national-public-finance-guarantee-corporation-and-mbia-insurance ( 2014 )

Opinion issued April 15, 2014
In The
Court of Appeals
For The
First District of Texas
NO. 01-13-00401-CV
NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND
MBIA INSURANCE CORPORATION, Appellants
V.
HARRIS COUNTY-HOUSTON SPORTS AUTHORITY AND HARRIS
COUNTY SPORTS AND CONVENTION CORPORATION, Appellees
On Appeal from the 215th District Court
Harris County, Texas
Trial Court Cause No. 2013-05829
OPINION
National Public Finance Guarantee Corporation and MBIA Insurance
Corporation (collectively, “National”) challenge the trial court’s grant, based on
sovereign immunity, of two pleas to the jurisdiction filed by the Harris County-
Houston Sports Authority (the “Sports Authority”) and the Harris County Sports
and Convention Corporation (the “Convention Corporation”). We reverse the trial
court’s grant of the Sports Authority’s plea, and affirm the trial court’s grant of the
Convention Corporation’s plea.
Background
In 1997, Harris County and the City of Houston created the Sports Authority
pursuant to Chapter 335 of the Local Government Code. See TEX. LOC. GOV’T
CODE ANN. § 335.021 (West 2005) (a municipality may create a venue district
under Chapter 335 to plan, acquire, establish, develop, construct, or renovate one
or more venue projects in the district); TEX. LOC. GOV’T CODE ANN. § 335.023
(West 2005) (a district is a political subdivision of the creating political
subdivision and of the state). Since its creation, the Sports Authority has issued
several series of bonds pursuant to a written Indenture of Trust (collectively with
all supplements and amendments, “Indenture”) to finance the construction of sports
venues in Harris County. The Indenture is an agreement between JPMorgan Chase
Bank (later Chase Manhattan Bank) and the Sports Authority that governs the
bonds. The Indenture provides that so long as any bonds remain outstanding, the
Sports Authority shall, to the extent permitted by law, impose and collect the
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revenues necessary to pay off the bonds and not impair its ability to collect the
required revenues. The Indenture also provides for the creation of various
accounts and a reserve account to hold funds securing the bonds, and specifies the
priority of payments from these accounts.
The parties’ dispute primarily concerns the Series 2001 bonds that were used
to fund the construction of Reliant Stadium. The Convention Corporation is a
local government entity created to serve as the landlord of Reliant Stadium.
Contemporaneously with the issuance of the bonds, several agreements were
executed:
• The Funding Agreement: The Sports Authority, the Convention
Corporation, Houston NFL Holdings, LP (“the Texans”), and the Houston
Livestock Show and Rodeo, Inc. (“the Rodeo”) executed a Funding
Agreement to describe the sources and uses of monies committed to the
development of Reliant Stadium, including providing for the issuance of
bonds and the raising of revenues to fund the bonds. The Funding
Agreement provided that the “provisions for payment or application thereof
in many instances are addressed more specifically in other Principal Project
Documents or the Indentures.” 1 It also provided that to the extent the terms
of the Funding Agreement conflicted with the Indenture or the Lease
Agreements (described below), the Indenture and the Lease Agreements, as
appropriate, “shall control.”
1
The Funding Agreement defined the Principal Project Documents as: (1) this
Funding Agreement, (2) the Lease Agreements, (3) the Existing Rodeo Lease,
(4) the Project Agreement, (5) the Non-Relocation Agreement, (6) the License
Agreements, (7) the Stadium Tri-Party Agreement, and (8) the Recognition and
Attornment Agreements, as the same may be amended supplemented, modified,
renewed, or extended from time to time in accordance with their respective terms.
3
• The Texans Lease: The Convention Corporation and the Texans executed a
lease agreement, which governs the Texans’ rental and use of Reliant
Stadium.
• The Rodeo Lease: The Convention Corporation and the Rodeo executed a
lease agreement, which governs the Rodeo’s rental and use of Reliant
Stadium.
Each of these agreements makes the bond insurer a third party beneficiary to the
agreement. The bond obligations are paid by (1) hotel occupancy and motor-
vehicle rental taxes and (2) taxes on admissions and parking at Reliant Stadium.
The Funding Agreement provides that admissions taxes shall not exceed $2 per
ticket and that parking taxes shall be $1 per vehicle.
