Sai Monahans Brother Hospitality, LLC v. Monahans Economic Development Corporation and City of Monahans, Texas ( 2022 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
§
SAI MONAHANS BROTHER No. 08-21-00060-CV
HOSPITALITY, LLC, §
Appeal from the
Appellant, §
143rd Judicial District Court
v. §
of Ward County, Texas
MONAHANS ECONOMIC §
DEVELOPMENT CORPORATION and (TC #20-10-25580-CVW)
CITY OF MONAHANS, TEXAS, §
Appellees. §
OPINION
The issue in this appeal is whether a city and the economic development corporation that
it created are entitled to governmental immunity in a lawsuit challenging a contract term between
the economic development corporation and a third party. Here, the trial court found that
Monahans Economic Development Corporation (MEDC) and the City Of Monahans, Texas (the
City) (collectively, the Defendants) were both entitled to governmental immunity from a lawsuit
brought by Sai Monahans Brother Hospitality, LLC (Sai). The parties focus their arguments on
whether the contract term at issue—an option to purchase land—was entered into under the City’s
governmental or proprietary authority. We need not reach that issue, however, because we find
the City was not a party to the agreement, and Sai has pleaded no facts that tie the City to the
contract. Although we agree that the current petition does not state a claim against the City, we
are constrained to remand to allow Sai an opportunity to replead. Further, we agree with Sai that
the trial court erred in granting the plea in favor of MEDC, because MEDC is not a government
entity entitled to immunity, and based only on the pleadings, we cannot say it was entitled to the
“derivative immunity” that it urged below.
I. FACTUAL BACKGROUND
MEDC is a Texas non-profit corporation that was created by the city council for the City
of Monahans, Texas. MEDC’s articles of incorporation define its authority. The articles state in
part that the city council “has specifically authorized by resolution the Corporation to act on its
behalf to further the specific public purpose of encouraging employment and enhancing the public
welfare through promotion of tourism, development of commercial, industrial and manufacturing
enterprises and has approved these Article of Incorporation of the Corporation.”
In March 2019, Sai’s predecessor-in-interest, Muhammad Imran, bought a 3.9-acre tract of
land in Monahans, Texas from MEDC to construct a hotel. The deed to the property included an
option contract stating that in consideration of Imran’s promise to build the hotel, MEDC was
conveying the land to him, subject to MEDC’s right to purchase the land back from Imran for
$280,000 if he did not comply with certain development and construction deadlines. In particular,
the deed contained these deadlines that Imran had to meet: (1) submit engineering drawings of the
project to the City by July 31, 2019 for review and approval; (2) pour a concrete slab by October
31, 2019; and (3) fully complete construction of the hotel by October 31, 2021. The deed further
specified that “[t]ime [was] of the essence” in connection with Imran’s obligation to pour the slab
and to complete the hotel. MEDC could first exercise the option to repurchase the property if the
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deadline for pouring the slab was not met, and it had a continuing right to exercise the option if
the deadline for completing the hotel was not met.
On the same day that the deed was signed, Imran conveyed the property to Sai, a Texas
limited liability company, that was formed for the express purpose of constructing the hotel. The
record contains a document showing that Sai purchased the property from Imran for $695,420.
Sai assumed the duties and obligations under the deed.
II. PROCEDURAL BACKGROUND
A. Sai’s Original Petition
In May 2020, MEDC notified Sai by letter that, because it failed to meet the deadlines for
submitting its engineering plans to the City and for pouring the concrete slab, MEDC was
exercising its option to purchase the land under the deed. MEDC asked Sai to execute a warranty
deed giving it title to the property in exchange for the agreed-upon price of $280,000. Sai
declined, and instead filed its lawsuit against MEDC and the City. The original petition alleged
that Sai timely submitted its engineering plans to the City, but that the City never responded, and
therefore neither approved the plans nor objected to them.1 Sai further alleged that it engaged the
services of a builder to develop and construct the hotel, but that the builder never started
construction in part because the City failed to approve the plans. In addition, Sai alleged that the
delay was due to the COVID-19 pandemic, and the “stay-at-home” orders issued by state and local
officials, which impeded the builder’s ability to recruit staff and relocate equipment to the
construction site.
Sai’s petition asserted claims against both the City and MEDC for civil conspiracy,
common law fraud, and statutory fraud. Sai sought to recover over $160,000 for the costs and
1
Sai alleged that the date for submitting the plans was later amended and extended by agreement of the parties, but
Sai did not specify what the agreed-upon date was, or when the plans were filed with the City.
3
expenses of the required engineering drawings, construction loan processing fees, architectural
fees, and motel franchise fees. In addition, Sai sought a declaration under the Texas Declaratory
Judgment Act that the deed’s option provision was unenforceable and the deadlines were excused,
such that Sai was “authorized to proceed with the construction and development of the project.”
