Water Exploration Company, LTD v. Bexar Metropolitan Water District ( 2011 )

OPINION
No. 04-10-00386-CV
WATER EXPLORATION COMPANY, LTD,
Appellant
v.
BEXAR METROPOLITAN WATER DISTRICT,
Appellee
From the 57th Judicial District Court, Bexar County, Texas
Trial Court No. 2007-CI-18168
Honorable John D. Gabriel, Jr., Judge Presiding
Opinion by: Karen Angelini, Justice
Sitting: Karen Angelini, Justice
Phylis J. Speedlin, Justice
Rebecca Simmons, Justice
Delivered and Filed: February 2, 2011
AFFIRMED
The issue in this interlocutory appeal is whether section 271.152 of the Texas Local
Government Code applies to the contract between Water Exploration Co. and Bexar
Metropolitan Water District. We conclude that it does not and affirm the trial court’s order
granting the plea to the jurisdiction.
04-10-00386-CV
BACKGROUND
Appellant Water Exploration Co. (“WECO”) finds, drills for, and produces commercial
drinking water in Texas. Thus, WECO leased groundwater rights from several landowners and
on September 11, 2005, with respect to these groundwater leases, entered into a long-term Water
Supply Agreement with Bexar Metropolitan Water District (“BexarMet”). In essence, WECO
sub-leased its rights under these groundwater leases to BexarMet. At issue in this appeal is
whether section 271.152 of the Local Government Code applies to the Water Supply Agreement,
thus waiving BexarMet’s immunity from suit. Believing that section 271.152 does not apply to
the Agreement, on March 20, 2010, the trial court sustained BexarMet’s plea to the jurisdiction.
WECO then filed this interlocutory appeal.
GOVERNMENTAL IMMUNITY
In Texas, governmental immunity has two components: immunity from liability, which
bars enforcement of a judgment against a governmental entity, and immunity from suit, which
bars suit against the entity altogether. Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006).
By entering into a contract, BexarMet waived “immunity from liability, voluntarily binding itself
like any other party to the terms of agreement.” Id. But, it did not waive immunity from suit. See
id. The Texas Supreme Court has “consistently deferred to the Legislature to waive sovereign
immunity from suit, because this allows the Legislature to protect its policymaking function.” Id.
Specifically, the supreme court has deferred to the Legislature to waive immunity from contract
claims because (1) “the handling of contract claims against the government involves policy
choices more complex than simply waiver of immunity, including whether to rely on
administrative processes and what remedies to allow”; (2) “the government should not be kept
from responding to changing conditions for the public welfare by prior policy decisions reflected
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in long-term or ill-considered obligations”; (3) “the claims process is tied to the appropriations
process, and the priorities that guide the latter should also inform the former;” and (4) “the
Legislature is able to deal not only with these policy concerns but also with individual situations
in deciding whether to waive immunity by resolution, case by case, or by statute.” Id. (citations
omitted). Thus, “in the contract-claims context, legislative control over sovereign immunity
allows the Legislature to respond to changing conditions and revise existing agreements if doing
so would benefit the public.” Id. And, “to ensure that this legislative control is not lightly
disturbed, a waiver of immunity must be clear and unambiguous.” Id. at 332-33. 1
Water Control and Improvement Districts are “valid and existing governmental agencies
and bodies politic.” Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 836
(Tex. 2010) (citation omitted). Thus, they enjoy governmental immunity from suit, unless
immunity is expressly waived. Id.; Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 374
(Tex. 2006). WECO does not dispute that BexarMet is a governmental agency entitled to
governmental immunity. Instead, WECO argues that the language of section 271.152 of the
Texas Local Government Code, which expressly waives governmental immunity from suit for
certain breach of contract claims, encompasses the Water Supply Agreement between WECO
and BexarMet.