National insures the bonds.2 The Sports Authority also entered into three
Reimbursement and Indemnity Agreements with MBIA (now National), one on
May 1, 2001, one on December 15, 2001, and one on June 1, 2004, which provided
that National would guarantee regularly scheduled principal and interest payments
on the bonds. In exchange, the Sports Authority agreed to indemnify National
against any failure by it to perform or comply with the covenants or conditions of
the Reimbursement Agreements or the “Related Documents” (which included the
bonds, the Indenture, and “any other agreement or instrument relating hereto or
thereto . . . .”). The Reimbursement Agreements incorporated all representations,
2
MBIA Insurance Corporation initially insured the bonds. In 2009, National
assumed MBIA’s obligations and became authorized to exercise MBIA’s rights.
4
warranties, and covenants in the Related Documents “with the same effect as if
each and every such representation, warranty, and covenant and defined term were
set forth herein in its entirety.”
On several occasions since the issuance of the bonds, the revenues raised by
the Sports Authority were insufficient to make the minimum principal and interest
payments due on the bonds. To cover these shortfalls, the Sports Authority made
claims on the financial guaranty insurance policies issued by National as provided
for in the Reimbursement Agreements. National contended that these claims
impermissibly reduced the reserve fund provided for in the Indenture that is
intended to secure the bond obligations. It also argued that, because the Sports
Authority was authorized by statute to impose an admission tax up to 10% of ticket
price and parking tax up to $3 per vehicle, the Sports Authority was required by
the Indenture to raise admission and parking taxes at Reliant Stadium to legislative
maximums in order to cover the shortfalls. See TEX. LOC. GOV’T CODE ANN.
§ 334.152 (West 2005) (admission tax imposed by venue may not exceed 10% of
ticket price); §334.202 (West Supp. 2005) (amount of parking tax may not exceed
$3 per vehicle). The Sports Authority refused to raise these taxes on the grounds
that the Funding Agreement capped these taxes at $2 per ticket and $1 per car, that
any additional revenue raised by these measures was required to be rebated to the
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Texans and the Rodeo under the terms of the Leases and the Funding Agreement
and would therefore never be available to service bond obligations, and that it was
not authorized to raise these taxes without voter approval.
In January 2013, National sued the Sports Authority, claiming that it had
breached the Indenture by refusing to impose admissions and parking taxes at the
legislative maximum. National also asserted other breaches by the Sports
Authority and a claim for reimbursement. In addition, National requested a
declaratory judgment against the Sports Authority, the Convention Corporation,
the Texans, and the Rodeo, that the Indenture requires the Sports Authority to
impose admissions taxes and parking taxes up to their legislative maximum, and
that the provisions of the Leases and the Funding Agreement should be modified
and interpreted to permit the incremental revenue generated by these increases to
be paid to National.
The Authority and the Convention Corporation filed pleas to the jurisdiction,
asserting that they were governmental entities and, accordingly, immune from suit.
In response, National asserted that both the Sports Authority and the Convention
Corporation had waived their immunity to suit by entering into the agreements
related to the bond issuance. The Funding Agreement and the Leases contain
express waivers of immunity and agreements not to assert immunity in any action
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or proceeding related to these agreements. Specifically, the Waiver of Immunity in
the Funding Agreement, signed by both the Sports Authority (and incorporated in
the Reimbursement Agreements by reference) and the Convention Corporation,
provides:
Each of the Parties unconditionally and irrevocably:
[. . . .]
(b) Agrees that should any Actions or Proceedings be brought
against it or its assets in relation to this Funding Agreement or the
Principal Project Documents or any transaction contemplated
thereunder, no immunity (sovereign or otherwise) from such
Actions or Proceedings (which shall be deemed to include, without
limitation, suit, attachment, prior to judgment, other attachment,
the obtaining of judgment execution or other enforcement) shall be
claimed by or on behalf of itself or with respect to its assets;
(c) Waives any such right of immunity (sovereign or otherwise)
which it or its assets now had or may acquire in the future . . . .
After a hearing, the trial court granted both pleas to the jurisdiction.