Sai asserted that it would be “unfair and unjust” to allow MEDC to enforce the option given the
impediments to construction caused by the pandemic. And finally, Sai sought to remove the cloud
on its title because the deed, with the option provision, was recorded in the public deed records.2
The City is not a signatory to the contract. Perhaps recognizing this fact, Sai pleaded that
“in effect the City of Monahans and the Corporation are clearly indistinguishable from the other,”
asserting that the “the Corporation is authorized to act on behalf of the City Counsel.” In support
of this claim, Sai pointed to MEDC’s by-laws, which provide that the city council has the sole
discretion “to alter the organization, progress, or activities of the Corporation subject only to any
limitation provided by the State of Texas and the United States relating to the impairment of
contracts entered into by the corporation.” And Sai pleaded that “this close Nexus between the
City and the Corporation . . . has frustrated [Sai’s] ability” to develop the property under the time
frames stated in the option contract.
B. The Defendants’ Plea to the Jurisdiction
The Defendants responded by filing a plea to the jurisdiction, seeking dismissal of all Sai’s
claims. They generally contended that Sai’s pleading failed to establish jurisdiction over the
Defendants. More specifically, the City asserted that it was immune from the fraud and
conspiracy claims under the Texas Tort Claims Act, as Sai failed to plead a valid waiver under that
2
The deed specified that the option to purchase would be filed in the county records and would create a lien on the
property, but that the lien would be released and the option terminated upon Imran’s “successful and timely”
compliance with the deadlines set forth in the deed.
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Act. It likewise argued the declaratory judgment and removal of the cloud to title claims should
be treated as a breach of contract claim, again to which no statutory waiver of immunity applied.
MEDC claims it also enjoys “derivative immunity” under these circumstances, pointing to Sai’s
allegation in its petition that MEDC was acting on the City’s behalf in exercising the option to
purchase the property.
Subject to its plea to the jurisdiction, MEDC counterclaimed, alleging that Sai had breached
the option to purchase by failing to meet its several deadlines and by refusing to execute the
warranty deed so that MEDC could take title to the property. MEDC sought specific performance
of the option contract, requiring Sai to sell it the property for $280,000 in accordance with the
option’s terms.
C. Sai’s First Amended Original Petition and Response to the Plea
Sai responded with an amended petition, in which it dropped its claims for civil conspiracy
and fraud, and also eliminated its request for economic damages. Sai, however, still brought a
claim for declaratory relief seeking a:
[J]udicial declaration that the developmental and construction deadlines for the
property as set forth in the subject option contract are hereby unconstitutional,
excused and that the option contract sought to be enforced against [it] by MEDC is
hereby void, ultra vires, terminated and unenforceable and without further force and
effect under Texas law.
Sai also renewed its claim to have the option contract removed from its chain of title, alleging that
because of the pandemic and “the impediments caused by the various governmental protocols, it
would be unfair and unjust” to allow MEDC to enforce the lien and option to purchase.
On the same day that it filed its amended petition, Sai also responded to the Defendants’
plea to the jurisdiction, arguing that neither the City nor MEDC were entitled to immunity because
entering the option contract to construct a hotel was a “proprietary” rather than a “governmental”
function.
5
D. The Defendants’ Supplemental Plea to the Jurisdiction
In response, the Defendants supplemented their plea to the jurisdiction asserting that the
subject of the lawsuit—entering the option contract—did not relate to a proprietary function; rather
it was an action taken by MEDC to benefit the general public. The Defendants also argued: (1)
Sai failed to allege sufficient facts to support a claim that there had been an unconstitutional or
improper taking of its property; and (2) Sai failed to assert a valid ultra vires claim, as Sai had
named no city official in its pleadings.
The trial court granted the plea to the jurisdiction and dismissed Sai’s claims against both
MEDC and the City. This appeal followed.
III. ISSUES ON APPEAL
On appeal, Sai contends that the trial court erred by granting the City and MEDC’s plea to
the jurisdiction, contending that their actions in “entering” into the option contract to construct a
hotel constituted a proprietary, rather than a governmental function. Thus, Sai alleges that neither
could claim immunity for their actions. Sai breaks its arguments into two related issues: (1)
whether the Defendants’ actions in entering the option contract constituted a “statutorily
designated government function to which immunity is [not] applicable,” and (2) if the statutory
test does not apply, whether the common law test for differentiating governmental versus
proprietary functions also makes immunity inapplicable. As set forth below, however, we agree
with the Defendants that we must analyze the question of the two entities’ entitlement to immunity
separately, as different factors apply in determining whether a city, and whether an economic
development corporation, can claim immunity.
