Mustang Special Utility District v. Providence Village ( 2012 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00032-CV
Mustang Special Utility District § From the 393rd District Court
§ of Denton County (2011-60876-393)
v.
§ December 21, 2012
Providence Village § Opinion by Justice Meier
JUDGMENT ON REHEARING
After considering Appellee Providence Village‘s motion for rehearing and
motion for en banc reconsideration of our opinion issued September 27, 2012,
we deny both motions, withdraw our opinion and judgment dated September 27,
2012, and substitute the following.
This court has again considered the record on appeal in this case and
holds that there was error in the trial court‘s orders. It is ordered that the orders
of the trial court are reversed and the case is remanded for further proceedings
consistent with this opinion.
It is further ordered that Appellant Mustang Special Utility District shall pay
all costs of this appeal, for which let execution issue.
SECOND DISTRICT COURT OF APPEALS
By_________________________________
Justice Bill Meier
2
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00032-CV
MUSTANG SPECIAL UTILITY APPELLANT
DISTRICT
V.
PROVIDENCE VILLAGE APPELLEE
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FROM THE 393RD DISTRICT COURT OF DENTON COUNTY
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OPINION ON REHEARING
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Appellee Providence Village filed a motion for rehearing and a motion for
en banc reconsideration of our opinion issued September 27, 2012. We deny
both motions, withdraw our opinion and judgment dated September 27, 2012,
and substitute the following.
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I. INTRODUCTION
Appellant Mustang Special Utility District appeals the trial court‘s orders
denying Mustang‘s jurisdictional challenges to the claims alleged against it by
Providence Village. We will reverse and remand the cause to the trial court.
II. BACKGROUND
Mustang was formed in 1966 as a water supply corporation for northeast
Denton County. In 1985, Mustang obtained a Certificate of Convenience and
Necessity (CCN) to provide water service in northeast Denton County. The
legislature created the Upper Trinity Regional Water District in 1989 in part to
provide wholesale treated water services to cities and water distribution utilities in
the Denton County area.
Located in northeast Denton County, Providence Village was developed as
a master-planned community in 2000. Upper Trinity and Mustang proposed to
extend a treated-water transmission line and to develop and construct a regional
wastewater system in the area, but several financial obstacles stood in the way.
The Denton County Commissioners Court consequently created fresh water
supply districts, including Denton County Fresh Water Supply District No. 9 (the
District), to facilitate the financing of the proposed water line and wastewater
system. The District‘s service area, located within the area covered by
Mustang‘s CCN, includes Providence Village.
In August 2001, the District entered into a participating customer contract
with Upper Trinity whereby Upper Trinity agreed to provide fresh water services
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to the District and the District agreed to install a wastewater collection system.
The District agreed that it ―is wholly within the water service area of [Mustang]‖;
that it ―may own its internal water distribution system, and shall contract with
[Mustang] to operate said distribution facilities for retail service within [the
District‘s] boundaries‖; and that it will ―respect the service area of [Mustang] for
which it has been granted a CCN, providing herein for coordination with
[Mustang], with its service area and with services provided by [Mustang] to the
balance of its service area.‖
In February 2002, Mustang and the District entered into contracts relating
to water and sewer service within the District‘s service area. The District agreed
to use water ―transported . . . to the District by Mustang through . . . facilities built
or to be built by [Upper Trinity] and maintained by Mustang,‖ to build water
distribution and wastewater collection facilities, and to apply for water and sewer
CCNs within the District‘s service area. Mustang agreed to perform a schedule
of services in relation to operating the water and sewer service systems. The
agreements also gave Mustang the option to purchase the District‘s systems
under certain circumstances and provided that the District ―will transfer‖ its CCNs
for water and sewer service to Mustang in the event Mustang exercises its
option.
In May 2002, Mustang was converted to a special utility district, and in
August 2002, the District obtained CCNs to provide water and sewer service to
its service area. Mustang later obtained a sewer CCN.
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In 2005, Mustang and the District entered into a ―Merged, Amended, and
Restated‖ agreement for water and sanitary sewer services pursuant to which the
District agreed, among other things, to convey its sanitary sewer collection
facilities to Mustang on October 1, 2011, and to lease its water distribution and
storage facilities to Mustang the same day. Mustang and the District amended
the 2005 agreement in October 2007 so that the District would convey (instead of
lease) its water distribution facilities to Mustang on October 1, 2011.