Discussion
In its first three issues, National contends that the trial court erred in granting
the Sports Authority’s plea to the jurisdiction because (1) the 2007 Act amending
Government Code chapter 1371 waived the Sports Authority’s immunity by
ratifying the waiver of immunity in the Funding Agreement that was incorporated
into the other deal documents, (2) Texas Local Government Code section 271.152
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waives the Sports Authority’s immunity because all of the agreements that the
Sports Authority entered into related to the bonds were contracts for services, and
(3) the Sports Authority is not entitled to immunity because it issued the bonds in
its proprietary, rather than governmental, capacity. In its fourth issue, National
contends that the trial court erred in granting the Convention Corporation’s plea
because Texas Local Government Code section 271.152 operates to waive the
Convention Corporation’s immunity in this case.
A. Standard of Review
A plea to the jurisdiction based on governmental immunity from suit is a
challenge to the trial court’s subject matter jurisdiction. See City of Waco v.
Kirwan, 298 S.W.3d 618, 621 (Tex. 2009); Tex. Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 225–26 (Tex. 2004). “A plea questioning the trial
court’s jurisdiction raises a question of law that we review de novo.” State v.
Holland, 221 S.W.3d 639, 642 (Tex. 2007).
When a plea to the jurisdiction challenges the sufficiency of the plaintiff’s
jurisdictional pleadings, we must determine whether the plaintiff has alleged facts
that affirmatively demonstrate the court’s jurisdiction. See Miranda, 133 S.W.3d
at 226. We construe the pleadings liberally in favor of the plaintiff and look to the
pleader’s intent. Id.; Smith v. Galveston Cnty., 326 S.W.3d 695, 697–98 (Tex.
8
App.—Houston [1st Dist.] 2010, no pet). The party asserting the plea must show
that, “even if all the allegations in the plaintiff’s pleadings are taken as true, there
is an incurable jurisdictional defect apparent from the face of the pleadings,
rendering it impossible for the plaintiff's petition to confer jurisdiction on the trial
court.” Anderson v. Am. Fed’n of Gov’t Emps., AFL–CIO, 338 S.W.3d 709, 712–
13 (Tex. App.—Houston [1st Dist.] 2011, pet. denied). If the pleading contains
facts that do not affirmatively demonstrate, but also do not affirmatively negate,
jurisdiction, “it is an issue of pleading sufficiency and the plaintiff should be given
an opportunity to amend the pleadings.” Kirwan, 298 S.W.3d at 622 (quoting
Miranda, 133 S.W.3d. at 226–27). However, if the pleading defects cannot be
cured, remand for amendment would serve no legitimate purpose. See Tex. A&M
Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 839 (Tex. 2007). If the pleadings
affirmatively negate the existence of jurisdiction, then a plea to the jurisdiction
may be granted without allowing the plaintiff an opportunity to amend its petition.
Smith, 326 S.W.3d at 698 (citing Miranda, 133 S.W.3d at 227).
When a plea to the jurisdiction challenges the existence of jurisdictional
facts, we “‘consider relevant evidence submitted by the parties when necessary to
resolve the jurisdictional issues raised,’ even where those facts may implicate the
merits of the cause of action.” Kirwan, 298 S.W.3d at 622 (quoting Miranda, 133
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S.W.3d. at 227). The plea to the jurisdiction standard mirrors that of a traditional
motion for summary judgment. Ross v. Linebarger, Goggan, Blair & Sampson,
L.L.P., 333 S.W.3d 736, 744 (Tex. App.—Houston [1st Dist.] 2010, no pet.).
When reviewing the evidence, we must take as true all evidence in favor of the
nonmovant and “indulge every reasonable inference and resolve any doubts in the
nonmovant’s favor.” Kirwan, 298 S.W.3d at 622 (quoting Miranda, 133 S.W.3d.
at 228). If the evidence creates a fact issue as to the jurisdictional issue, then the
fact-finder will decide that issue. Id. (citing Miranda, 133 S.W.3d. at 227–28).
“However, if the relevant evidence is undisputed or fails to raise a fact question on
the jurisdictional issue, the trial court rules on the plea to the jurisdiction as a
matter of law.” Id. (quoting Miranda, 133 S.W.3d. at 228).