6
IV. APPLICABLE LAW AND STANDARD OF REVIEW
A. Governing law
Sovereign immunity generally shields the State, its agencies, and its officials from lawsuits
unless waived by the legislature; governmental immunity similarly shields political subdivisions
of the State such as counties, cities, and school districts. See Travis Cent. Appraisal Dist. v.
Norman, 342 S.W.3d 54, 57-58 (Tex. 2011) (sovereign and governmental immunity are related
common law concepts that differ only in scope; their similarity sometimes causes the two terms to
be used interchangeably); Tooke v. City of Mexia, 197 S.W.3d 325, 331 n.11 (Tex. 2006). Texas
recognizes two threads of immunity: (1) immunity from suit, even when the government entity’s
liability is not disputed; and (2) immunity from liability, even though the government entity has
consented to the suit. Rosenberg Dev. Corp. v. Imperial Performing Arts, Inc., 571 S.W.3d 738,
746 (Tex. 2019). Immunity from suit implicates a court’s subject-matter jurisdiction to resolve a
dispute against the state or its political subdivisions, and is therefore properly raised in a plea to
the jurisdiction. Id. In comparison, immunity from liability only protects the state and its
political subdivisions from money judgments and is not jurisdictional; it therefore must be raised
as an affirmative defense rather than by a jurisdictional plea. Id.A plaintiff shoulders the burden of alleging facts establishing that the trial court has subject
matter jurisdiction over its claims, or in other words, that a governmental defendant’s immunity
has been waived. See Sepulveda v. County of El Paso, 170 S.W.3d 605, 610 (Tex.App.--El Paso
2005, pet. denied), citing Texas Ass’n of Business v. Texas Air Control Bd., 852 S.W.2d 440, 446
(Tex. 1993); see also Rusk State Hosp. v. Black, 392 S.W.3d 88, 95 (Tex. 2012).
In general, a city—as a political subdivision of the state—has governmental immunity from
suit when performing governmental functions, which are those in which the city is acting as an
7
arm of the state and in the interest of the general public. Rosenberg, 571 S.W.3d at 746
(recognizing that political subdivisions of the state, such as cities, are not sovereign entities, but
“under the governmental-immunity doctrine, they share the state’s immunity when performing
governmental functions as the state’s agent.”); see also Tooke, 197 S.W.3d at 343 (governmental
functions are those done in the performance of purely governmental matters solely for the public
benefit); City of White Settlement v. Super Wash, Inc., 198 S.W.3d 770, 776 (Tex. 2006) (in
general, a city’s governmental functions are public and performed by the municipality as the state’s
agent to advance the interest of the public at large). Thus, when a party brings a contract claim
against a municipality, the municipality may assert immunity if it was performing a governmental
function, rather than a proprietary function, by entering the contract. See Owens v. City of Tyler,
564 S.W.3d 850, 851 (Tex. 2018) (per curiam) (whether city had immunity from private parties’
various contact claims was to be determined based on whether the city entered the contract in its
proprietary or governmental function).
On the other hand, a city is not entitled to immunity if it was performing a proprietary
function, which are those that a municipality may, in its discretion and in its private capacity,
perform in the interest of the inhabitants of the municipality itself. See Wasson Interests, Ltd. v.
City of Jacksonville, 489 S.W.3d 427, 439 (Tex. 2016) (Wasson I) (recognizing that the “common-
law distinction between governmental and proprietary acts—known as the proprietary-
governmental dichotomy—applies in the contract-claims context just as it does in the tort-claims
context”); see also Wasson Interests, Ltd. v. City of Jacksonville, 559 S.W.3d 142, 149 (Tex. 2018)
(Wasson II) (“If a municipality contracts in its proprietary capacity but later breaches that contract
for governmental reasons, immunity does not apply.”). Thus, if a municipality was performing a
proprietary, rather than a governmental, function when it entered a contract, the municipality’s
immunity is waived as for any claims relating to the contract. Wasson II, 559 S.W.3d at 149 (city
8
was not immune from suit for breach of contract where the City was performing a proprietary
function when it entered the contract).
B. Procedure to Raise Immunity
A governmental entity may raise immunity through a plea to the jurisdiction. Town of
Shady Shores v. Swanson, 590 S.W.3d 544, 550 (Tex. 2019). The plea may challenge either the
adequacy of a plaintiff’s pleadings or the existence of jurisdictional facts to support a finding of
subject matter jurisdiction. Texas Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 225-
26 (Tex. 2004). When, as here, a plea to the jurisdiction challenges the pleadings alone, the trial
court must construe the pleadings liberally in favor of the pleader, looking to the pleader’s intent,
and taking the pleader’s allegations as true. Id. at 226. If the pleadings lack sufficient facts to
affirmatively demonstrate the trial court’s jurisdiction, but do not affirmatively demonstrate
incurable defects in jurisdiction, the issue is one of pleading sufficiency and the plaintiff should
be afforded the opportunity to amend. Dohlen v. City of San Antonio, 643 S.W.3d 387, 397-98
(Tex. 2022) (recognizing plaintiffs’ right to amend their pleadings to allege facts supporting the
elements of their claim against the defendant city). If, on the other hand, 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. Id. at 397; Texas A&M Univ. Sys. v.