In contemplation of the scheduled October 2011 conveyances, Mustang
and the District filed an ―Application for Sale, Transfer, or Merger of a Retail
Public Utility‖ in February 2011, requesting approval from the Texas Commission
on Environmental Quality (TCEQ) for the sale and transfer of the District‘s CCNs
and facilities to Mustang. Providence Village, which had voted to incorporate in
2010, filed a protest with the TCEQ.
Providence Village sued both Mustang and the District in June 2011. It
provided the following context underlying the basis of its suit:
This dispute turns on the rights of citizens to organize
themselves into a city, elect officials, and then have those elected
officials determine what best meets their current needs. Years ago,
two unrelated entities executed a contract mandating the transfer of
water and sewer services enjoyed by the people of Providence
Village to [Mustang] on October 1, 2011. According to the contract,
this transfer must take place whether [Providence Village] or [the
District]—acting through their elected officials—believes that such a
transfer is in the best interests of their constituents. If the transfer is
accomplished, neither the local district nor the Town will have control
over their water and sewer services, even though much of the
infrastructure was financed with bonds still being repaid by these
citizens‘ taxes.
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In addition to injunctive relief, Providence Village sought a declaration that the
2005 agreement (as amended by the 2007 agreement) is void for violating the
reserved powers doctrine and that the District is not contractually obligated to
transfer its CCNs to Mustang or to ―achieve parity‖ with Mustang‘s rates. 1 Over
the course of the litigation, Mustang filed a motion to dismiss, a motion for
summary judgment, and a second plea arguing that governmental immunity
barred Providence Village‘s claims against Mustang. The trial court denied each
of Mustang‘s jurisdictional challenges, and this accelerated, interlocutory appeal
followed.2 See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(8) (West Supp.
2012).
1
The supreme court recently described the reserved powers doctrine as
follows:
Certain powers are conferred on government entities ―for
public purposes, and can neither be delegated nor bartered away.‖
Government entities cannot ―cede . . . away [such powers] through
contracts with others so as to disable them from the performance of
their public duties.‖
Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 843 (Tex.
2010) (citations omitted).
2
The parties entered into a rule 11 agreement whereby the District agreed
not to transfer the sewer collection and water distribution and storage facilities to
Mustang until the trial court enters a judgment or order disposing of Providence
Village‘s claims.
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III. DECLARATORY JUDGMENT ACTION CONTESTING VALIDITY OF 2005 AGREEMENT
In its first issue, Mustang argues that the trial court erred by denying its
jurisdictional challenges to the declaratory judgment action alleged against it by
Providence Village. Specifically, Mustang contends that governmental immunity
bars Providence Village‘s claim because any attempt by Providence Village to
invalidate the 2005 agreement between Mustang and the District impermissibly
seeks to control state action. According to Mustang, ―declaratory judgment
actions seeking to ‗invalidate‘ a contract are suits tantamount to controlling state
action when alleged against the state and cannot be maintained absent
legislative intent to waive immunity.‖
Providence Village acknowledges that a declaratory judgment action that
seeks to establish a contract‘s validity, to enforce performance under a contract,
or to impose contractual liability is barred by governmental immunity because
such a suit attempts to compel and control state action. But it argues that it does
not seek to accomplish any of those actions by its declaratory judgment action,
and it does not contend that Mustang and the District had no right or authority to
contract (an ultra vires claim). Instead, Providence Village ―seeks only a judicial
declaration as to the validity of the contract under the Reserved Powers
Doctrine.‖ According to Providence Village, ―if [declaratory judgment actions] to
determine the validity of a statute or ordinance and suits to construe a contract or
statute . . . are permissible, then there is no principled reason why a suit such as
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this one, which contests the validity of a contract under the same section, would
not be permissible.‖ [Emphasis added.]
A. Standard of Review
A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat
a cause of action without regard to whether the claims asserted have merit.
Bland ISD v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). If a court lacks subject
matter jurisdiction in a particular case, then it lacks authority to decide that case.
Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443–44 (Tex. 1993)
(reasoning that subject matter jurisdiction is essential to the authority of a court to
decide a case). The plaintiff has the burden to plead facts affirmatively showing
that the trial court has jurisdiction. Id. at 446. Whether the trial court has subject
matter jurisdiction is a question of law that we review de novo. Tex. Dep’t of
Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004); Tex. Natural Res.
Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002).
B. Governmental Immunity
Governmental immunity involves two issues: whether the State has
consented to suit and whether the State has accepted liability. Harris Cnty.
