the City of San Antonio v. KGME Inc. ( 2011 )

OPINION
No. 04-10-00263-CV
CITY OF SAN ANTONIO,
Appellant
v.
KGME, INC.,
Appellee
From the 57th Judicial District Court, Bexar County, Texas
Trial Court No. 2008-CI-06449
Honorable Peter Sakai, Judge Presiding
Opinion by: Sandee Bryan Marion, Justice
Sitting: Catherine Stone, Chief Justice
Sandee Bryan Marion, Justice
Steven C. Hilbig, Justice
Delivered and Filed: March 30, 2011
AFFIRMED
In an opinion and judgment dated February 16, 2011, we affirmed the trial court’s order
denying the City of San Antonio’s plea to the jurisdiction in a suit filed by appellee, KGME, Inc.
The City of San Antonio (“the City”), the defendant below and appellant here, filed a motion for
rehearing. We deny the motion, withdraw our opinion and judgment of February 16, 2011, and
issue this opinion and judgment in its place.
04-10-00263-CV
BACKGROUND
In May 2004, the City contracted with KGME for construction of a drainage ditch with
hydromulched vegetation. In February 2006, the parties determined KGME could not complete
the project as called for in the contract. Thereafter, the City ordered cessation of work on the
project and withheld the portion of the contract retainage due to KGME upon completion and
acceptance of performance.
KGME brought two causes of action against the City: a claim for breach of contract and a
claim for violation of the Texas Prompt Payment Act (“PPA”). 1 KGME alleged the City
breached the parties’ contract by failing to: (1) pay for work performed on the project; (2) pay
for additional work completed pursuant to City-ordered changes in the scope of the project; (3)
pay for additional costs incurred due to City-caused delays; and (4) approve change orders
necessary for KGME to complete performance. For its breach of contract claim, KGME sought
all damages allowed under Texas Local Government Code section 271.153, as well as all
damages available at common law. 2 For its PPA claim, KGME requested attorneys’ fees and
interest accruing on the unpaid contract retainage.
1
The parties argue on appeal that KGME is pursuing two separate causes of action against the City for breach of
contract: a common law claim and a Texas Local Government Code section 271.152 claim. However, section
271.152 expressly waives sovereign immunity from suit for breach of contract, thereby permitting KGME to bring
its common law breach of contract claim. TEX. LOC. GOV’T. CODE ANN. § 271.152 (West 2005) (“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.”). Common law breach of contract
and section 271.152 are not distinct claims; section 271.152 is merely the vehicle by which KGME brings its
common law breach of contract claim.
2
It is unclear whether KGME made a claim for attorneys’ fees under section 271.153(a)(3). Regardless, section
271.153 was only recently amended in 2009 to permit recovery for reasonable and necessary attorneys’ fees. Act of
May 31, 2009, 81st Leg., R.S., ch. 1266, § 8, 2009 Tex. Gen. Laws 4006, 4007. The attorneys’ fees provision is not
retroactive—it applies only to contracts executed after the amendment’s effective date: June 19, 2009. Harris
County Flood Control Dist. v. Great Am. Ins. Co., 309 S.W.3d 614, 618 (Tex. App.—Houston [14th Dist.] 2010,
pet. dism’d). Because the parties in this case executed their contract in 2004, KGME cannot recover attorneys’ fees
under section 271.153.
-2-
04-10-00263-CV
On October 1, 2009, the City countersued for breach of contract, alleging KGME failed
to fully perform its obligations under the parties’ contract. The City later filed a plea to the
jurisdiction based on its sovereign immunity from suit. The trial court denied the City’s plea to
the jurisdiction, and the City filed this accelerated appeal.
STANDARD OF REVIEW
A plea to the jurisdiction is a dilatory plea by which a party challenges the court’s
authority to determine the subject matter of the cause of action. Bland Indep. Sch. Dist. v. Blue,
34 S.W.3d 547, 554 (Tex. 2000). We review de novo the trial court’s ruling on a plea to the
jurisdiction. Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).