Koseoglu, 233 S.W.3d 835, 840 (Tex. 2007) (“[A] pleader must be given an opportunity to amend
in response to a plea to the jurisdiction only if it is possible to cure the pleading defect.”). Whether
a party has met its burden of alleging sufficient facts that affirmatively demonstrate a trial court’s
subject matter jurisdiction is a question of law that we review de novo. Miranda, 133 S.W.3d at
226.
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V. THE CITY’S IMMUNITY
We first consider whether Sai has alleged sufficient facts to demonstrate that the trial court
had subject matter jurisdiction over its claims against the City. We conclude that it did not. We
also conclude, however, that Sai is entitled to an opportunity to amend its pleadings to cure this
jurisdictional defect.
A. Sai Failed to Allege Sufficient Facts Demonstrating a Waiver
Sai attached the “Option to Purchase Real Estate” agreement to its first amended petition.
The agreement is between Sai’s predecessor and MEDC—the City is not a party. Sai’s amended
pleading affirmatively alleges that MEDC, and not the City, entered the option contract, and that
only MEDC was attempting to enforce the contract against it. Sai’s first claim for relief asks the
court to declare the option contract void and unenforceable. Similarly, in its second claim for
relief, Sai sought an order removing the cloud on its title caused by the option contract. Its claims
thus focus on the option contract to which the City is not a party.
Sai, though, sought to justify naming the City as a party in the first amended petition,
through these allegations:
• “[MEDC] was created and [formed] under the auspices of the City Council
of the City of Monahans, Texas.”
• “The City Council has the sole discretion . . . ‘to alter the organization,
progress, or activities of the corporation subject only to any limitation
provided by the State of Texas and the United States relating to the
impairment of contracts entered into by the corporation.’”3
• “Thus, in effect, the City of Monahans is the Monahans Economic
Development Corporation, and the actions of one are clearly the actions of
the other.”4
3
The quoted portion is in the original, but it is unclear what is being quoted.
4
The quoted portion is in the original, but it is unclear what is being quoted.
10
• “The authority of MEDC is set forth in article 10 of its Articles of
Incorporation where it states: . . . The Governing Body of the Unit has
specifically authorized by resolution the Corporation to act on its behalf to
further the specific public purpose of encouraging employment and
enhancing the public welfare through promotion of tourism, development of
commercial, industrial and manufacturing enterprises and has approved
these Articles of the Corporation.”
According to Sai, these allegations show that the two entities are “indistinguishable” thereby
subjecting the City to suit for any actions taken by MEDC We disagree.
While a court must accept the allegations in the plaintiff’s petition as true in resolving a
plea to the jurisdiction, we need not accept mere conclusory statements. See, e.g., State v. Lueck,
290 S.W.3d 876, 884-885 (Tex. 2009) (recognizing that a plaintiff’s pleadings must do more than
make bare allegations to survive a plea to the jurisdiction); PermiaCare v. L.R.H., 600 S.W.3d
431, 444 (Tex.App.--El Paso 2020, no pet.) (same). Instead, a plaintiff must allege specific facts
that, if true, would affirmatively demonstrate the court’s jurisdiction to hear the case.
PermiaCare, 600 S.W.3d at 444. None of the alleged facts in the first amended petition do so.
Taking the allegations in turn, the fact that the City created the MEDC does not establish
that the two are one and the same. MEDC was created under the Development Corporation Act,
which governs the creation and activities of economic development corporations. See
TEX.LOC.GOV’T CODE ANN. § 501.001 et seq. The Act authorizes a governmental entity (referred
to as the “authorizing unit”) to create an economic development corporation to, among other
things, undertake projects designed to spur economic growth, reduce unemployment, and improve
infrastructure. See Rosenberg, 571 S.W.3d at 741, citing TEX.LOC.GOV’T CODE ANN. §§ 501.004,
.054(a); see also TEX.LOC.GOV’T CODE ANN. § 501.002(1). In creating an economic
development corporation, an authorizing unit must abide by the requirements set out by the
legislature, which are exemplified by two of Sai’s other allegations.
