City of Houston and Keith W. Wade v. Hope for Families, Inc. ( 2020 )

Opinion issued January 9, 2020
In The
Court of Appeals
For The
First District of Texas
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NO. 01-18-00795-CV
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CITY OF HOUSTON AND KEITH W. WADE, Appellants
V.
HOPE FOR FAMILIES, INC., Appellee
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Case No. 2017-37622
MEMORANDUM OPINION
After Hope for Families, Inc. acquired property for a community development
project financed by the City of Houston, its participation became stymied by pre-
existing tax liability attached to the property. The dispute between HFF and the City
arose when Keith Wade negotiated a deed on behalf of the City that transfered the
land to the City in exchange for forgiveness of the financing debt.
HFF sued the City and Wade for declaratory relief, seeking to invalidate the
deed because of Wade’s alleged fraud in the inducement and HFF’s failure to
execute the deed according to statute. HFF brought separate tort claims for fraud and
fraud in the inducement against Wade.
The City and Wade filed a plea to the jurisdiction, seeking dismissal of HFF’s
claims based on governmental immunity. The trial court denied the plea, and the
City and Wade appeal, contending that HFF did not demonstrate that a waiver of
immunity applied to its claims. We affirm in part and reverse in part.
Background
In 2010, the City selected HFF to participate in a community development
program and agreed to provide it with funding to purchase, demolish, and
rehabilitate a foreclosed and dilapidated apartment complex known as the Bayou
Bend Apartments into a multi-family development.1 The City made approximately
1
The background section of this opinion draws in large part from HFF’s original
petition. Before the City and Wade filed their plea to the jurisdiction, HFF amended
its petition, omitting many allegations and adding others; adding Wade as a
defendant; and making new legal claims against the City. Generally, “[a] plaintiff’s
timely filed amended pleading supersedes all previous pleadings and becomes the
controlling petition in the case regarding theories of recovery.” Elliott v. Methodist
Hosp., 54 S.W.3d 789, 793 (Tex. App.—Houston [1st Dist.] 2001, pet. denied); see
Bos v. Smith, 556 S.W.3d 293, 306 (Tex. 2018) (“Amended pleadings supersede
prior pleadings, and any claim not carried forward in an amended pleading is
deemed dismissed.”); see also TEX. R. CIV. P. 63, 65. With respect to the factual
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$4 million in financing available to HFF for the purchase, and HFF executed a
promissory note in that amount.
HFF learned after purchasing the property that it was encumbered with
delinquent property taxes, which prevented HFF from proceeding with the project.
For approximately two years, HFF worked toward a resolution of the tax
delinquency. Before a resolution could be reached, however, Wade procured a
general warranty deed signed by one of HFF’s board members that purported to
convey title to the property to the City in exchange for “ratification of the absence
of” HFF’s liability under the $4 million promissory note and reserving to HFF rights
of first refusal in any future sale and participation in future development of the
property. Although Wade allegedly represented that the deed would not be used for
any purpose, it was filed in the Harris County real property records.
In its petition, HFF seeks to have the deed declared void, and either have it
removed from the Harris County property records or have an order placed in the
records declaring the deed void. HFF claims that the deed is void because its board
did not pass a resolution authorizing the property’s transfer and thus the conveyance
did not comply with the requirement that HFF convey real property only “by
allegations, however, those in the live pleading are not inconsistent with those in the
original petition, and we assume that the claims for relief raised in both the
superseded and live pleadings arise from essentially the same operative facts.
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appropriate resolution of the board of director’s or members.” TEX. BUS. ORGS.
CODE § 22.255. The petition also brings claims against Wade, whom it identifies as
“an individual who resides in Harris County” for fraud and fraudulent inducement
in procuring the allegedly unauthorized deed.
In his answer, Wade asserted that official immunity barred HFF’s suit against
him and precluded liability for its claims. The plea to the jurisdiction contended that
the City was immune from suit and that dismissal of HFF’s claims against Wade was
required because its allegations against Wade all relate to his negotiation of a real
estate deal, which was conduct within the course and scope of his employment.