B. Sovereign and Governmental Immunity
Sovereign immunity generally protects the state against lawsuits for money
damages; governmental immunity provides protection to subdivisions of the state,
including cities, and is derived from the state’s sovereign immunity. City of
Houston v. Williams, 353 S.W .3d 128, 134 (Tex. 2011); Smith, 326 S.W.3d at
697–98 (citing Mission Consol. Indep. Sch. Dist. v. Garcia, 253 S.W.3d 653, 655
(Tex. 2008) and Harris Cnty. v. Sykes, 136 S.W.3d 635, 638 (Tex. 2004)).
“Sovereign immunity has two components: immunity from suit and immunity from
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liability.” Williams, 353 S.W.3d at 134. Immunity from suit exists, and the state
may not be sued, absent an express waiver of immunity by the Legislature. Id.
Governmental immunity from suit may also be waived, “but we defer to the
Legislature to do so by statute.” Id. Immunity from liability protects the state
from money judgments, but is a defense and not a jurisdictional bar as is immunity
to suit. Id.
Both forms of immunity must be waived in order to recover a money
judgment against the state. See id. A governmental entity may waive immunity
from liability by entering into a contract with a private party, but unless the
Legislature has waived immunity from suit, no suit can be maintained. See id.
Conversely, “immunity from liability shields the state from money judgments,
even when the Legislature has given consent to sue.” Id. A waiver of immunity
must be clear and unambiguous, and any ambiguity must be resolved in favor of
retaining immunity. See Tooke v. City of Mexia, 197 S.W.3d 325, 333 (Tex. 2006);
Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 697 (Tex. 2003).
A. Did the 2007 Act amending Chapter 1371 of the Government Code waive
the Sport Authority’s immunity?
In 2007, following the Supreme Court’s decision in Tooke v. City of Mexia,
11
197 S.W.3d 325 (Tex. 2006)3, the Legislature amended Chapter 1371 of the
Government Code, which governs financing tools for certain obligations for public
improvements. See Act effective June 15, 2007, 80th Leg., R.S., ch. 1310, 2007
Tex. Gen. Laws 4415–24. The Legislature added section 1371.059(c), which
provides that “[a]n issuer in the proceedings to authorize obligations or a credit
agreement, or in a credit agreement, may agree to waive sovereign immunity from
suit or liability for the purpose of adjudicating a claim to enforce the credit
agreement or obligation or for damages for breach of the credit agreement or
obligation.”4 See id. at § 6, 2007 Tex. Gen. Laws at 4422 (currently codified as
3
Before Tooke, the majority of appellate courts followed Missouri Pacific Railroad
Co. v. Brownsville Navigation District, 453 S.W.2d 812 (Tex. 1970) and held that
statutes providing that a governmental entity may “sue and be sued” indicated a
“sufficient pronouncement of legislative intent to waive immunity from suit.” See
Seureau v. ExxonMobil Corp., 274 S.W.3d 206, 216 (Tex. App.—Houston [14th
Dist.] 2008, no pet.). In Tooke, the Texas Supreme Court overruled Missouri
Pacific, holding that the phrase “sue and be sued,” by itself, cannot be said to be
clear and unambiguous, and therefore does not, by itself, waive immunity. Tooke
v. City of Mexia, 197 S.W.3d 325, 342 (Tex. 2006).
4
Chapter 1371 defines a credit agreement as
a loan agreement, revolving credit agreement, agreement
establishing a line of credit, letter of credit, reimbursement
agreement, insurance contract, commitment to purchase obligations,
purchase or sale agreement, interest rate management agreement, or
other commitment or agreement authorized by a governing body in
anticipation of, related to, or in connection with the authorization,
issuance, sale, resale, security, exchange, payment, purchase,
remarketing, or redemption of some or all of an issuer’s obligations
or interest on obligations, or both, or as otherwise authorized by this
chapter.
12
TEX. GOV’T CODE ANN. § 1371.059(c) (West Supp. 2013)). Section 9 of the Act
provided that the changes made by the Act, including new subsection (c), applied
only to “proceedings related to authorizing the issuance of obligations or the
execution of credit agreements or interest rate management agreements that are
adopted on or after” June 15, 2007, “and to transactions related to the obligations
or agreements.” See id. at § 9, 2007 Tex. Gen. Laws at 4423. Section 9 further
provided that “[p]roceedings related to authorizing the issuance of obligations or
the execution of credit agreements or interest rate management agreements that are
adopted before the effective date of this Act, and transactions related to the
obligations or agreements, are governed by the law in effect on the date the
proceedings were initiated and the former law is continued in effect for that
purpose.” Further, Section 10 of the Act ratified waivers of immunity in
agreements entered into before the effective date if those agreements were entered
into by an issuer “that has authority by statute or under its charter to sue and be
TEX. GOV’T CODE ANN. § 1371.001(1) (West Supp. 2013).