11
Another of Sai’s allegations is that the City has the discretion to “alter the organization,
progress, or activities of the corporation” (subject to limitations). But that power is required under
the Act, as section 501.302 provides that the authorizing unit in its “sole discretion” and “in
accordance with this subchapter” can “amend the corporation’s certificate of formation at any
time” by adopting an amendment and delivering the same to the secretary of state. Id. § 501.302.
Moreover, the “authorizing unit” under the Act is assigned supervisory duties in that it “will
approve all programs and expenditures of a corporation and annually review any financial
statements of the corporation” and is “entitled to access to the corporation’s books and records at
all times.” Id. § 501.073; see also id. § 501.054 (b) (corporation’s powers for projects are “subject
to the control of the governing body of the corporation’s authorizing unit.”). Thus, the petition’s
assertion of what the City could do in its “sole discretion” is essentially a power that the City is
obligated to retain by the Act to retain.
Next, the recitation in the petition taken from MEDC’s articles of incorporation is also
language dictated by the Act. Sai focuses on the phrase that the City’s “Governing Body”
authorized MEDC “to act on its behalf.” But that language comes straight from the Act. See id.
§ 501.056 (“The certificate of formation of a corporation must state: . . . that the unit has: (A) by
resolution specifically authorized the corporation to act on the unit’s behalf to further the public
purpose stated in the resolution and the certificate of formation; and (B) approved the certificate
of formation.”) (emphasis supplied).
Thus, these last two allegations in the petition do no more than factually allege what was
required of the City under the Act when it creates a development corporation. And we doubt that
by merely following the requirements of the Act, the legislature intended to make the City subject
to any suit brought against the development corporation it creates. In fact, that result is at odds
with how the legislature dealt with the liability of an authorizing unit and the development
12
corporation. While the Act expressly provides that a development corporation may sue or be sued
for its involvement in an authorized project, the Act contains no similar provision for the
authorizing unit. If anything, this dichotomy suggests the legislature’s intent that an authorizing
unit, such as the City, remains immune in such suits.5
Sai’s other allegation—that “in effect the [City] is [MEDC] and the actions of one are
clearly the actions of the other”—is at best conclusory, and is not a fact that proves up jurisdiction.
We discount out-of-hand this unattributed quoted language in the petition.
Without saying as much, Sai is attempting to pierce the corporate veil of MEDC to make
the City equally responsible for its actions. But even assuming that claim is cognizable,
something we do not decide, Sai’s only factual allegations are that the City followed the terms of
the Act for creating a development corporation. Following the Act, however, does not
demonstrate that the City and MEDC are one and the same—if anything compliance with the Act
presupposes the two are distinct entities, with different powers and responsibilities. The structure
of the Act contemplates that the authorizing unit and the development corporation are distinct
entities.
First, under the Act, MEDC had the independent authority to execute the option contract.
It possesses the powers given to a nonprofit corporation under the Texas Non-Profit Corporation
Act, as well as all powers necessary to undertake any authorized projects allowed under the Act.
Id. § 501.054 (a), (b). The Act expressly provides that a development corporation may finance,
acquire, lease or sell property for authorized “projects,” which include “land, buildings, equipment,
5
We recognize that a statute providing that a government entity may “sue and be sued,” standing alone, is not always
demonstrative of a legislative intent to waive the entity’s immunity. See Tooke v. City of Mexia, 197 S.W.3d 325,
342 (Tex. 2006). Here, however, the lack of any such language as to a city’s immunity supports the conclusion that
the legislature did not intend to waive a city’s immunity, or treat the two entities the same for the purposes of immunity.
See generally id. at 333 (recognizing that a “waiver of immunity must be clear and unambiguous”); see also
TEX.GOV’T CODE ANN. § 311.034 (“[A] statute shall not be construed as a waiver of sovereign immunity unless the
waiver is effected by clear and unambiguous language.”).
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facilities, targeted infrastructure, and improvements that are . . . for the creation or retention of
primary jobs . . .” Id. § 501.101; § 501.151-153. The Act also gives a Type B corporation, such
as MEDC, the power to contract with other private corporations to, among other things, “assist
with the development or operation of an economic development program or objective consistent
with the purposes and duties specified by this subtitle.”6 Id. § 505.102; see also City of Leon
Valley Econ. Dev. Corp. v. Little, 522 S.W.3d 6, 10-11 (Tex.App.--San Antonio 2017, pet. denied)
(recognizing powers of a Type B corporation). Thus, MEDC did not require the participation of
the City to execute the option contract.
