(3)(A); 271.152 (West
2016). Section 271.152 of the Act 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 contract, subject to the terms and conditions of this subchapter.
TEX. LOC. GOV’T CODE ANN. § 271.152. A “contract subject to this subchapter” includes only
written contracts stating the essential terms of the agreement for providing goods and services
that are “properly executed on behalf of the local governmental entity.” Id. § 271.151(2)(A).
The waiver requires a showing of a “substantial claim,” meaning the claimant must plead facts
with some evidentiary support that constitute a claim for which immunity is waived, not that the
claimant will prevail. Zachry, 449 S.W.3d at 109–10.
The parties here do not dispute that the Contract for Temporary Clerical and Professional
Labor is an “agreement for providing goods or services to the local government entity” and is the
type of contract that falls within the scope of the immunity waiver. The first issue is whether
Romulus’s allegations and supporting evidence fall within the terms of this contract.
In its second amended petition, Romulus pleaded (1) the City awarded it a service
contract to provide temporary clerical and professional workers, (2) in the contract, the City
agreed to pay the rate agreed upon for the types of services provided, (3) Romulus screened the
candidates for the positions needed and supplied the workers, who began providing the services,
and (4) when it came time to pay, the City redesignated certain employees to a non-listed
category and paid them at a lower rate even though the skill set of the workers and the work
required were substantively no different than that encompassed by the other category
designations and should have been paid at the contract rates.
In addition to the pleadings, Romulus presented evidentiary support, including (1) the
contract, which reflects the unit prices at which Romulus agreed to provide the workers and
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which the City agreed to pay, (2) emails between Romulus and the City regarding the City’s use
of a “clerical positions not listed” category the City believed allowed it to provide the pay rate
and allowed Romulus to add a 21.8% markup, (3) a delivery order modification by the City
showing Romulus provided a Coordinator II and invoiced the City at the contract rate of $23 per
hour, but the City modified the invoice and paid $21.92 per hour, and (4) a spreadsheet, created
by Romulus, listing 162 employees for whom Romulus alleged the City paid rates other than the
contract price.
The City argues Romulus’s evidence contains admissions by Romulus that it supplied
workers to the City that were not in the contract and the City paid less than the markup rates
Romulus desired. According to the City, whether it “redesignated” workers or those workers did
not fit into pre-existing categories, Romulus was providing workers to the City outside of the
“25-category list” without any contractual obligation to do so, and as a result, Romulus is
making a claim for unjust enrichment, not breach of contract. In effect, the City is arguing the
breach of contract claim is not justiciable because it fails on the merits. But whether the claim is
meritorious––an issue we do not address––does not mean the trial court does not have subject
matter jurisdiction to adjudicate it. The City’s argument raises only a fact issue that should not
be determined on a plea to the jurisdiction. See Miranda, 133 S.W.3d at 228. We conclude the
pleadings and evidence demonstrate conduct that falls within the contract’s terms. To the extent
the trial court granted the plea to the jurisdiction on this basis, it erred.
Next, Romulus contends it pleaded and presented evidentiary support for damages within
the limitations of section 271.153. Specifically, Romulus alleged the City underpaid and
Romulus sought the balance of the amount due and owing under the contract.
The City responds that the price terms in the contract were based on a “unit price” for
each employee category, not a markup rate, and there was no amendment to change the payment
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terms. It argues that Romulus alleged there was no agreement to change the contract price to “an
hourly rate of pay plus a markup percentage, whether that percentage be 21.8 percent or higher,”
but the City attempted to pay some invoices based on that “type of calculation.” Because the
contracts do not provide for payment of a markup rate, the City argues, the amounts sought by
Romulus were not the balance due and owed.
Section 271.153 limits the monetary award in “an adjudication brought against a local
governmental entity for breach of a contract” solely to:
(1) the balance due and owed by the local governmental entity under the
contract as it may have been amended, including any amount owed as
compensation for the increased cost to perform the work as a direct result of
owner-caused delays or acceleration;
(2) the amount owed for change orders or additional work the contractor is
directed to perform by a local governmental entity in connection with the
contract;
(3) reasonable and necessary attorney’s fees that are equitable and just;
and
(4) interest as allowed by law, including interest as calculated under
Chapter 2251, Government Code.
TEX. LOC. GOV’T CODE ANN. § 271.153(a); see Zachry, 449 S.W.3d at 106–07.
Romulus pleaded that when it came time to pay for services provided, the City paid at a
lower rate than allowed by contract. As evidentiary support, it presented a delivery order for one
employee that had been modified by the City. A handwritten notation on the delivery order
indicates the employee had been reclassified several times, and Romulus had invoiced the
position as a Coordinator II with a bill rate of $23. Romulus’s bid, which was accepted by the
City, showed the billable rate for a Coordinator II at $23 an hour. The delivery order, however,
reflects that the City modified the pay to $21.92 an hour, which was calculated by paying $18 an
hour times 21.8%. This evidence supports Romulus’s pleadings that the City underpaid and
Romulus was seeking what was due and owing under the contract, which falls within the
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limitations on awards under the statute. To the extent the trial court granted the plea on this
ground, it erred.
Romulus next challenges the notice issue raised in the City’s second plea to the
jurisdiction. According to the City, the contract incorporated the notice provisions of section 2-
86 of the Dallas City Code, which provides that a person may not maintain a lawsuit to recover
for the City’s breach of contract unless, “as a condition precedent and a jurisdictional
prerequisite to the filing of the lawsuit . . . [,]” the person files notice of a claim not later than
180 days after the date of the occurrence of the event giving rise to the breach of contract claim.”