A. Local Government Code Section 271.152
Section 271.152 provides that “[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
1
In Texas Natural Resources Conservation Commission v. It-Davy, 74 S.W.3d 849, 857-58 (Tex. 2002), the
supreme court held that there was no waiver of immunity from suit even though the governmental agency had
expressly waived immunity in the contract. According to the court, “[o]nly the Legislature can waive sovereign
immunity from suit in a breach-of-contract claim.” Id. at 858. In the Water Supply Agreement, BexarMet expressly
waived sovereign immunity. In its plea to the jurisdiction, BexarMet argued that this language in the contract was
immaterial because it did not have the legal authority to waive sovereign immunity – only the Legislature could.
WECO has not argued on appeal that the express language in the contract constituted a waiver of sovereign
immunity.
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waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of the
contract, subject to the terms and conditions of this subchapter.” TEX. LOC. GOV’T CODE ANN.
§ 271.152 (West 2005). A “[c]ontract subject to this subchapter” means “a written contract
stating the essential terms of the agreement for providing goods or services to the local
governmental entity that is properly executed on behalf of the local governmental entity.” Id.
§ 271.151(2) (emphasis added). Thus, the issue in this appeal is whether the essential terms of
the Water Supply Agreement provide services to BexarMet. 2
B. Standard of Review
A plea to the jurisdiction is a dilatory plea by which a party challenges a court’s authority
to determine the subject matter of the action. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554
(Tex. 2000). The party suing the governmental entity bears the burden of affirmatively showing
that the trial court has jurisdiction to hear the cause. Tex. Dep’t of Criminal Justice v. Miller, 51
S.W.3d 583, 587 (Tex. 2001); see Tex. Natural Res. Conservation Comm’n v. It-Davy, 74
S.W.3d 849, 855 (Tex. 2002) (“A plaintiff who sues the State must establish the State’s consent
to suit.”). Whether a trial court has subject matter jurisdiction is a question of law subject to de
novo review. It-Davy, 74 S.W.3d at 855. Here, the parties do not dispute the language or contents
of the Agreement. Thus, we review de novo whether the Agreement is a contract providing
services to BexarMet.
C. The Water Supply Agreement Between WECO and BexarMet
BexarMet argues that the Water Supply Agreement is not a contract where WECO
provides services to BexarMet; instead, BexarMet argues that the Water Supply Agreement
provides for “the assignment of leases of groundwater property rights, wells, pumps, and
2
Although in oral argument WECO in a conclusory fashion stated that it believed the Water Supply Agreement also
provided “goods,” WECO has not adequately briefed this issue. See TEX. R. APP. P. 38.1(i). Thus, to the extent
WECO claims that the Agreement provided “goods” to BexarMet, it has waived the issue.
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easements” and obligates BexarMet to produce the groundwater and develop and operate the
water collection system. Further BexarMet argues that any “services” WECO would provide to
BexarMet are contingent and curative. In contrast, WECO argues that pursuant to the Water
Supply Agreement, it will provide “three major categories of ‘services’” to BexarMet: (1) water
quality services pursuant to Article II 2.02(c) and Article 7.01(b); (2) water amount curative
services pursuant to Article V 5.03(e) and Article VII 7.02(a)-(f); and (3) lease maintenance
requirements pursuant to Article III 3.03(b).
The Water Supply Agreement explains that WECO holds groundwater leases, that
BexarMet “desires to produce the groundwater associated with [those leases], and to transport
the groundwater produced to [BexarMet]’s existing public water system, so that it can be used to
supply water to [BexarMet]’s customers,” and that WECO “desires to lease its right, title, and
interest in [its groundwater leases] to [BexarMet], so that [BexarMet] may accomplish its
purpose, in accordance with the terms and conditions of this Agreement.”
Under Article 4.01 of the Water Supply Agreement,
[BexarMet is] responsible for operating, maintaining, repairing,
and replacing the Facilities for that Tract, at its sole cost and
expense, as follows:
(a) [BexarMet] will maintain the Facilities in good working order.
(b) [BexarMet] will promptly repair any Facilities that are not in
good working order and will take all steps reasonably necessary to
promptly remedy any interruptions in the production of water from
the Wells and the delivery of water to the Delivery Points.
(c) [BexarMet] will maintain and operate the Facilities in
accordance with all regulatory requirements and accepted utility
operating practices.