And the Act recognizes that each of these entities have separate governance—the
authorizing unit through its Governing Body (a defined term) and the development corporation
through its board of directors. TEX.LOC.GOV’T CODE ANN. § 501.002(10) (defining Governing
Body as the “the commissioners court of a county or the governing body of a municipality or
district”); § 501.056 (contents of certificate of formation requiring appointment of board by
governing body); Rosenberg, 571 S.W.3d at 745 (“[a]ll of the powers of [the] corporation are
vested in the corporation’s board of directors”). The Act also draws another distinction between
the authorizing unit and the development corporation—it forbids the authorizing unit from
delegating any “attributes of sovereignty.” Rosenberg, 571 S.W.3d at 745, citing TEX.LOC.GOV’T
CODE ANN. § 501.010 (“A unit may not delegate to a corporation any of the unit’s attributes of
sovereignty, including the power to tax, the power of eminent domain, and the police power.”).
Thus, while an economic development corporation is subject to supervision by its authorizing unit,
it is not one in the same, particularly in determining immunity.
6
There are two types of development corporations, Type A and Type B. MEDC acknowledges in its pleadings that
it is a Type B corporation.
14
Sai argues that a court must first apply the government-proprietary distinction to decide
whether immunity applies at all. To some degree we agree with that argument, but a court must
first define what action the City took to determine whether its purpose was governmental or
proprietary. The Texas Supreme Court in Wasson II wrote that a municipality shares the State’s
immunity when they “act ‘as a branch’ of the State, but not when they act ‘in a proprietary, non-
governmental capacity.” Wasson II, 559 S.W.3d at 146, quoting Wasson I, 489 S.W.3d at 430
(emphasis supplied). Similarly, the court wrote that the government-proprietary distinction turns
on the municipality’s “activities” and the functions it “perform[s]”. Id. at 147. Thus,
determining its function presupposes some action by the City. Stated otherwise, Sai was required
at a minimum to allege facts to support a finding that the City engaged in some “action” as to the
option contract that would allow a court to determine whether the action was a governmental or
proprietary function. The amended petition, however, does not allege that the City took any
action. It at most alleges that the City had the “sole discretion” “to alter the organization,
progress, or activities” of MEDC. But that does not mean that the City did so with respect the
option contract.
We conclude that the petition fails to allege any facts that overcomes the City’s
governmental immunity.
B. Right to Amend
Unless a petition affirmatively negates the existence of jurisdiction, a plaintiff has a right
to amend their pleadings. Dohlen, 643 S.W.3d at 397-98 (finding plaintiffs failed to allege any
actions of city to fall within statutory waiver of immunity, but allowing repleading as petition did
not negate jurisdiction). While we accord Sai that right, we add three comments about what
would not suffice to meet the minimum threshold to establish jurisdiction against the City.
15
First, as we have already written, if Sai can do no more than plead facts showing that the
City complied with the various provisions of the Development Corporation Act, it has not pleaded
a viable claim against the City. A governmental unit’s compliance with the provisions of that Act
does not establish a waiver of governmental immunity.
Second, the petition alludes to the City’s processing of the engineering and site plans, but
Sai expressly does not premise jurisdiction on those actions.7 And notably, certain city functions
are defined, for the purpose of the Tort Claims Act, as governmental functions which includes
among others, “zoning, planning, and plat approval” and “engineering functions[.]” See
TEX.CIV.PRAC.& REM.CODE ANN. § 101.0215(29), (30). 8 If a function is designated as
governmental in the statute, courts have no discretion to view it otherwise. City Carrollton v.
Weir Brothers Contracting, LLC, No. 05-20-00714-CV, 2021 WL 1084554, at *3 (Tex.App.--
Dallas Mar. 22, 2021, pet. denied), citing Wasson II, 559 S.W.3d at 150) (“If a function is
designated in section 101.0215 as governmental, we have no discretion to determine that it is
proprietary.”).
7
Sai’s introductory remark in its brief succinctly makes the point: “And ultimately, it is only the act of entering the
option contract—not the acts MEDC or Monahans took afterward—that is relevant to immunity.” Appellant’s Brief
at p. 1.
8
The list of 36 “governmental functions” under section 101.0215(a) includes: “. . . (28) building codes and inspection;
(29) zoning, planning, and plat approval; (30) engineering functions[.]” TEX.CIV.PRAC.& REM.CODE ANN.
§ 101.0215(a). The Texas Supreme Court applies the Texas Tort Claims Acts’ definitional guidance in the context of
contract claims to determine what type of function a city was performing when it entered a contract. See Wasson
Interests, Ltd. v. City of Jacksonville, 559 S.W.3d 142, 147 (Tex. 2018).