Chapter 1371 defines an obligation as
a public security . . . or other obligation that may be issued by an
issuer and that is expected to be rated, and before delivery is rated,
by a nationally recognized rating agency for municipal securities in
one of the three highest rating categories for a short-term debt
instrument or one of the four highest rating categories for a long-
term debt instrument.
Id. § 1371.001(5).
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sued or to plead and be impleaded,” and if the agreement “waives sovereign
immunity from suit or liability for breach of an obligation or of a credit agreement
. . . .” See id. at § 10, 2007 Tex. Gen. Laws at 4423.
1. Analysis
As a threshold matter, we agree with the Sports Authority that Section
1371.059(c) does not apply to the initial execution of the Indenture, Leases,
Funding Agreement, or Reimbursement Agreements, because Section 9 of the Act
provides that subsection (c) applies only to “proceedings related to authorizing the
issuance of obligations or the execution of credit agreements or interest rate
management agreements that are adopted on or after” June 15, 2007. See Act
effective June 15, 2007, 80th Leg., R.S., ch. 1310, §§ 6, 9, 2007 Tex. Gen. Laws at
4422–23. The agreements at issue in this case were all initially executed before
June 15, 2007.
National contends that Section 9 is forward-looking, providing the specific
legislative authorization required by Tooke for waiving immunity in a credit
agreement post-amendment, and that Section 10 is backward-looking, ratifying
pre-existing waivers of immunity in agreements that would otherwise have been
sufficient under pre-Tooke law. By including Section 10, National argues, the
Legislature provided the specific legislative authorization that is required by Tooke
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for pre-amendment agreements.
But the Sports Authority argues that this interpretation creates a conflict
between Section 9 and Section 10, and that Section 10 of the Act only “ratifies
credit agreements entered before the effective date of the Act—but not bonds or
bond proceedings.” Accordingly, the Sports Authority argues that Section 10 does
not apply in this case because the Reliant Stadium bonds were issued before
June 15, 2007.
The Sports Authority also contends that Section 10 did not ratify the waiver
of immunity in the Funding Agreement, because the Sports Authority did not have
the authority by statute to sue or be sued until 2003, and therefore did not have
authority to sue or be sued in 2001, when it signed the Funding Agreement. See
Act of May 28, 2003, 78th Leg., R.S., ch. 981, § 1, 2003 Tex. Gen. Laws 2865
(currently codified as TEX. LOC. GOV’T CODE ANN. § 335.005) (providing that a
sports and community venue district may “sue or be sued”). The Sports Authority
contends that this language in Section 10—“that has authority by statute or under
its charter to sue and be sued or to plead and be impleaded”—refers to the date the
agreement is executed. National contends that this language is stated in the present
tense, and merely requires that the issuer have authority to sue or be sued as of the
effective date of the Act, June 15, 2007.
15
We agree with National that the Sports Authority’s reading of Sections 9 and
10 is not justified by the plain language of the Act. We construe statutory
language to ascertain and effectuate legislative intent, and we look to the statute’s
plain meaning because we presume that the Legislature intends the plain meaning
of its words. See Fleming Foods of Tex. v. Rylander, 6 S.W.3d 278, 282, 284 (Tex.
1999). The Sports Authority argues that, pursuant to Section 9, bond proceedings
initiated before June 15, 2007 are governed by “the law in effect on the date the
proceedings were initiated,” and therefore Section 10’s ratification cannot apply to
these proceedings, or at least, creates a conflict with this provision in Section 9.