A plea to the jurisdiction can make two types of challenges: a challenge to the existence
of jurisdictional facts or a challenge to the sufficiency of the pleadings. Id. at 226–27. When a
plea to the jurisdiction challenges the existence of jurisdictional facts, the trial court must
consider relevant evidence submitted by the parties to resolve the jurisdictional issues raised. Id.
at 227. If this consideration requires examination of evidence, the trial court has discretion to
decide whether the jurisdictional determination should be made in a preliminary hearing or after
more development of the case. Id. If the evidence raises a fact question regarding jurisdiction,
the trial court must deny the plea to the jurisdiction and leave resolution of the question to the
fact finder. Id. at 227–28. In contrast, if the evidence is undisputed or fails to raise a fact
question regarding jurisdiction, the trial court must rule on the plea to the jurisdiction as a matter
of law. Id. at 228.
When a plea to the jurisdiction challenges the sufficiency of the pleadings, we determine
if the plaintiff has met its burden by pleading facts affirmatively demonstrating the trial court’s
-3-
04-10-00263-CV
subject matter jurisdiction. Id. at 226. We construe the pleadings liberally in favor of the
plaintiff and look to the plaintiff’s intent. Id.
Here, the City’s plea to the jurisdiction challenges both the existence of jurisdictional
facts and the sufficiency of KGME’s pleadings. We discuss each separately.
EXISTENCE OF JURISDICTIONAL FACTS
The City argues the evidence establishes it did not breach the parties’ contract because it
had no contractual obligation to make the requested change orders. The City also argues it was
not the cause of KGME’s failure to perform because KGME neglected its duty to inspect the
premises before making its bid. The City contends there is no balance due and owing to KGME
under the contract because, by no fault of the City, KGME failed to complete performance,
which is a prerequisite for payment under the contract.
In contrast, KGME argues it did not breach the contract because it encountered “newly
discovered” conditions at the work site that precluded its performance. According to KGME, the
contract required the City to make change orders to accommodate KGME’s performance should
the parties discover any such conditions after performance began. KGME contends the City’s
failure to issue the change orders breached the contract and directly caused KGME’s failure to
perform; therefore, according to KGME, the City is estopped from asserting KGME’s failure to
complete performance as justification for its refusal to pay the balance of the contract retainage.
We believe the evidence raises fact issues as to which party, if any, breached the contract
and whether there is a balance due and owing to KGME. The parties invite us to review the
evidence and resolve these fact issues in their respective favors, but resolution of disputed
jurisdictional facts implicating the merits of a claim or defense is a matter reserved for the fact
finder. Miranda, 133 S.W.3d at 227–28. Therefore, because the evidence raises fact questions
-4-
04-10-00263-CV
regarding jurisdiction, the trial court properly denied the City’s plea to the jurisdiction on this
ground. See id.
SUFFICIENCY OF THE PLEADINGS
The City’s plea to the jurisdiction also challenges the sufficiency of KGME’s pleadings
on two grounds. First, the City argues the trial court has no jurisdiction to award KGME
common law breach of contract damages beyond those expressly permitted by the Local
Government Code. Second, the City argues the trial court has no jurisdiction to hear KGME’s
claim for violation of the PPA. We discuss each argument separately.
KGME’s Breach of Contract Claim
Texas Local Government Code section 271.152 expressly waives sovereign immunity
from suit for breach of contract. TEX. LOC. GOV’T CODE ANN. § 271.152 (West 2005) (“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 . . . .”). Section 271.153 limits the
types of damages recoverable for a breach of contract claim brought under section 271.152 as
follows:
(a) The total amount of money awarded in an adjudication brought against
a local governmental entity for breach of a contract subject to this subchapter is
limited to the following:
(1) the balance due and owing 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.
-5-
04-10-00263-CV
(b) 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.
Id. § 271.153.
“The provisions [of sections 271.152 and 271.153] waiving immunity and limiting
damages ‘apply to a claim that arises under a contract executed before the effective date of
[sections 271.152 and 271.153] only if sovereign immunity has not been waived with respect to
the claim before’ . . . September 1, 2005.” Tooke v. City of Mexia, 197 S.W.3d 325, 344–45
(Tex. 2006). Here, the parties formed the construction contract in May 2004, prior to the
effective date of sections 271.152 and 271.153. Because the City did not waive its sovereign
immunity before September 1, 2005, KGME is entitled to sue under section 271.152. See id.
KGME now seeks all damages permitted under section 271.153 for unpaid sums due and owing
for work performed on the project, payment for increased costs of performance resulting from
City-caused delays, and payment for change orders and additional work the City ordered KGME
to perform.
