Texas Supreme Court to consider allowing plaintiffs to sue governmental entities for specific performance on a contract—why that should concern you and what you need to know

Last Friday, the Texas Supreme Court took action in Hays Street Bridge Restoration Group v. City of San Antonio that may concern local governmental entities.

Hays Street Bridge questions whether governmental immunity is waived for the remedy of specific performance under the Local Government Contract Claims Act (“the Act”).  Most governmental entities say “no,” and in a recent case argued before the Austin Court of Appeals, the court seemed to agree.  See West Travis Cty. Pub. Util. Agency v. Travis Cty. Mun. Util. Dist. No. 12.  For more information on that case, see the October 2017 issue of the Lone Star Current.

But in granting the petition for review in Hays Street Bridge, the Supreme Court has called that conclusion into question.

As has become familiar to governmental entities, the Act waives governmental immunity to certain breach-of-contract claims.  On most claims, the Act waives immunity only for specific damages: 1) the balance due and owing; 2) reasonable attorney’s fees; and 3) pre- and post-judgment interest.

Specific performance—i.e., a court order requiring the breaching party to perform under the contract—is only available under the Act with respect to claims arising from a contract for the delivery of large volumes of reclaimed water by a local governmental entity intended for industrial use.  But there is no statutory language indicating that immunity is waived for specific-performance claims on other contracts.

Which makes the Supreme Court’s action in Hays Street Bridge so concerning.

The case arises out of a contract to restore a bridge and create a surrounding recreational park.  The Restoration Group agreed to raise matching funds for the project in return for the City’s promise to allocate those funds.  The City leased a parcel of land, which the Restoration Group claims was intended for its use, to a private company—Alamo Brewery. The Restoration Group sued, seeking specific performance of its agreement with the City.

The San Antonio Court of Appeals reached the same conclusion as Justice Pemberton in the WTCPUA case—immunity is not waived for specific performance, and the court has no jurisdiction to grant that remedy.  The Restoration Group petitioned the Supreme Court to review that decision, and the Supreme Court has (surprisingly) agreed to consider the appeal.

The Restoration Group argues that the Act’s limitation on damages only pertains to monetary damages, and that nothing in the Act bars the alternative remedy of specific performance.  The City argues that the Act does not expressly waive immunity for specific performance and therefore it is unavailable.  The City notes that the Legislature knows how to explicitly waive immunity for specific performance and did so in the narrow instance of contracting for reclaimed water.

The Supreme Court’s review may be an opportunity to clarify the ambiguous language in Zachry Construction Corporation v. Port of Houston Authority.  Zachry opened the door to widening the waiver with its broad language that the Act “allow[s] recovery of contract damages.”  In the wake of Zachry, courts have struggled with interpreting the Act’s limitation on damages.  So the court may want to slam shut the door it opened in Zachry, and hold that not all “contract damages”—in this case specific performance—are available under the Act.  But there is also a risk—the Supreme Court may intend to expand the scope of the Act’s waiver to grant an additional remedy (which is what it arguably did in Zachry).

Either way, it is reasonable to expect that the court has granted review with an eye toward one outcome or another.

The risk that specific performance may soon become a viable remedy in contract suits against governmental entities is a serious one.  And for that reason, governmental entities will want to pay close attention to this case as it winds through the Supreme Court.  Oral argument has not yet been set, but we anticipate that it will be scheduled for late Fall.

In the meantime, some governmental entities that are interested in affecting the outcome of this case may wish to submit an amicus brief (either on their own behalf or as part of a coalition) to, among other things, emphasize to the court the public policy and proper statutory construction behind the Legislature’s limited waiver of immunity.  If you are interested in learning more about the upcoming Supreme Court review or making your voice heard by filing an amicus brief please contact José de la Fuente at 512-322-5849 or jdelafuente@lglawfirm.com, or James Parker at 512-322-5878 or jparker@lglawfirm.com.