But Section 10 does not draw a distinction between past credit agreements
and past bonds or bond proceedings. On the contrary, Section 10 states broadly
that it applies to “[a]n agreement described by this section” that “waives sovereign
immunity from suit or liability for breach of an obligation or of a credit
agreement.” Act effective June 15, 2007, 80th Leg., R.S., ch. 1310, § 10, 2007
Tex. Gen. Laws at 4423. It defines such an agreement as one (1) entered into
before the effective date of the Act by an issuer that has authority by statute or
under its charter to sue and be sued or to plead and be impleaded, and (2) that
waives sovereign immunity from suit or liability for breach of an obligation or of a
credit agreement. Id. It includes no temporal limitation other than that the
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agreement be entered into before the effective date of the Act.
Here, it is undisputed that the Indenture, Leases, Funding Agreement, and
Reimbursement Agreements were entered into before June 15, 2007. Further, the
parties agree that the Sports Authority is an issuer, as defined by Chapter 1371.
See TEX. GOV’T CODE ANN. § 1371.001(4)(N) (“issuer” means a district created
under Chapter 335, Local Government Code). And the Sports Authority does not
dispute that the Funding Agreement contains a waiver of immunity.
As for the parties’ dispute regarding whether Section 10 requires the
governmental entity to have had authority by statute or under its charter to sue and
be sued on the date the agreement was executed versus the effective date of the
Act, we do not need to determine what this language requires, because it is
undisputed that the Authority and MBIA (now National) executed a
Reimbursement and Indemnity Agreement on June 1, 2004, after the date that the
Authority was authorized by statute to sue or be sued, and prior to the 2007 Act.
Chapter 1371 defines a credit agreement as, among other things, a “reimbursement
agreement.” TEX. GOV’T CODE ANN. § 1371.001(1). The 2004 Reimbursement
Agreement provides:
The Issuer hereby makes to MBIA the same representations,
warranties and the same covenants made by or with respect to the
Issuer, as are set forth in the Related Documents which
representations, warranties and covenants, as well as the related
17
defined terms contained therein, are incorporated herein by this
reference with the same effect as if each and every such
representation, warranty and covenant and defined term were set
forth herein in its entirety.
(emphasis added.) Terms incorporated into a contract by reference become part of
that contract. See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (orig.
proceeding) (per curiam). Here, the 2004 Reimbursement Agreement contained,
by reference, “the same representations, warranties and the same covenants made
by or with respect to the Issuer, as are set forth in the Related Documents . . . .”
The “Related Documents” are the “Bonds and the Indenture and any other
agreement or instrument relating hereto or thereto . . . .” The Funding Agreement
plainly relates to the bonds and the Indenture, because in the Funding Agreement,
the Sports Authority “acknowledge[d] that this Funding Agreement is being
executed and delivered in connection with the sale and issuance of the Stadium
Project Bonds” and that the “provisions for payment or application thereof in many
instances are addressed more specifically in other Principal Project Documents or
the Indentures.” The Sports Authority’s waiver of immunity was incorporated
into the 2004 Reimbursement Agreement. See id. at 567 (terms incorporated by
reference become part of contract). Accordingly, because the 2004
Reimbursement Agreement was entered into before June 15, 2007 by an issuer, the
Sports Authority, that had authority to sue or be sued, and it waived immunity, the
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2004 Reimbursement Agreement falls under the express terms of Section 10, and
the Sports Authority’s immunity is waived. See Act effective June 15, 2007, 80th
Leg., R.S., ch. 1310, § 10, 2007 Tex. Gen. Laws at 4423.
We sustain National’s first issue. Because we have held that the Sports
Authority waived immunity on this basis, we do not reach National’s second and
third issues.
B. Does Texas Local Government Code section 271.152 waive the
Convention Corporation’s immunity?
National contends that the Convention Corporation’s immunity is waived by
the Funding Agreement and the Leases, which were signed by the Convention
Corporation and to which National is a third-party beneficiary, because they satisfy
the requirements of section 271.152 of the Local Government Code.
1. Applicable Law
Chapter 271, Subchapter I, of the Local Government Code provides a waiver
of immunity for breach of certain contracts. See TEX. LOC. GOV’T CODE ANN.
§§ 271.151–.160 (West 2005 & Supp. 2013). Three elements are required to waive
immunity under section 271.152:
(1) the party against whom the waiver is asserted must be a “local
governmental entity” as defined by section 271.151(3),
(2) the entity must be authorized by statute or the Constitution to enter
into contracts, and
19
(3) the entity must in fact have entered into a contract that is “subject
to this subchapter,” as defined by section 271.151(2).