In addition, KGME requests common law damages, including actual, consequential,
incidental, and compensatory damages, as well as pre- and post-judgment interest, costs of court,
litigation expenses, and reasonable and necessary attorneys’ fees. 3 Some of these common law
3
KGME’s Second Amended Petition requests attorneys’ fees as an element of common law damages, but the
general rule in Texas is attorneys’ fees are available only if expressly permitted by contract or by statute. Tony
Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006). The parties’ contract does not provide for
attorneys’ fees; therefore, KGME relies on the PPA as its statutory authority for recovering attorneys’ fees in this
case. Alternatively, KGME requested attorneys’ fees under Texas Civil Practice and Remedies Code section
38.001. However, section 38.001 provides for recovery of attorneys’ fees only for claims brought against
individuals and corporations, not governmental entities. Therefore, KGME is not entitled to recover attorneys’ fees
under section 38.001.
-6-
04-10-00263-CV
damages cannot be recovered under section 271.153. For this reason, the City contends the trial
court does not have jurisdiction to award KGME common law damages for its breach of contract
claim beyond those expressly permitted by section 271.153. However, citing Reata Construction
Corp. v. City of Dallas, KGME argues that by countersuing, the City waived sovereign immunity
from all common law breach of contract damages, regardless of the limitations imposed by
section 271.153. In Reata, the Supreme Court held that when a governmental entity asserts its
own affirmative claims for monetary relief, sovereign immunity does not bar adverse parties
from asserting, “as an offset, claims germane to, connected with, and properly defensive to those
asserted by the governmental entity.” 197 S.W.3d 371, 376–77 (Tex. 2006). The Court
reasoned:
[I]f the governmental entity interjects itself into or chooses to engage in litigation
to assert affirmative claims for monetary damages, the entity will presumably
have made a decision to expend resources to pay litigation costs. If the opposing
party’s claims can operate only as an offset to reduce the government’s recovery,
no tax resources will be called upon to pay a judgment, and the fiscal planning of
the governmental entity should not be disrupted. Therefore, a determination that a
governmental entity’s immunity from suit does not extend to a situation where the
entity has filed suit is consistent with the policy issues involved with immunity.
In this situation, we believe it would be fundamentally unfair to allow a
governmental entity to assert affirmative claims against a party while claiming it
had immunity as to the party’s claims against it.
Id. at 375–76.
Applying Reata, we must decide if KGME’s claims for common law breach of contract
damages are sufficiently related to the City’s counterclaim. “In common usage, the term
‘germane’ means ‘closely akin,’ ‘being at once relevant and appropriate,’ ‘closely or
significantly related,’ ‘relevant,’ and ‘pertinent.’” Sweeny Cmty. Hosp. v. Mendez, 226 S.W.3d
584, 592 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (quoting City of Dallas v. Redbird Dev.
Co., 143 S.W.3d 375, 381 (Tex. App.—Dallas 2004, no pet.)); Merriam-Webster’s Collegiate
-7-
04-10-00263-CV
Dictionary 525 (11th ed. 2003); Random House Webster’s Unabridged Dictionary 800 (2d ed.
2001)). “In common usage, the term ‘connected’ means ‘united, joined or linked’ and ‘joined
together in sequence; linked coherently’ and ‘having parts or elements logically linked
together.’” Id. (quoting Merriam-Webster’s Collegiate Dictionary 525 (11th ed. 2003); Random
House Webster’s Unabridged Dictionary 800 (2d ed. 2001)).
Here, KGME’s claims and the City’s counterclaim arise from the same facts and
controversy. Both parties request damages stemming from the other’s purported breach of the
same contract, and both claims rely on the trial court’s resolution of similar disputed facts.
Therefore, we hold KGME’s claims for common law breach of contract damages are germane to,
connected with, and properly defensive to the City’s counterclaim for common law breach of
contract.
KGME contends Reata permits it to seek, in addition to those damages expressly
permitted by section 271.153, common law breach of contract damages up to the amount of the
City’s countersuit. We agree. Section 271.153 limits the extent of the statutory waiver created
by section 271.152. However, when the City counterclaimed against KGME, it affirmatively
waived any remaining sovereign immunity from suit for “germane” claims up to the amount of
its counterclaim. Thus, by countersuing KGME for breach of contract, the City opened itself up
to KGME’s claims for common law breach of contract damages otherwise barred by section
271.153. KGME’s recovery for these claims will be limited to the recovery awarded to the City
on its counterclaim.
Because we conclude the common law breach of contract damages KGME requests are
“germane to, connected with, and properly defensive to” the City’s counterclaim for breach of
-8-
04-10-00263-CV
contract, we hold the trial court has jurisdiction to hear KGME’s claims for common law breach
of contract damages.