16
Third, Sai asks that we remand the case to allow it to plead a constitutional taking9 and
ultra vires claim.10 But a plaintiff’s general right to amend its pleadings to allege additional facts
to cure a jurisdictional defect is not a mechanism for parties, over whose claims the trial court does
not have jurisdiction, to plead new claims over which the trial court does have jurisdiction. Clint
Indep. Sch. Dist. v. Marquez, 487 S.W.3d 538, 559 (Tex. 2016); see also San Jacinto River Auth.
v. Ray, No. 14-19-00095-CV, 2021 WL 2154081, at *6 (Tex.App.--Houston [14th Dist.] May 27,
2021, no pet.) (mem. op.) (same). In other words, a plaintiff has no right to amend its petition to
cure a jurisdictional defect by “changing the claims they are bringing,” and instead only has a right
to amend its petition by adding jurisdictional facts to support a previously pled claim for relief.
Clint Indep. Sch. Dist., 487 S.W.3d at 559.
Therefore, although we allow Sai to amend its petition, it must do so in accordance with
these principles, or any amendment would be futile and subject to dismissal.
VI. MEDC WAS NOT ENTITLED TO IMMUNITY FROM SUIT
Although we find that the City was immune from Sai’s suit, we do not similarly find that
MEDC was entitled to governmental immunity on this record.
A. MEDC is not a Governmental Entity for Immunity Purposes
The Development Corporation Act gives economic development corporations, such as
MEDC, the authority to undertake projects that have a public, or governmental, purpose. The
9
In a letter brief that Sai submitted to the trial court, Sai stated that the City Defendants were attempting to engage in
an “unconstitutional taking” of its property, contending that it paid over $695,000 for the property and that the
Defendants were trying to “take” the property for far less than its true value. However, Sai did not amend its
petition to add a “takings” claim against the City.
10
An ultra vires claim must be brought against a government official, rather than against a governmental entity, and
must allege that the official acted outside his or her lawful scope of authority. See, e.g., Luttrell v. El Paso Cnty., 555
S.W.3d 812, 837 (Tex.App.--El Paso 2018, no pet.). Sai failed to name any governmental officials in its live pleadings,
and therefore did not allege a valid ultra vires claim. See id. at 837 (plaintiff’s ultra vires claim failed as a matter of
law where only named government official was dismissed from the lawsuit).
17
Act, however, expressly states that a corporation is “not a political subdivision or a political
corporation for purposes of the laws of this state,” and it also prohibits a government entity from
bestowing any “attributes of sovereignty” on the corporation. TEX.LOC.GOV’T CODE ANN.
§ 501.010, .055(b). As a result, the Texas Supreme Court has expressly held that a development
corporation is not a governmental entity that is entitled to governmental immunity from suit.
Rosenberg, 571 S.W.3d at 750 (affirming the court of appeals’ judgment denying the economic
development corporation’s plea to the jurisdiction); see also City of Leon, 522 S.W.3d at 9(concluding that a development corporation is not immune from a breach of contract suit).
Rosenberg addressed a plaintiff who alleged a breach of contract claim. And MEDC
points out that Sai’s claim is not for breach of contract, but seeks a declaration that a contract
provision is invalid. That distinction fails, however, as the court in Rosenberg did not limit its
holding to only breach of contract claims, and in fact, the plaintiff in Rosenberg also sought relief
under the Declaratory Judgment Act, just as Sai has done. Rosenberg, 571 S.W.3d at 742 (noting
that the litigation in that case involved various claims, counterclaims, and third-party claims, but
the immunity issue on appeal was limited to the plaintiff’s breach of contract and declaratory
judgment claims). And we also note that MEDC has cited no cases, nor are we aware of any, that
have interpreted Rosenberg so narrowly, or that would otherwise allow us to treat a development
corporation as a government entity for immunity purposes in a lawsuit of the type that Sai has
brought against it. We therefore conclude that MEDC was not entitled to governmental immunity
on this basis.11
11
The court in Rosenberg noted that while a development corporation is not immune from suit, the Act provides that
it is immune from liability for damages when it performs a “governmental function” as defined by the Act. See
Rosenberg Dev. Corp.v. Imperial Performing Arts, Inc., 571 S.W.3d 738, 745 (Tex. 2019), citing TEX.LOC.GOV’T
CODE ANN. § 505.106 (a) (a Type B development corporation is “not liable for damages arising from the performance
of a governmental function of a Type B corporation or the authorizing municipality.”); see also City of Leon Valley
Econ. Dev. Corp. v. Little, 522 S.W.3d 6, 9 (Tex.App.--San Antonio 2017, pet. denied) (concluding that a Type B
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B. MEDC has not Proved its Entitled to Derivative Immunity
MEDC next contends that even if it cannot be considered a governmental entity to receive
immunity from suit, it is still entitled to “derivative immunity” which would protect it from Sai’s
lawsuit. We disagree.