See id. § 271.152; Williams, 353 S.W.3d at 134–35. A “[c]ontract subject to this
subchapter” is “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).
“[W]hen a governmental entity and a contracting party enter into a contract
subject to subchapter I and denominate a third-party beneficiary of that contract,
the third-party beneficiary’s claim for breach of contract falls within the waiver of
immunity authorized under section 271.152.” Galveston Indep. Sch. Dist. v. Clear
Lake Rehabilitation Hosp., L.L.C., 324 S.W.3d 802, 810 (Tex. App.—Houston
[14th Dist.] 2010, no pet.) (citing Ben Bolt–Palito Blanco Consol. Indep. Sch. Dist.
v. Tex. Political Subdivisions Prop./Cas. Joint Self–Ins. Fund, 212 S.W.3d 320,
327 (Tex. 2006)). However, section 271.152 waives immunity only with respect to
a “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.
20
2. Analysis
It is undisputed that the first two elements of section 271.152 are satisfied
here. See id. §§ 271.151–.152; Williams, 353 S.W.3d at 134–35. But the parties
dispute whether the Convention Corporation entered into a contract subject to
subchapter I, as required by section 271.152, and whether the alleged waiver
extends to the declaratory judgment claims National asserts against the Convention
Corporation. The Convention Corporation signed three contracts to which
National is a third-party beneficiary—the Funding Agreement and the two Leases.
We conclude that we need not determine whether these contracts are
contracts for goods and services subject to subchapter I because, even if they are,
section 271.152’s waiver does not extend to the claims National asserts against the
Convention Corporation. A section 271.152 waiver covers only “suit[s] for the
purpose of adjudicating a claim for breach of the contract . . . .” TEX. LOC. GOV’T
CODE ANN. § 271.152. National asserts no breach of contract claims against the
Convention Corporation. Rather, in its First Amended Petition, National seeks the
following declarations:
(A) The Authority is obligated to impose and collect all taxes
necessary to pay amounts owing or to be owed on the Bonds
...;
(B) The Team Credit provision in Section 2.2(g) of the Funding
Agreement is interpreted to exclude the Club Parking Tax
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Revenues and the Club Admissions Tax Revenues . . . ;
(C) The definition of Admissions Taxes and Parking Taxes in the
Funding Agreement conflict with the Indenture’s definitions
...;
(D) The interpretation of Admission Taxes and Parking Taxes is
incorporated into all dependent definitions, including the
dependent definitions adopted in the Texans Lease and the
Rodeo Lease; and
(E) The credits provided for in Section 8.1.3 of the Texans Lease
and Section 9.1.3 of the Rodeo Lease are not applicable to
increases in Admissions Taxes or Parking Taxes unless those
increases exceed the legislative maximums . . . .
National relies upon Harris County Housing Authority v. Rankin, 414
S.W.3d 198 (Tex. App.—Houston [1st Dist.] 2013, pet. denied), to argue that the
Convention Corporation’s immunity is waived because immunity is waived at the
time a governmental entity enters into a contract, and is “not dependent on a breach
to occur for waiver to apply.” Id. at 204. However, Rankin did not hold that a
claim for breach of contract was not required in order to maintain a claim under
section 271.152. To the contrary, in Rankin, Rankin alleged that the Housing
Authority breached a buy-out agreement that secured the release of his claims
under an employment contract that was subject to section 271.152. This Court
concluded that “the Housing Authority, having waived immunity from suit by
contracting for services with Rankin, may not now claim immunity from suit
22
brought to enforce an agreement that settled claims arising under that contract for
services.” Id. at 205. That is not our circumstance.
National also relies upon Ben Bolt–Palito Blanco Consolidated Independent
School District v. Texas Political Subdivisions Property/Casualty Joint Self–
Insurance Fund, 212 S.W.3d 320 (Tex. 2006) to support its claim that section
271.152 waives immunity for both breach of contract and declaratory judgment
claims. In Ben Bolt, the Fund denied coverage for Ben Bolt’s claim. Id. at 323.