Romulus argues this notice provision is a defense while the City argues compliance with the
provision is a jurisdictional requirement under section 271.154. We agree with Romulus.
Section 271.154 of the Act provides:
Adjudication procedures, including requirements for serving notices or engaging
in alternative dispute resolution proceedings before bringing a suit or an
arbitration proceeding, that are stated in the contract subject to this subchapter or
that are established by the local governmental entity and expressly incorporated
into the contract or incorporated by reference are enforceable except to the extent
those procedures conflict with the terms of this subchapter.
TEX. LOC. GOV’T CODE ANN. § 271.154.
This Court has previously concluded the notice provision in section 271.154 is an
affirmative defense to the merits of the suit, not a matter that deprives the trial court of subject
matter jurisdiction. See City of Mesquite v. PKG Contracting, Inc., 263 S.W.3d 444, 447 (Tex.
App.—Dallas 2008, pet. denied).
To the extent the City questions the validity of the holding in City of Mesquite in light of
the supreme court’s subsequent opinion in Zachry, we disagree. In Zachry, the court analyzed
the Act and concluded it does not waive immunity from suit on a claim for damages not
recoverable under section 271.153. Zachry, 449 S.W.3d at 110. In reaching this conclusion, the
court explained the “subject to the terms and conditions” phrase in section 271.152 incorporates
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other provisions of the Act to define the scope of its waiver of immunity. Id. at 108. As the
court explained:
The waiver does not extend to tort suits, suits in federal court, or allow
recovery beyond that permitted in Section 271.153. But Section 271.152, as
qualified by this “subject to” phrase also does not preclude other defenses or
other contractual procedures, or confer immunity or suggest joint enterprise.
Id. (emphasis added).
The “contractual procedures” language is a reference to section 271.154, which provides
for enforcement of contractual adjudication procedure. In other words, the waiver of immunity
is not dependent on compliance with section 271.154 as it is for sections 271.157 (no immunity
to suit for tort liability), 271.156 (no waiver of immunity to suit in federal court), and 271.153
(limitations on adjudication awards).1
We likewise reject any suggestion that section 311.034 of the Texas Government Code
renders the notice provision jurisdictional. Section 311.034 provides that “[s]tatutory
prerequisites to suit, including the provision of notice, are jurisdictional in all suits against a
governmental entity.” But the notice provision here is not a statutory requirement; rather, it is
contained in the city code. See City of Austin v. Liberty Mut. Ins., 431 S.W.3d 817, 830 (Tex.
App.—Austin 2014, no pet.).
Because we conclude the notice provision is not a jurisdictional requirement, we do not
address whether Romulus sufficiently pleaded notice facts or provided supporting evidence of
those facts. To the extent the trial court granted the plea to the jurisdiction based on the notice
issue, it erred. Having concluded Romulus sufficiently pleaded and provided supporting proof of
a breach of contract and damages under the statute, we sustain the first issue.
1
We note Zachry disapproved of a line of cases, including PKG, to the extent the cases conflicted with the holding on damages. 449
S.W.3d at 110 n.54. The court did not, however, disapprove or otherwise mention PKG’s discussion of notice.
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In its second issue, Romulus contends the trial court erred in granting the City’s plea to
the jurisdiction on its claim for attorney’s fees. In its plea, the City argued that attorney’s fees
are recoverable only as allowed by contract or statute, and neither supports attorney’s fees in this
case. Thus, the City argued its immunity was not waived for attorney’s fees. Romulus counters
the City’s argument goes to the merits of the claim, not jurisdiction. We agree with Romulus.
Section 271.153(a)(3) waives immunity from suit for “reasonable and necessary
attorney’s fees that are equitable and just” in a breach of contract claim. TEX. GOV’T CODE ANN.
§ 271.153(a)(3); see Zachry, 449 S.W.3d at 110. This waiver does not depend on the outcome
and requires no showing the claimant will ultimately prevail. Zachry, 449 S.W.3d at 109–10.
Romulus pleaded for reasonable attorney’s fees as part of its breach of contract claim. Whether
the contract or a statute authorizes the recovery of those fees is a different issue that goes to the
merits of the claim. It does not, however, impact the trial court’s subject matter jurisdiction. See
Wheelabrator Air Pollution Control, Inc. v. City of San Antonio, 489 S.W.3d 448, 453 (Tex.
2016) (concluding claim for attorney’s fees arising from proprietary action in breach of contract
suit does not implicate immunity). We therefore conclude the trial court erred by granting the
plea to the jurisdiction on Romulus’s request for attorney’s fees. We sustain the second issue.
We reverse the trial court’s orders granting the City’s pleas to the jurisdiction on
Romulus’s claims for breach of contract and attorney’s fees. We remand this case to the trial
court for further proceedings consistent with this opinion.
/Molly Francis/
MOLLY FRANCIS
JUSTICE
160088F.P05
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S
Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT
ROMULUS GROUP, INC., Appellant On Appeal from the 191st Judicial District
Court, Dallas County, Texas
No. 05-16-00088-CV V. Trial Court Cause No. DC-14-15032.
Opinion delivered by Justice Francis;
CITY OF DALLAS, Appellee Justices Lang-Miers and Whitehill
participating.
In accordance with this Court’s opinion of this date, we REVERSE the trial court’s
orders granting the City of Dallas’s pleas to the jurisdiction on Romulus Group, Inc.’s claims for
breach of contract and attorney’s fees and REMAND this cause to the trial court for further
proceedings consistent with this opinion.
It is ORDERED that appellant Romulus Group, Inc., recover its costs of this appeal from
appellee City of Dallas.
Judgment entered May 2, 2017.
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