In the Courts

Water Cases

City of League City v. Galveston Cnty. Mun. Util. Dist. No. 6, No. 01-23-00007-CV, 2023 WL 8814635 (Tex. App.—Houston [1st Dist.] Dec. 21, 2023, no pet. h.).

The central issue in this case is whether a governmental entity can be sued for breach of a utility agreement and subsequent settlement agreement. League City (the “City”) and the Galveston County Municipal Utilities District (the “District”) entered a forty-year utility agreement enabling the District to construct water distribution, sanitary sewage collection, and drainage systems to provide water services to a portion of the City lying within the District’s boundaries. Following a lawsuit regarding the funding of this project, the parties agreed to a settlement agreement obligating the City to continue forty percent tax payments to the District through 2024, which had been agreed upon in the utility agreement. In exchange, the District agreed to release any claims the District asserted or could have asserted against the City as of the settlement agreement date.

In January 2022, the District filed another lawsuit asserting the City breached both the utility and settlement agreements by delaying and underpaying the required tax payments. The District sought declaratory relief, asking the Court to establish that the contract did not alter the City’s obligation to pay the District in full, and the settlement agreement did not release the City of claims unknown to the District at the time the settlement agreement was executed. The District also sought monetary damages for the City’s failure to pay the District in full. The City filed a plea to the jurisdiction, claiming that neither the utility agreement nor settlement agreement provided goods and services as required to waive governmental immunity under the Texas Local Government Code § 271. The trial court denied the City’s plea and the City appealed to the Houston Court of Appeals.

The Court of Appeals first considered whether the utility agreement provided goods and services by reviewing the text of the utility agreement and the benefits it conferred upon the City. The Court recognized that the City received a direct benefit from the utility agreement in its eventual ownership of the water system, which would become part of the City’s infrastructure. The Court distinguished the utility agreement from others in previous cases, recognizing that: the purpose of the utility agreement was to construct the water system, rather than solely to provide water service upon the system’s completion; the City provided consideration for the District’s construction of the water system in the form of tax payments; and the agreement provided a wholly conveyed water system for the City’s future use and operation. Based on these circumstances, the Court upheld the trial court’s ruling that the City’s immunity was waived for claims related to the utility agreement.

The Court then rejected the City’s argument that it is immune from suit for claims related to the settlement agreement because the settlement agreement was not a contract for goods and services. The Court concluded that since the settlement agreement resolved a dispute related to the utility agreement and the City’s immunity was not waived for those claims, the City’s immunity could not be waived for actions related to the settlement agreement itself. The rationale for this conclusion is that the City could not dispose of its immunity waiver for the utility agreement by entering a settlement agreement for which immunity is not waived under Texas Local Government § 271. Thus, the Court upheld the trial court’s ruling that the City’s immunity was waived for claims related to the settlement agreement.

Finally, the Court considered whether the City’s immunity was waived for the District’s declaratory judgment claims. The Court recognized that the Texas Civil Practices and Remedies Code § 37.004 allows for a narrow waiver of immunity, allowing a party to seek declarations related to the adjudication of breach of contract claims under Texas Local Government Code § 271.152. The Court concluded that the District failed to meet its burden of proof that its declaratory relief claims were brought for the purpose of adjudicating its breach of contract claims. Therefore, the Court reversed the trial court’s ruling, finding the City immune from litigation related to the District’s declaratory relief claims, and dismissing those claims for lack of jurisdiction.

Selinger v. City of McKinney, No. 05-23-00180-CV, 2024 WL 260500 (Tex. App.—Dallas Jan. 24, 2024, no pet.).

In 2018, Selinger submitted a plat application to the City of McKinney (the “City”), indicating that the Cambridge Meadows development would include sewer infrastructure construction as well as a wastewater treatment plant. Water was to be provided through the North Collin Special Utility District. The City rejected Selinger’s plat application, indicating that it did not provide for the connection of the development to City water and sewer systems, and it did not include any mention of the City’s water and sewer impact fees. The City offered Selinger a Facilities Agreement, which would allow the development but would require the payment of water and sewer impact fees, “if, and only if, the City ever extended its water and sewer transmission lines to the Property.” Selinger refused to agree to the impact fee, and the City denied his application. Selinger brought suit against the City, alleging that the zoning restrictions imposed on his property amounted to an infringement of his property rights and constituted an unconstitutional taking without just compensation.