Hosp. Dist. v. Tomball Reg’l Hosp., 283 S.W.3d 838, 842 (Tex. 2009). Immunity
from suit is jurisdictional and bars suit unless the State expressly waives
immunity or consents to the suit. Id.; Tex. Dep’t of Transp. v. Jones, 8 S.W.3d
636, 638 (Tex. 1999). Here, it is undisputed that Mustang is a political
subdivision of the State of Texas. Therefore, it enjoys governmental immunity
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from suit, unless its immunity has been waived. See Ben Bolt-Palito Blanco
Consol. ISD v. Tex. Political Subdiv./Cas. Joint Self-Ins. Fund, 212 S.W.3d 320,
324 (Tex. 2006).
C. Governmental Immunity Bars Providence Village’s Declaratory
Judgment Action
The purpose of the Uniform Declaratory Judgments Act (UDJA) is to
establish existing ―rights, status, and other legal relations whether or not further
relief is or could be claimed.‖ Tex. Civ. Prac. & Rem. Code Ann. § 37.003(a)
(West 2008). Section 37.004(a) specifically provides as follows:
A person interested under a deed, will, written contract, or
other writings constituting a contract or whose rights, status, or other
legal relations are affected by a statute, municipal ordinance,
contract, or franchise may have determined any question of
construction or validity arising under the instrument, statute,
ordinance, contract, or franchise and obtain a declaration of rights,
status, or other legal relations thereunder.
Id. § 37.004(a) (West 2008). The UDJA is not a grant of jurisdiction; it is a
procedural device for deciding cases already within a court‘s jurisdiction.
Chenault v. Phillips, 914 S.W.2d 140, 141 (Tex. 1996). Consequently, immunity
will bar an otherwise proper UDJA claim that has the effect of establishing a right
to relief against the State for which the legislature has not waived immunity. Tex.
Parks & Wildlife Dep’t v. Sawyer Trust, 354 S.W.3d 384, 388 (Tex. 2011).
The law is clear that the UDJA waives governmental immunity (1) for
claims challenging the validity of an ordinance or statute and (2) for ultra vires
claims against state officials who allegedly act without legal or statutory authority
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or who fail to perform a purely ministerial act. See City of El Paso v. Heinrich,
284 S.W.3d 366, 372–73 & n.6 (Tex. 2009); IT-Davy, 74 S.W.3d at 855. Here,
Providence Village‘s request for a declaration that the 2005 agreement is void for
violating the reserved powers doctrine does not challenge the validity of an
ordinance or statute, and Providence Village expressly disavows any attempt to
allege an ultra vires claim. Thus, Mustang‘s governmental immunity is not
waived under these authorities.
In addition to clarifying when the UDJA waives governmental immunity, the
supreme court has explained that governmental immunity bars a request for
declaratory relief against a governmental entity (1) that constitutes a suit to
recover money damages or (2) that seeks to establish a contract‘s validity, to
enforce performance under a contract, or to impose contractual liabilities—
actions that effectively control state action. See IT-Davy, 74 S.W.3d at 855–56;
W.D. Haden Co. v. Dodgen, 158 Tex. 74, 78–79, 308 S.W.2d 838, 840–41
(1958). While there is no contention that Providence Village‘s claim under the
UDJA is a disguised attempt to recover money damages, Providence Village
does confirm that it seeks a declaration ―as to the validity‖ of the 2005 contract
under the reserved powers doctrine. We must therefore decide whether
Providence Village‘s request for a validity determination of the 2005 agreement
falls within the scope of the authorities holding that a request for declaratory relief
that seeks ―to establish a contract‘s validity‖ is barred by governmental immunity.
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See IT-Davy, 74 S.W.3d at 855–56; W.D. Haden, 158 Tex. at 78–79, 308 S.W.2d
at 840–41.
W.D. Haden is instructive. There, W.D. Haden had a permit issued by the
Texas Game and Fish Commission to take mudshell from Galveston Bay at a
monthly cost of seven cents per cubic yard of mudshell removed. W.D. Haden,
158 Tex. at 76, 308 S.W.2d at 838–39. After the Commission adopted a
resolution increasing the price from seven cents to ten cents per cubic yard of
mudshell removed, W.D. Haden sued the members and the executive secretary
of the Commission. Id. In addition to injunctive relief, W.D. Haden sought
declaratory relief that it had a binding contract with the State to pay only seven
cents per cubic yard for mudshell and that it was entitled to pay that amount
through the term of the agreement. Id. at 76, 308 S.W.2d at 839. Concluding
that the suit was barred by immunity, the supreme court illuminated the
distinction between a suit against a state official complaining of the official‘s
unauthorized actions, which is not a suit against the State and, therefore, not
barred by immunity, and a suit against a state official to compel performance of
or to enforce rights arising out of a contract with a state agency made on behalf
of the State in its sovereign capacity, which is a suit against the State and,
therefore, is barred by immunity. Id. at 78, 308 S.W.2d at 840. The supreme
court cited with approval the following language from another case:
There is a clear distinction between a suit against an officer for
a wrong committed by him in the name of the state, and suits
brought against an officer to prevent the exercise by the state
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through such officer of some act of sovereignty, or suits against an
officer or agent of the state to enforce specific performance of a
contract made for the state, or to enjoin the breach of such contract,
or to recover damages for such breach, or to cancel or nullify a
contract made for the benefit of the state.