Plea to the Jurisdiction
In challenging the trial court’s denial of their plea, the City and Wade contend
that HFF did not meet its pleading burden to show that its claims fall within a
statutory waiver of immunity from suit.
I. Standard of Review and Applicable Law
A plea to the jurisdiction challenges the trial court’s subject-matter
jurisdiction. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). The
plaintiff has the burden to allege facts affirmatively demonstrating that the trial court
has subject-matter jurisdiction. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 446 (Tex. 1993); Fink v. Anderson, 477 S.W.3d 460, 465 (Tex. App.—
Houston [1st Dist.] 2015, no pet.). We review a trial court’s ruling on a plea to the
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jurisdiction de novo to determine whether the plaintiff met this burden. See City of
Waco v. Lopez, 259 S.W.3d 147, 150 (Tex. 2008); Tex. Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 226 (Tex. 2004).
When, as here, a plea to the jurisdiction challenges the pleadings, we look to
the pleader’s intent, construe the pleadings liberally in favor of jurisdiction, and
accept the allegations in the pleadings as true to determine if the pleader has alleged
sufficient facts to affirmatively demonstrate the trial court’s jurisdiction to hear the
cause. Heckman v. Williamson Cty., 369 S.W.3d 137, 150 (Tex. 2012); City of El
Paso v. Heinrich, 284 S.W.3d 366, 378 (Tex. 2009); Miranda, 133 S.W.3d at 226.
The allegations found in the pleadings may either affirmatively demonstrate
or negate the court’s jurisdiction. See Miranda, 133 S.W.3d at 226–27. If they do
neither, the existence of subject-matter jurisdiction is an issue of pleading
sufficiency and the court should give the plaintiff an opportunity to amend the
pleadings. Id. If, however, the pleadings affirmatively negate the existence of
jurisdiction, then the court may grant a plea to the jurisdiction as a matter of law
without giving the plaintiff an opportunity to amend. Id. at 227.
“Governmental immunity is comprised of immunity from both suit and
liability.” City of Dallas v. Albert, 354 S.W.3d 368, 373 (Tex. 2011). “Immunity
from liability protects entities from judgments while immunity from suit deprives
courts of jurisdiction over suits against entities unless the Legislature has expressly
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consented.” Id. The doctrine exists to protect the State and its political subdivisions
from lawsuits and liability for money damages. Mission Consol. Indep. Sch. Dist. v.
Garcia, 253 S.W.3d 653, 655 (Tex. 2008); Reata Constr. Corp. v. City of Dallas,
197 S.W.3d 371, 374 (Tex. 2006); Harris Cty. v. Luna–Prudencio, 294 S.W.3d 690,
696 (Tex. App.—Houston [1st Dist.] 2009, no pet.).
II. HFF’s Claim for Declaratory Relief
HFF’s claim for declaratory relief seeks to invalidate the deed based on a
provision of the Business Organizations Code declaring that, “A corporation may
convey real property of the corporation when authorized by appropriate resolution
of the board of directors or members.” TEX. BUS. ORGS. CODE § 22.255. The City
argues that it is entitled to dismissal because HFF did not meet its burden to plead
and prove a statutory waiver of governmental immunity for its declaratory judgment
claim.
The Uniform Declaratory Judgment Act (DJA) has a remedial purpose: “to
settle and to afford relief from uncertainty and insecurity with respect to rights, status
and other legal relations.” TEX. CIV. PRAC. & REM. CODE § 37.002(b). Pertinent to
HFF’s claims, it allows a “person interested under a deed” to have a court determine
“any question of construction or validity arising under” it and “obtain a declaration
of rights, status, or other legal relations thereunder.” Id. § 37.004(a).
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The DJA does not contain a general waiver of governmental immunity, nor
does it otherwise extend a court’s jurisdiction. Declaratory-judgment suits against
governmental officials “seeking to establish a contract’s validity, to enforce
performance under a contract, or to impose contractual liabilities are suits against
the State,” and, accordingly, “cannot be maintained without legislative permission.”