(d) [BexarMet] will provide property/casualty insurance for the
Facilities on the same or similar terms and conditions as it carries
for other comparable facilities.
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Further, under Article 4.02, “[a]ll of the Facilities constructed or operated by [BexarMet]
pursuant to this Agreement, except the Wells, shall be the property of [BexarMet].” “The Wells
are the property of [WECO], but are leased to [BexarMet] under Section 3.02 for the term of this
Agreement.”
The Water Supply Agreement defines “Facilities” as “(i) the Wells, (ii) the Wellhead
Equipment, (iii) the Delivery System, (iv) the Meters, and (v) any other facilities on the Leased
Property.” “Wellhead Equipment” is further defined as “all pumps, utilities, Meters, and other
facilities necessary to produce groundwater from a Well and to measure the amount of water
produced.” Thus, under the Water Supply Agreement, BexarMet is solely responsible for
maintaining, repairing, and operating the Wells.
Nevertheless, WECO argues that it provides services to BexarMet under Articles 2.02
and 7.01 of the Water Supply Agreement, which WECO claims require it “to ensure the potable
quality of the water delivered to BexarMet.” In response, BexarMet argues that these provisions
of the Agreement are contingent and curative, and should not change the nature of this contract
as one for the lease of real property interests to a contract providing services under section
271.152 of the Local Government Code.
Articles 2.02 and 7.01 of the Water Supply Agreement provide the following:
Section 2.02. Initial Water Quality Testing.
(a) No later than November 30, 2006, the District [BexarMet] will, at its sole
cost and expense: (i) conduct all tests of each Well necessary to determine
whether the water produced by each Well meets the Minimum Water Quality
Standards; and (ii) provide WECO with written notice of the results of the testing
of each Well.
(b) WECO will have the right, but not the obligation, to conduct tests of each
Well, at its sole cost and expense, at the same time the District conducts its test of
each Well for the purpose of determining whether the water produced by each
Well meets the Minimum Water Quality Standards; provided, however, that
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WECO’s testing may not unreasonably interfere with the testing being conducted
by the District.
(c) If the water produced by a Well fails to meet the Minimum Water Quality
Standards, and WECO fails, at its sole expense, to cure that failure within 330
days of the Effective Date, then the District may, at its election, terminate this
Agreement with respect to that Well by providing WECO with notice of that
election within 360 days following the Effective Date. Such termination is the
District’s sole and exclusive remedy for the failure of the water produced by that
Well to meet the Minimum Water Quality Standards. If the District terminates
this Agreement with respect to all Wells on a Tract for failure to meet Minimum
Water Quality Standards, then the Agreement shall be considered terminated with
respect to that Tract.
***
Section 7.01. Water Quality Testing
(a) Following the Well Delivery Date, the District may, at its sole expense,
conduct any tests necessary to determine whether the water produced by a Well
meets the Minimum Water Quality Standards at any time; provided that, unless
both Parties agree, there will be no such testing during Water Conservation
Months. The District will provide WECO with written notice of the results of
such testing within thirty (30) days of receipt of the results.
(b) If the water produced by a Well fails to meet the Minimum Water Quality
Standards, and WECO fails, at its sole expense, to cure that failure within 150
days following receipt of the written notice of the results of the testing of that
Well, then the District may, at its election, terminate this Agreement with respect
to that Well by providing WECO with notice of that election within 180 days
following WECO’s receipt of the written notice of the results of the testing of
each Well. Such termination is the District’s sole and exclusive remedy for the
failure of the water produced by that Well to meet the Minimum Water Quality
Standards. If the District terminates this Agreement with respect to all Wells on a
Tract for failure to meet Minimum Water Quality Standards, then the Agreement
shall be considered terminated with respect to that Tract.
(emphasis added). Thus, under the Water Supply Agreement, BexarMet may, at its own expense,
conduct any tests necessary to determine whether the water produced by a Well meets the
Minimum Water Quality Standards. If BexarMet’s tests show that the water does not meet such
minimum standards, then WECO can either cure such failure at its own expense or allow
BexarMet to terminate the Agreement with respect to that well.