Ben Bolt then filed suit seeking a declaration that its loss was a covered occurrence
under the insurance agreement’s terms. Id. The Supreme Court held that section
271.152, which had been enacted while the case was on appeal, waived the Fund’s
immunity from Ben Bolt’s claim arising out of the insurance agreement, without
explicitly addressing the circumstance that the underlying claim sought a
declaratory judgment. Id. at 328. But, in that case, the Fund, which was the party
against which Ben Bolt asserted the declaratory judgment action, was the same
party that Ben Bolt also asserted had breached the insurance agreement. And,
based upon the facts, it was self-evident that the declaratory judgment claim could
have been pleaded as breach of the insurance contract.
Here, by contrast, National contends in its petition that it is the Sports
Authority, not the Convention Corporation, that has breached the Indenture.
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National argues that this breach requires certain modifications of other contracts,
including the Funding Agreement and the Leases, but National does not allege that
these other contracts have been breached by any party, including the Convention
Corporation. And National nowhere in its petition contends that the Convention
Corporation breached any contract. National cites no authority, and we have found
none, holding that section 271.152 waives immunity of a governmental entity that
is not alleged to have breached a contract. Section 271.152 does not expressly
state that the alleged breaching governmental entity is the only entity as to which
immunity is waived. See TEX. LOC. GOV’T CODE ANN. § 271.152 (“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.” ). But we must resolve any
ambiguity in favor of retaining immunity. See Tooke, 197 S.W.3d at 330; Wichita
Falls State Hosp., 106 S.W.3d at 697. Accordingly, we hold that section 271.152’s
waiver of immunity does not extend to National’s declaratory judgment claims
against the Convention Corporation.
The San Antonio Court of Appeals recently considered whether section
271.152’s waiver is broad enough to encompass related declaratory judgment
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claims where a governmental entity has waived immunity as to a breach of contract
claim. The court held that “the legislature has not expressly and unambiguously
waived immunity from suit for a declaratory judgment claim.” Lower Colorado
River Auth. v. City of Boerne, 422 S.W.3d 60, __ (Tex. App.—San Antonio 2014,
pet. filed) (affirming trial court’s order granting city’s plea to the jurisdiction on
plaintiff’s declaratory judgment claim, where plaintiffs had also asserted related
breach of contract claim against city). This supports our conclusion that section
271.152’s waiver of immunity does not extend to National’s declaratory judgment
claims against the Convention Corporation, particularly here, where National’s
declaratory judgment claims are not a mirror-image of a breach of contract claim
against the Convention Corporation.
National urges us to allow it to replead to assert a breach of contract claim
against the Convention Corporation. See Kirwan, 298 S.W.3d at 622 (if pleading
contains facts that do not affirmatively demonstrate, but also do not affirmatively
negate, jurisdiction, it is an issue of pleading sufficiency and the plaintiff should be
given an opportunity to amend the pleadings) (quoting Miranda, 133 S.W.3d. at
226–27). But the only breach of contract that National identifies that it could
assert on remand is a claim for breach of the agreement not to assert immunity. By
this logic, a governmental entity could waive its immunity merely by agreeing in a
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contract not to assert immunity, and then asserting immunity. But only the
Legislature can waive immunity, and holding otherwise would circumvent this rule
and invoke the policy concerns that dictate that such a waiver can only be
authorized by the Legislature. See Tex. Adjutant Gen.’s Office v. Ngakoue, 408
S.W.3d 350, 353 (Tex. 2013) (reiterating that it is the legislature’s “sole province”
to waive or abrogate sovereign immunity); see also Bacon v. Tex. Historical
Comm’n, 411 S.W.3d 161, 172 (Tex. App.—Austin 2013, no pet.) (rationale for
governmental immunity is that the legislature “is best suited to make the policy-
laden judgments as to if and how . . . government resources should be expended”).
Because National cannot identify a breach by the Convention Corporation that
would support the waiver of immunity, we conclude that National’s proposed
pleading amendments would be futile. Koseoglu, 233 S.W.3d at 840 (court should
not remand case for repleading if the pleading defects cannot be cured).
We overrule National’s fourth issue.
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Conclusion
We affirm the judgment of the trial court as to the Convention Corporation.
We reverse the judgment of the trial court as to the Sports Authority, and remand
for further proceedings consistent with this opinion.
Rebeca Huddle
Justice
Panel consists of Justices Higley, Massengale, and Huddle.
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