Tex. Nat. Res. Conserv. Comm’n v. IT-Davy, 74 S.W.3d 849, 855–56 (Tex. 2002).
A. No Waiver of Immunity Exists for HFF’s Claim for Declaratory
Relief Against the City.
HFF’s DJA claim invokes section 22.255 of the Business Organizations Code,
which governs a nonprofit corporation’s conveyance of real property. It is within the
chapter addressing business procedures for nonprofit corporations, which is, in turn,
part of Title 2 of the Code, which pertains to both for-profit and non-profit
corporations. Title 2, which contains general provisions applying to both types of
corporations, makes clear that section 22.255 does not provide a basis for
determining HFF’s rights under the deed in relation to those of the City. See TEX.
BUS. ORGS. CODE § 20.002(b) (expressly providing that transfer of property by a
corporation “is not invalid because act of transfer was . . . inconsistent with limitation
on the authority of an officer or director to exercise a statutory power of the
corporation, as that limitation is expressed in the corporation’s certificate of
formation”). Nor does the statute permit the corporation to bring suit against the
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transferee to contest the validity of a transfer. It explains that a transfer inconsistent
with a limitation on officer’s authority may be asserted in a proceeding
(1) by a shareholder or member against the corporation to enjoin the
performance of an act or the transfer of property by or to the
corporation;
(2) by the corporation, acting directly or through a receiver, trustee, or
other legal representative, or through members in a representative suit,
against an officer or director or former officer or director of the
corporation for exceeding that person’s authority; or
(3) by the attorney general to:
(A) terminate the corporation;
(B) enjoin the corporation from performing an unauthorized
act; or
(C) enforce divestment of real property acquired or held
contrary to the laws of this state.
See id. § 20.002(c). Thus, only the attorney general has standing to bring a
proceeding under section 22.255 to undo the deed between HFF and the City; HFF
is limited to suing the board member who signed the deed. Because the Business
Organizations Code limits the application of section 22.255 to circumstances that do
not appear here, it does not provide a basis for HFF’s claim for declaratory relief and
does not waive governmental immunity.
Texas Lottery Commission v. First State Bank of DeQueen, 325 S.W.3d 628
(Tex. 2010), relied on by HFF, identifies the obstacle that prevents HFF from
pursuing its claim against the City. DeQueen explained that immunity was waived
in that case because it involved a challenge to a statute—not “a government officer’s
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action or inaction.” Id. at 635. The pivotal allegation against the City and Wade
concerning the deed’s validity in this case is not that HFF’s board member executed
the deed in violation of section 22.255, but that Wade filed the deed after
representing that he would not.
B. HFF’s Claim for Declaratory Relief May Rely on an Ultra Vires
Theory.
In asking the trial court to declare the filed deed invalid, HFF’s claim, at
bottom, seeks to adjudicate a title dispute. “Generally, a trespass to try title claim is
the exclusive method in Texas for adjudicating disputed claims of title to real
property.” Tex. Parks & Wildlife Dep’t v. Sawyer Tr., 354 S.W.3d 384, 389 (Tex.
2011) (citing TEX. PROP. CODE § 22.001(a)). Treating HFF’s claim as a trespass to
try title claim does not change the result for the City: absent legislative consent,
immunity bars suit against the governmental entity for recovery of title to and
possession of land. See id.