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Similarly, WECO argues that Articles 5.03 and 7.02 require it “to maintain a minimum
amount of commercial water production for each tract covered by” the Water Supply Agreement
by, “for example, refracturing wells or lowing pumps deeper into wellbore to increase
production.” BexarMet again emphasizes that these provisions are contingent and curative.
Articles 5.03 and 7.02 state the following:
Section 5.03. Minimum Payment.
(a) Without regard to the amount of water produced from the Wells on a
Tract, the District’s payments to WECO for a Tract for each calendar month will
never be less than the Monthly Minimum Payment for that Tract provided
sufficient water is available to meet one-twelfth (1/12) of the percentage of
“Maximum Sustainable Yield” (for a given production year) set-forth in Section
5.03(b). In the event that any Tract is unable, in any month, to produce water in a
quantity sufficient to meet the applicable (percentage) multiplier for “Maximum
Sustainable Yield” (i.e. 0.25 for 1st and 2nd production years, etc.), then the
District’s minimum payment for that month shall be calculated solely on the
amount of water actually produced from the Tract at the rate set-forth in Section
5.02(a) of this Agreement. . . .
(e) In the event that any given Tract fails to meet the Minimum Average Well
Production of a Tract after 330 days following the Effective Date, WECO will be
given sixty (60) days to cure the Tract failure by using all reasonable measures to
redevelop the effected Well(s) to include, but not limited to, lowering the pump
and fracturing the Well(s). The District at its sole expense will bear the cost of
lowering the pump and/or increasing the pump size if determined necessary by the
District and WECO will at its sole expense will [sic] pay for the fracturing of the
Well. WECO agrees that it will assume liability for any and all claims, demands,
damages, losses, and expenses arising out of lowering the pump(s) beneath the
Well casing.
Section 7.02. Water Production Testing.
(a) Subject to the limitations provided in subsections 2.04, 7.02(e) and
7.02(f), WECO may, at any time during the first seven (7) years following the
Well Delivery Date for a Tract, request that the Wells on a Tract be retested, and
that the Minimum Water Production for a Well, Minimum Average Well
Production for a Tract, and Maximum Sustainable Yield of that Tract be
redetermined, by giving written notice to the District of its request (the “Retesting
Request”).
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(b) The Wells will be tested and the Minimum Water Production for a Well,
Minimum Average Well Production for a Tract, and the Maximum Sustainable
Yield of a Tract will be determined using the procedures set out in Section
2.01(a), (b), and (c), except that: (i) the retesting of the Wells and the
redetermination of the Minimum Water Production for a Well, Minimum Average
Well Production for a Tract, and Maximum Sustainable Yield of the Tract will
take place within 180 days following the date of the Retesting Request, subject to
the limitations provided in subsection 7.02(e) and 7.02(f); (ii) WECO will pay all
costs associated with the tests described in Section 2.01(a); (iii) the portion of
Section 2.01(a) requiring acidization of the Wells will not apply; and (iv) in the
event WECO disagrees with the results of the District’s retests of a Well or the
District’s re-determination of the Maximum Sustainable Yield for a Tract, the
WECO expert, the District Expert, and the Third Party Expert will each conduct
any tests that each respective Expert considers necessary to determine the
Maximum Sustainable Yield of the Tract, and will determine the Maximum
Sustainable Yield of the Tract, within 300 days following the date of the Retesting
request.
(c) If the testing of an Unproductive Well demonstrates that the Well remains
incapable of producing at least 0.50 acre-feet per day, and WECO, fails at its sole
expense, to cure that failure within 330 days following the date of the Retesting
Request, then the District may, at its election, terminate this Agreement with
respect to that Unproductive Well by providing WECO with written notice of that
election within 360 days following the date of the Retesting Request. Such
termination, and the reimbursement described in Section 2.01(a) are the District’s
sole and exclusive remedy for the failure of that Unproductive Well to meet or
exceed the Minimum Water Production for a Well.