As the Texas Supreme Court noted in Rosenberg, derivative immunity is a distinct
analytical inquiry, which is separate from the question of whether a development corporation may
be considered a governmental entity for purposes immunity. Id. at 752. The same court
recognized that the concept of derivative immunity is “ill-defined” in the law, and it is unclear
whether the doctrine exists in Texas and, if so, whether it would apply to a development
corporation. Id. at 751-52. In explaining the doctrine, however, the Rosenberg court referred to
its earlier opinion in Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117, 126 (Tex. 2015).
In Brown, the plaintiffs sued a government contractor claiming that it had negligently
designed a tollway on behalf of a county toll road authority. Brown & Gay Eng’g., Inc, 461
S.W.3d at 120. The contractor argued that it was entitled to derivative immunity for its actions,
as it designed the tollway on the toll authority’s behalf. Id. While not deciding whether it would
recognize the doctrine of derivative immunity, the court in Brown observed that the doctrine only
provides immunity to a contractor when it operates solely “upon the direction” of the government
entity, such that “a lawsuit against one is a lawsuit against the other,” but not when the contractor
retains “discretion in its activities.” Id. at 124, quoting K.D.F. v. Rex, 878 S.W.2d 589, 597
(Tex.1994). The court then held that even if it were to recognize the doctrine of derivative
immunity, the evidence in that case demonstrated that the defendant “was an independent
contractor with discretion” to perform its job, and that it would therefore not be entitled to derived
development corporation was not immune from suit in breach-of-contract case, but was immune from liability for
damages).
19
immunity given the toll authority’s lack of control over it. Id. at 126. The court further noted
that when appellate courts have found that a private contractor was entitled to derivative immunity,
“the complained-of conduct for which the contractor was immune was effectively attributed to the
government.” Id. at 125. The court then stated that even if those cases were correctly decided,
the element of control in the case before it was “utterly absent,” thereby making the doctrine
inapplicable. Id. at 126.
In a later opinion, the court—again without deciding whether the doctrine of immunity
exists in Texas—concluded that a governmental entities’ right to supervise a contractor’s work or
to give final approval to the work does not equate to the kind of control that would merit application
of the derivative immunity doctrine. Nettles v. GTECH Corp., 606 S.W.3d 726, 733, 737 (Tex.
2020) (“[E]ven if [the court] recognized derivative sovereign immunity for contractors,” it would
not find that the contractor in that case would be entitled to such, as the record before it
demonstrated that the contractor retained the sole control of its work, subject to final approval by
the Commission); see also Lenoir v. U.T. Physicians, 491 S.W.3d 68, 77 (Tex.App.--Houston
[1st Dist.] 2016, pet. denied) (where U.T. Physicians operated a medical clinic under contract with
a governmental entity giving it discretion in its operations of the clinic, they were not entitled to
immunity in a suit claiming that a clinic nurse was negligent, even though the governmental entity
had the right to approve and remove personnel). Rather, to be entitled to derivative immunity,
the contractor must establish that it was, in effect, left without discretion to perform its job.
Nettles, 606 S.W.3d. at 736-37; see also Cheney v. Levy Co., No. 03-19-00243-CV, 2020 WL
6265656, at *6 (Tex.App.--Austin Oct. 23, 2020, no pet.) (mem. op.) (doctrine of derivative
immunity did not apply when government contractors did not conclusively establish a lack of
discretion that might justify the extension of the City’s governmental immunity to them).
20
MEDC’s plea to the jurisdiction is based entirely on the allegations in Sai’s petition—it
presented no evidence of its own. But it failed to point to any factual allegations in Sai’s petition
that the City controlled its actions for entering or enforcing the option contract, or that it otherwise
lacked any discretion in undertaking these actions. Instead, MEDC relies on Sai’s allegation that
MEDC was acting on “behalf of the City Council” in exercising the option to purchase the
property. As addressed above, however, even if we were to recognize the doctrine of derivative
immunity, an allegation that MEDC was generally “acting on behalf of the City” would not be
enough to establish that the City was exercising the type of control over MEDC’s actions that
would rise to the level necessary to warrant application of the doctrine.
Thus, while we express no opinion on the merits of Sai’s claims against MEDC, we simply
hold that on this record, we cannot say that MEDC is entitled to derivative immunity for Sai’s
claims based on Sai’s live pleading. We therefore conclude that the trial court erred in granting
the plea to the jurisdiction with respect to MEDC.
VII. CONCLUSION
For the reasons set forth above, we affirm the trial court’s decision granting the City’s plea
to the jurisdiction but accord Sai the right to replead if it can. We also conclude that the trial court
erred in granting MEDC’s plea to the jurisdiction. We therefore reverse that decision and remand
for further proceedings consistent with our opinion.
JEFF ALLEY, Justice
August 24, 2022
Before Rodriguez, C.J., Palafox, and Alley, JJ.
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