Because Wade as an individual has no interest in the property at stake, he
cannot be sued in his individual capacity under this theory, but his entitlement to
immunity for actions in his official capacity is not absolute. “A government
employee has the same immunity from suit against him in his official capacity as his
employer, unless he has acted ultra vires.” Univ. of Tex. Health Sci. Ctr. at San
Antonio v. Bailey, 332 S.W.3d 395, 401 (Tex. 2011). Prosecution thus may proceed
against a governmental official under the theory that the official acted ultra vires in
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procuring the property on behalf of the governmental entity. See Parker v. Hunegaw,
364 S.W.3d 398, 407 (Tex. App.—Houston [14th Dist.] 2012, no pet.).
An ultra vires suit alleges that a government employee has acted without legal
authority or has failed to perform a purely ministerial act. Houston Belt & Terminal
Ry. v. City of Houston, 487 S.W.3d 154, 157–58, 160–61 (Tex. 2016); Heinrich,
284 S.W.3d at 372; see Tex. Dep’t of Transp. v. Sefzik, 355 S.W.3d 618, 621 (Tex.
2011) (explaining that ultra vires action may be brought against government official
only for nondiscretionary acts not authorized by law). “[S]uits to require state
officials to comply with statutory or constitutional provisions are not prohibited by
sovereign immunity, even if a declaration to that effect compels the payment of
money.” Heinrich, 284 S.W.3d at 372. “To fall within this ultra vires exception, a
suit must not complain of a government officer’s exercise of discretion, but rather
must allege, and ultimately prove, that the officer acted without legal authority or
failed to perform a purely ministerial act.” Id.; see Houston Belt & Terminal Ry.,
487 S.W.3d at 164 (“Although only exercises of absolute discretion are absolutely
protected, whether a suit attacking an exercise of limited discretion will be barred is
dependent upon the grant of authority at issue in any particular case.”). The rationale
for applying the ultra vires exception to title disputes rests on the notion that
[i]f a government official acting in his official capacity possesses
property without authority, then possession is not legally that of the
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sovereign. Under such circumstances, a defendant official’s claim that
title or possession in on behalf of the State will not bar the suit.
Sawyer Tr., 354 S.W.3d at 393.
HFF’s petition sues Wade as an individual, alleges that Wade acted
improperly in filing the deed, and seeks to have the deed invalidated on that basis.
Construing the petition’s allegations liberally in favor of jurisdiction, they neither
affirmatively demonstrate nor negate the court’s jurisdiction over Wade in his
official capacity. HFF thus should receive the opportunity to replead its claim
against Wade. See Cty. of Cameron v. Brown, 80 S.W.3d 549, 558–59 (Tex. 2002).
III. HFF’s Fraud Claims Against Wade
HFF alleges that “Wade committed fraud and fraudulent inducement in the
procurement of the unauthorized deed” by representing that it had to be signed but
would not be used for any purpose.2 Wade contends that he is immune from suit on
HFF’s fraud claims because his alleged conduct occurred within the course and
scope of his employment with the City. To support this contention, Wade points to
the Tort Claims Act, which declares that it does not cover—and thus does not waive
immunity for—intentional tort claims against a governmental entity or official. See
TEX. CIV. PRAC. & REM. CODE § 101.057.
2
The City also argues that it is immune from suit on HFF’s fraud claims. Because we
do not read the petition as raising fraud claims against the City, we do not address
this argument.
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HFF’s pleading refers to Wade as an individual, and its brief represents that it
sued Wade in his individual capacity. Immunity does not apply to tort claims brought
against Wade in his individual capacity, even if the torts were committed in the
course of his employment with the City. See Franka v. Velasquez, 332 S.W.3d 367,
383 (Tex. 2011) (citing Heinrich, 284 S.W.3d at 373 n. 7). We conclude that the trial
court did not err in denying the plea as to the fraud claims against Wade in his
individual capacity.
CONCLUSION
We hold that the trial court erred in denying the plea to the jurisdiction as to
the City. We further hold that the trial court properly denied the plea to the
jurisdiction as to the tort claims against Wade but not as to the possible ultra vires
claim against Wade. We therefore reverse the portion of the trial court’s order as to
the City with instructions to grant the City’s plea and dismiss the claims against it
for lack of subject-matter jurisdiction. We reverse the portion of the trial court’s
order denying the plea to the jurisdiction as to the title dispute claim against Wade
and remand that issue for further proceedings. We affirm the remainder of the order.
Gordon Goodman
Justice
Panel consists of Justices Keyes, Goodman, and Kelly.
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