(d) If, after retesting, the Maximum Sustainable Yield of a Tract fails to equal
or exceed the Minimum Average Well Production for a Tract, and WECO fails, at
its sole expense, to cure that failure within 330 days following the date of the
Retesting Request, then the District may, at its election, terminate this Agreement
with respect to that Tract by providing WECO with written notice of that election
within 360 days following the date of the Retesting Request. Such termination is
the District’s sole and exclusive remedy for the failure of that Tract’s Maximum
Sustainable Yield to meet or exceed the Minimum Average Well Production for a
Tract.
(e) The retesting of Wells for the purpose of redetermination of the Maximum
Sustainable Yield of a Tract [that] results from a Retesting Request made in
accordance with Section 7.02(a) shall not occur within ninety (90) days of the last
calendar day of any month in which the total rainfall exceeds by more than
twenty-five percent (25%), the 30-year normal/average rainfall for San Antonio,
Texas for such month, as recorded by the National Weather Service Forecast
Office (30 year normals 1971-2000). . . . If after the District receives a Retesting
Request (but before the expiration of 180 days), the monthly rainfall for any
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month exceeds the 30-year normal/average rainfall for San Antonio, Texas for
such month by more than twenty-five percent (25%), the retesting prescribed by
Subsection 7.02(b)(i) will take place within 90 days after the last calendar day
such month.
(f) In no event will any Well on a Tract be retested or the Minimum Water
Production for a Well, the Minimum Average Well Production for a Tract, or the
Maximum Sustainable Yield of any Tract be redetermined more than once during
the seven year period provided in this Section.
(emphasis added). Thus, the issue here is whether these type of option-to-cure provisions in a
contract for the lease of real estate interests amount to a contract that provides services to the
local governmental entity, thereby waiving immunity pursuant to section 271.152.
Recently, the Texas Supreme Court in Kirby Lake Development, Ltd. v. Clear Lake City
Water Authority, 320 S.W.3d 829, 832 (Tex. 2010), considered whether section 271.152 waived
sovereign immunity with respect to a contract between residential developers and a local water
authority. The contract stipulated that the developers would build water and sewer facilities
according to the water authority’s specifications, and that the developers would lease the
facilities to the water authority free of charge until the water authority purchased them. Id. The
water authority agreed to reimburse the developers 70% of their construction costs once it
received voter-approved bond funds. Id. at 832-33. That is, the contract provided that until a
bond sale was approved in an election, the water authority was not obligated to reimburse the
developers. Id. at 833. The contract then provided for the following with respect to when a bond
election would be called:
Subject to other terms and provisions hereof, the Developer agrees to sell and the
Authority agrees to purchase all completed portions of the Facilities ... as soon as
possible, but not more than 30 days after receipt of bond proceeds legally
available and allocated by the Authority for payment therefore....
It is expressly acknowledged and agreed by the parties hereto, that the Authority
has no existing voter authorization to issue any bonds to pay for the cost of the
Facilities, and does not anticipate that funds will be available for such costs
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without a voter approved bond sale for such purchase. The Authority intends to
call a bond election in the near future but is not obligated to do so, and the
Authority cannot predict when, if ever, such an election and bond sale will occur,
or when, if ever, the Authority will have other funds available and allocated for
the purchase of the Facilities. The Authority shall have the right to purchase the
Facilities with funds available from a source other than a bond sale for such
purpose, but shall have no obligation to do so. The Authority does agree,
however, that it shall include in any bond election it does hold subsequent to the
effective date of this Agreement bond authorization in an amount sufficient to pay
the purchase price of the Facilities.
Id. (emphasis in original).
The developers sued, arguing that the water authority breached this agreement by failing
to include a reimbursement provision in each bond election. Id. at 834. In response, the water
authority argued that it was immune from suit. Id. The supreme court, however, held that
immunity had been waived pursuant to section 271.152. Id. at 836. The court first noted that the
“Legislature enacted section 271.152 ‘to loosen the immunity bar so that all local governmental
entities that have been given or are given the statutory authority to enter into contracts shall not
be immune from suits arising from those contracts.’” Id. at 838 (quoting 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)) (emphasis in original). The court then turned to the language of
section 271.152 and considered whether the contract at issue was one where the essential terms
of the agreement provided goods or services to the local governmental entity. Id. at 839.