Id. at 80, 308 S.W.2d at 841 (emphasis added). The supreme court concluded,
[The Commission‘s] selection of the manner of making sales as well
as its decision as to whether the manner it has followed constitutes a
valid contract is the selection and decision of the State; and however
incorrect the latter decision may be, a suit to test it by seeking
enforcement of contract rights is necessarily a suit against the State
which cannot be maintained without legislative permission.
Id. at 82, 308 S.W.2d at 842. Thus, just as a suit to establish the validity of a
contract entered into by the state is barred by immunity, the supreme court
indicated that a suit to invalidate a contract made for the benefit of the state is
barred by governmental immunity. Id. at 78–80, 308 S.W.2d at 840–42.
In its motion for rehearing, Providence Village contests W.D. Haden‘s
reasoning, arguing that unlike a suit to validate a contract made for the benefit of
the state, a suit to invalidate a contract made for the benefit of the state is not
barred by immunity because while the former constitutes an attempt to control
state action, the latter does not. We disagree. The distinction between a suit to
validate a contract and a suit to invalidate a contract lies not in the control of
state action, but in the type of state action that the suits seek to control. While a
suit to validate a contract attempts to compel performance of contractual
obligations, a suit to invalidate a contract ultimately seeks to compel non-
performance of once-binding contractual obligations. Both suits thus attempt to
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control state action, albeit different forms of state action. See Creedmoor-Maha
Water Supply Corp. v. Tex. Comm’n on Envtl. Quality, 307 S.W.3d 505, 514
(Tex. App.—Austin 2010, no pet.) (describing a suit that seeks to control state
action as one that ―seeks to restrain the State or its officials in the exercise of
discretionary statutory or constitutional authority‖).
Providence Village additionally argues in its motion for rehearing that our
reliance on W.D. Haden is misplaced because the part of the opinion reasoning
that a suit to invalidate a contract made for the benefit of the state is barred by
governmental immunity is dicta. As we have previously explained, it is well
established that as an intermediate appellate court, we are bound by the
pronouncements of the supreme court; it is not our function to abrogate or modify
established precedent. See Scoresby v. Santillan, 287 S.W.3d 319, 324 (Tex.
App.—Fort Worth 2009), aff’d, 346 S.W.3d 546 (Tex. 2011). Consequently, we
decline Providence Village‘s implied invitation to consider ourselves bound by
only part of W.D. Haden. Until we are given further direction by the supreme
court, we refuse to depart from W.D. Haden‘s unambiguous pronouncement that
a suit to invalidate a contract made for the benefit of the State is barred by
governmental immunity.
Moreover, a similar construction of W.D. Haden‘s reasoning has been
applied by several other appellate courts. In Texas Logos, L.P. v. Texas
Department of Transportation, TxDOT had awarded a logo sign contract to Media
Choice to operate a road sign program that had previously been implemented by
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Texas Logos. 241 S.W.3d 105, 109 (Tex. App.—Austin 2007, no pet.). Texas
Logos sued TxDOT and sought a declaration under the UDJA that the contract
entered into between Media Choice and TxDOT was void because TxDOT had
violated several procurement statutes during the bidding process. Id. On
appeal, TxDOT argued that Texas Logos‘s suit was barred by sovereign
immunity ―because they ultimately seek to invalidate the logo sign contract, a
remedy that would ‗control state action.‘‖ Id. at 119. The appellate court agreed.
Id. It mentioned the rule that a suit seeking to establish a contract‘s validity, to
enforce performance under a contract, or to impose contractual liabilities is a suit
against the state and—citing W.D. Haden—reasoned that the ―Texas Supreme
Court has historically regarded these immunity principles as also barring suits to
cancel or nullify a contract made for the benefit of the state.‖ Id. at 119–20
(emphasis added). Thus, Texas Logos‘s UDJA claim, which ―explicitly attack[ed]
an existing contract with the state,‖ was barred by immunity. Id. at 121; see Tex.