KGME’s PPA Claim
The PPA provides that if a governmental entity does not make timely payments under a
contract with a vendor of goods or services, the vendor may suspend performance and recover
interest accruing on any undisputed late payments. TEX. GOV’T CODE ANN. §§ 2251.025,
2251.051 (West 2008). In addition, the PPA provides: “In a formal administrative or judicial
action to collect an invoice payment or interest due under this chapter, the opposing party, which
may be the governmental entity or the vendor, shall pay the reasonable attorney fees of the
prevailing party.” Id. § 2251.043. However, the existence of a bona fide dispute regarding
whether an amount is due and owing under a contract precludes operation of the interest
provision of the PPA. Id. § 2251.002(1); Port Neches-Groves Indep. Sch. Dist. v. Pyramid
Constructors, L.L.P., 281 S.W.3d 142, 150 (Tex. App.—Beaumont 2009, pet. denied).
The plaintiff has the burden of pleading facts affirmatively demonstrating the court’s
subject matter jurisdiction for a claim against a governmental entity. McMahon Contracting,
L.P. v. City of Carrollton, 277 S.W.3d 458, 464 (Tex. App.—Dallas 2009, pet. denied). The
State waives its immunity from liability by voluntarily entering into contracts and binding itself
to contractual terms. Id. However, even if the State waives its immunity from liability by
contracting with private parties, immunity from suit is not waived except by legislative mandate.
Id. “It is settled in Texas that for the Legislature to waive the State’s sovereign immunity, a
statute or resolution must contain a clear and unambiguous expression of the Legislature’s
waiver of immunity.” Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 696 (Tex. 2003);
see also TEX. GOV’T CODE ANN. § 311.034 (West 2005).
-9-
04-10-00263-CV
At least three of our sister courts have held that although the PPA waives sovereign
immunity from liability for attorneys’ fees and accrued interest on undisputed late payments, it
does not contain “clear and unambiguous” language expressly waiving sovereign immunity from
suit. Great Am. Ins. Co., 309 S.W.3d at 618; McMahon, 277 S.W.3d at 465; Pyramid
Constructors, 281 S.W.3d at 147. We, too, must conclude the PPA does not waive sovereign
immunity from suit for attorneys’ fees and interest. In this case, therefore, the City initially
retained sovereign immunity from suit for KGME’s claim for violations of the PPA. However,
because of the City’s counterclaim, our analysis does not end here.
Pursuant to the rule in Reata, the City may have waived its sovereign immunity from
KGME’s PPA claim by countersuing. The question for us to resolve is whether KGME’s PPA
claim is “germane to, connected with, and properly defensive to” the City’s counterclaim. We
conclude it is. As previously discussed, KGME’s claims and the City’s counterclaim arise from
the same facts and controversy. Both KGME’s PPA claim and the City’s counterclaim allege
breach of the parties’ contract and require resolution of the same facts. Thus, KGME’s PPA
claim is germane to, connected with, and properly defensive to the City’s counterclaim. We hold
the City, by countersuing KGME for breach of contract, waived its sovereign immunity from suit
for KGME’s PPA claim up to the recovery awarded to the City on its counterclaim.
As for the City’s contention that a bona fide dispute exists regarding the unpaid retainage,
thereby precluding operation of the interest provision of the PPA, we note the parties dispute
whether a bona fide dispute exists in this case. According to the City, there is no balance due
and owing because KGME never completed performance, which was a prerequisite to payment
under the contract. KGME contends the City intentionally thwarted performance by failing to
issue certain change orders to the contract that would have permitted KGME to perform. KGME
- 10 -
04-10-00263-CV
claims the City’s refusal to issue the change orders precludes it from now claiming a bona fide
dispute regarding the amount due and owing. Because the fact finder has not yet had an
opportunity to determine what amount, if any, is due and owing under the parties’ contract, we
decline to decide whether a bona fide dispute exists so that the parties may resolve the issue
before the trial court.
Accordingly, we hold the trial court has jurisdiction to hear KGME’s PPA claim for
attorneys’ fees and interest up to the amount of the City’s counterclaim.
CONCLUSION
For these reasons, we overrule all issues on appeal and affirm the trial court’s denial of
the City’s plea to the jurisdiction.
Sandee Bryan Marion, Justice
- 11 -