The supreme court noted that chapter 271 “provides no definition for ‘services,’ despite
the Legislature’s definition of the term in other contexts.” Id. It nevertheless concluded that “[i]t
appears, generally, that the term is broad enough to encompass a wide array of activities.” Id.
The supreme court cited its holding in Ben Bolt as an example:
In Ben Bolt, we liberally construed a government-pooled insurance policy (the
“Fund”) as encompassing “services” rendered by its members, based on the fact
that the Fund’s “members elect a governing board, and a board subcommittee
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resolves claims disputes. To that extent, at least, the Fund’s members provide
services to the Fund.”
Id. The supreme court thus reasoned that the services provided “need not be the primary purpose
of the agreement.” Id. In looking at the contract at issue, the supreme court concluded that
immunity had been waived pursuant to section 271.152:
We agree with the court of appeals that the Agreements entail services provided
directly to the Authority. The Developers contracted to construct, develop, lease,
and bear all risk of loss or damage to the facilities, obligations far more concrete
than those at issue in Ben Bolt, 212 S.W.3d at 327. We therefore hold that the
Agreements contemplate the provision of services under the statute.
Id. (emphasis added).
In citing Kirby Lake for support, WECO emphasizes the supreme court’s statement that
services need not be the primary purpose of the agreement. Thus, according to WECO, even the
option-to-cure provisions in the Agreement, which allow WECO to cure defects or allow the
Agreement to terminate, constitute “services” under Kirby Lake. However, WECO’s
interpretation of Kirby Lake has the danger of converting every real estate contract into a
contract for services – something we do not believe the Legislature intended. In enacting section
271.152, the Legislature specifically stated that it was waiving governmental immunity only for
contracts where goods or services are provided to the local governmental entity. See TEX. LOC.
GOV’T CODE ANN. § 271.152 (West 2005); see also Bexar Metro. Water Dist. v. Educ. &
Economic Dev. Joint Venture, 220 S.W.2d 25, 31-32 (Tex. App.—San Antonio 2006, pet.
dism’d) (explaining contracts for the sale or lease of real estate are not included within section
271.152’s waiver of immunity). Had the Legislature intended to waive immunity for all contracts
entered into by the State, it would have so stated. E. Houston Estate Apartments, LLC v. City of
Houston, 294 S.W.3d 723, 736 (Tex. App.—Houston [1st Dist.] 2009, no pet.); see also TEX.
GOV’T CODE ANN. § 311.034 (West Supp. 2010) (“In order to preserve the Legislature’s interest
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in managing state fiscal matters through the appropriations process, a statute shall not be
construed as a waiver of sovereign immunity unless the waiver is effected by clear and
unambiguous language.”). Thus, we believe “services” under section 271.152 cannot mean any
service – no matter how curative or remote because such an interpretation has the danger of
encompassing all contracts.
Under the Agreement, BexarMet has clearly leased a real estate interest from WECO –
the right to withdraw groundwater beneath the tracts through wells that already exist, that already
have access to groundwater, and that already have received all necessary permits. BexarMet has
also leased the wells themselves, well permits, easements, and all other property interests related
to the wells. Further, under the Agreement, BexarMet, at its sole cost and expense, is solely
responsible for operating, maintaining, repairing, and replacing the Facilities. And, but for the
wells it has leased from WECO, it is responsible for constructing all other Facilities. Only if the
wells are not capable of producing groundwater in the quantity and quality that was agreed upon
by WECO and BexarMet do the option-to-cure provisions come into play. That is, if the property
being leased is not usable, or becomes unusable, WECO has the option to either cure the defect
or allow BexarMet to terminate the Agreement. Under the facts of this case, we hold that the
Agreement’s option-to-cure provisions are not sufficient to trigger a waiver of governmental
immunity under section 271.152. See Somerset Indep. Sch. Dist. v. Casias, No. 04-07-00829-CV,
2008 WL 1805533, at *3 (Tex. App.—San Antonio 2008, pet. denied) (holding that section
271.152 did not waive immunity with respect to the contract because the earnest money contract
itself was for the sale of land; the services at issue were a condition to closing); City of San
Antonio v. Reed S. Lehman Grain, Ltd., No. 04-04-00930-CV, 2007 WL 752197, at *2 n.2 (Tex.