S. Univ. v. State St. Bank & Trust Co., 212 S.W.3d 893, 908–09 (Tex. App.—
Houston [1st Dist.] 2007, pet. denied) (holding that requests for declarations
concerning invalidity of agreement ―fall squarely within the . . . category of
declaratory-judgment claims identified in IT-Davy [claims to establish a contract‘s
validity] and thus fall outside the trial court‘s subject-matter jurisdiction‖); see
generally Lower Colo. River Auth. v. Riley, No. 10-10-00092-CV, 2011 WL
6956136, at *6 (Tex. App.—Waco Dec. 28, 2011, no pet.) (mem. op., not
designated for publication) (reasoning that request for declaratory relief that
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attempted to nullify the assignment of an interest in an easement implicated
governmental immunity because it sought to control political subdivision‘s
actions).
One other aspect of the Texas Logos opinion is noteworthy. As additional
support for its holding that the suit to invalidate the TxDOT agreement was
barred by immunity, the court observed that ―[s]uits to nullify a contract made for
the benefit of the state would likewise implicate sovereign immunity principles as
currently articulated by the Texas Supreme Court,‖ stating,
The contemporary rationale or justification for sovereign or
governmental immunity is to protect state resources from the costs
of paying judgments and defending against them so they can
instead be used in accordance with the policy and budgetary
directives of the legislature or local governments. Contracts are a
well-established means through which the state or local
governments effectuate their policy directives regarding
governmental functions. Furthermore, contracts may provide
financial benefits for governmental entities, and thus, will have
implications for budgetary and appropriations processes. Such is
the case with the logo sign contract, which, as TxDOT observes,
guarantees it several million in minimum payments during the
contract term. By interfering with these policy and budgetary
decisions regarding the use of state resources, a suit to invalidate
the logo sign contract implicates sovereign immunity.
Tex. Logos, L.P., 241 S.W.3d at 120 (citations omitted).
Providence Village asks us in its motion for rehearing to reconcile our
holding in this case with our opinion in City of Crowley v. Ray, No. 02-09-00290-
CV, 2010 WL 1006278, at *3–7 (Tex. App.—Fort Worth Mar. 18, 2010, no pet.)
(mem. op.). City of Crowley is inapposite because none of the declarations
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sought in that case attempted to invalidate a contract made for the benefit of the
State. See id. at *1 (listing requested declarations).
The facts of this case fall squarely within the purview of W.D. Haden‘s
reasoning and Texas Logos‘s holding. Therefore, we are both compelled by the
supreme court‘s reasoning and convinced by the appellate court‘s holding to
conclude that Providence Village‘s UDJA claim against Mustang to invalidate the
2005 agreement with the District is barred by governmental immunity.
Providence Village‘s suit pursuing a declaration that the 2005 agreement is
invalid seeks to control or compel state action, and the ―contemporary rationale
or justification‖ supporting governmental immunity—protecting state resources
from the costs associated with litigation so that they can be allocated as directed
by the legislature or local government, including by executing contractual
agreements for the benefit of the state—applies equally to this case. See W.D.
Haden, 158 Tex. at 79–80, 308 S.W.2d at 841.
Accordingly, we hold that the trial court erred by denying Mustang‘s
challenges to Providence Village‘s UDJA claim on the basis of governmental
immunity. We sustain Mustang‘s first issue. We need not address Mustang‘s
second and third issues. See Tex. R. App. P. 47.1.
IV. CONCLUSION
Having sustained Mustang‘s dispositive first issue, we reverse the trial
court‘s orders denying Mustang‘s jurisdictional challenges to Providence Village‘s
UDJA claim and render judgment dismissing that claim for lack of subject matter
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jurisdiction. Providence Village argues in its motion for rehearing that it is
prepared to file an amended petition alleging various constitutional claims against
Mustang. Therefore, we remand this cause to the trial court to allow Providence
Village an opportunity to plead those claims. See Tex. A&M Univ. Sys. v.
Koseoglu, 233 S.W.3d 835, 839 (Tex. 2007) (reasoning that litigant deserves
opportunity to amend pleadings if defects can be cured).
BILL MEIER
JUSTICE
PANEL: LIVINGSTON, C.J.; MCCOY and MEIER, JJ.
DELIVERED: December 21, 2012
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