App.—San Antonio 2007, pet. denied) (noting section 271.152 not applicable to claim for breach
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of easement dedication contract because it conveyed an interest in real property and was not an
agreement for providing goods and services).
Finally, WECO argues that it provides services to BexarMet under Articles 3.03 and
3.08, which provide the following:
Section 3.03. Lease Agreements.
(a) WECO represents to the District that: (a) WECO has delivered to the District a
full and complete copy of each Lease Agreement; (b) to WECO’s current actual
knowledge and belief, the Lease Agreements are, as of Effective Date, in full
force and effect; and (c) to WECO’s current actual knowledge and belief, no
event of default has occurred and is continuing [that] would constitute an event of
default but for the requirement of the giving of notice and/or the expiration of the
period of time to cure.
(b) WECO will keep the Lease Agreements in full force and effect during the
term of this Agreement and will not modify the Lease Agreements without the
written consent of the District, which consent will not be unreasonably withheld
or delayed.
(c) In the event of any act or omission by WECO that causes a default under the
terms of a Lease Agreement that would give Lessor the right, either immediately
or after the lapse of time, to terminate the Lease in whole or in part, the District
will have the right, but not the obligation, to cure such default. Any sums the
district pays to a Lessor under this Section shall be credited against the amounts
next due to WECO by the District under the terms of this Agreement.
Section 3.08. Permits.
(a) Within 90 days following the Facilities Delivery Date for a Tract, [WECO]
will obtain all Permits for that Tract and deliver copies of the Permits for that
Tract to [BexarMet]. [BexarMet] shall cooperate in the conducting of tests or
other operations involving the Wells or the Facilities that are necessary to obtain a
Permit for a Well.
(b) [WECO] represents to [BexarMet] that, to the best of its knowledge, each
Well meets the following requirements (the “Exemption Requirements”): (i) the
Well was in existence on September 1, 2001; or (ii) the TCEQ has approved plans
submitted for the installation of the Well before September 1, 2001, and the
installation of the Well was completed in accordance with the approved plans and
the TCEQ’s technical requirements before September 1, 2002. If it is determined
that a Well does not meet either of the two Exemption Requirements, then
[WECO] shall be responsible for the payment of any additional production fees or
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substitute groundwater production taxes imposed by a Groundwater District as a
result of such Well’s failure to meet the Exemption Requirements. The amount of
the additional fees or taxes shall be credited against any amounts due to [WECO]
for the Tract on which such Well is located under Article V.
WECO argues that these sections require it to maintain and abide by the terms of its leases
during the term of the Agreement, including “paying royalties to WECO’s lessors and
performing other services.” According to WECO, “[b]ut for WECO’s lease-maintaining services,
BexarMet would lose this supply of water for its customers.” However, when one is subleasing
any real estate interest to a third party, one would necessarily be required to maintain one’s own
primary lease. And, when one is leasing wells like the wells at issue, one would necessarily have
to show that one has permits for such wells. Thus, like the option-to-cure provisions in the
Agreement, holding that such provisions constitute “services” under section 271.152 would have
the danger of converting every contract subleasing a real estate interest into a contract for
services.
We hold that because the Agreement does not constitute a “contract stating the essential
terms of the agreement for providing . . . services to the local governmental entity,” TEX. LOC.
GOV’T CODE ANN. § 271.151(2) (West 2005), governmental immunity has not been waived
pursuant to section 271.152, see id. § 271.152. And, because there has been no waiver of
governmental immunity pursuant to section 271.152, we affirm the trial court’s order granting
BexarMet’s plea to the jurisdiction. 3
Karen Angelini, Justice
3
Having determined that governmental immunity was not waived under section 271.152, we need not reach
BexarMet’s cross point.
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