Selinger contended that the zoning regulations imposed by the City substantially restricted the potential use and development of his property, diminishing its value and impairing his ability to derive economic benefit from it. He argued that these restrictions were not in line with the principles of eminent domain and zoning laws, as they deprived him of the beneficial use of his property without providing fair compensation. The trial court found there was insufficient evidence to establish that the City’s ordinance establishing impact fee requirements was unconstitutional, that Selinger’s right to due process was violated by the City, or that the City’s denial of Selinger’s application constituted a taking. Selinger appealed.

The City’s impact fee requirement is considered an exaction, as it is a governmental entity requiring an “action by a landowner as a condition to obtaining government approval of a requested land development.” To be considered a taking, an exaction must show some relation to the advancement of a governmental interest and it must be “roughly proportional” to the impact of the proposed development. Applying this standard, the Court of Appeals held that the City’s capital improvement plan, prepared in accordance with Texas Local Government Code Chapter 395, mathematically demonstrated that the impact fees were proportional to the size of the proposed development, and such fees were to be spent only on water and sewer services. As such, the City’s impact fee requirement was not a taking under the rough proportionality standard, and Selinger presented no evidence to the contrary.

Regarding Selinger’s argument that the ordinance was unconstitutional, a home-rule city, such as the City in this case, has broad discretionary powers to enact ordinances, so long as such ordinance does not contain any provision inconsistent with the state constitution or state laws. The City presented evidence to the trial court that the impact fees were not in conflict with the constitution or any state laws. Absent Selinger’s presentation of contrary evidence, the Court of Appeals held that there was no conflict and the ordinance was not unconstitutional. The Court of Appeals affirmed the trial court’s final judgment in favor of the City on all issues.

Litigation Cases

Univ. of Tex. Sw. Med. Ctr. v. Matias, No. 03-21-00575-CV, 2023 WL 8285105, at *4 (Tex. App.—Austin Nov. 30, 2023, no pet. h.).

The Texas Tort Claims Act (the “TTCA”) creates a limited waiver of governmental immunity for claims of personal injury or death but requires prompt notice of the claim within six months of the incident. If a plaintiff does not give notice within the six-month window, the claim is generally barred by governmental immunity. Section 101.101(c) of the Texas Civil Practice and Remedies Code provides three exceptions where formal notice is not required when the governmental entity has actual notice that: (1) a death has occurred, (2) the plaintiff received some injury, or (3) the plaintiff’s property has been damaged.

In this case, the plaintiff’s daughter, Sindy, was born prematurely with a congenital heart disease that made her unable to properly circulate oxygenated blood. Sindy had to undergo surgeries and was transferred to Dell Children’s Pediatric Intensive Care Unit. At Dell Children’s, a doctor employed by the University of Texas Southwestern Medical Center (“UT Southwestern”) performed surgery on Sindy, which resulted in Sindy being put on life support until she later died.

More than a year later, the plaintiff sent a notice of claim letter to the doctor and sued UT Southwestern for medical negligence. UT Southwestern, a governmental entity, moved to dismiss the lawsuit on grounds that the plaintiff did not timely provide notice under the TTCA. The plaintiff responded that UT Southwestern had actual knowledge of Sindy’s death. The trial court denied UT Southwestern’s motion to dismiss.

On appeal, the Austin Court of Appeals stated that the “actual-notice standard requires evidence that the governmental unit was ‘subjectively aware that its alleged acts or omissions contributed or produced injuries in the way the claimant alleged.’” The Court reviewed the evidence, which included a discharge summary and autopsy report that the doctor had reviewed with Sindy’s family and found that this evidence created an issue of fact for the jury concerning whether UT Southwestern was subjectively aware that its alleged acts produced or contributed to Sindy’s death. Ultimately, the Court affirmed the trial court’s order denying UT Southwestern’s motion to dismiss.

The lesson for governmental entities is that plaintiffs need not always give formal notice. Sometimes, the facts will show that the governmental entity had actual notice sufficient to meet the requirements of the TTCA’s waiver of governmental immunity.

Legacy Hutto, LLC v. City of Hutto, No. 22-0973, 2024 WL 1122521, at *1 (Tex. Mar. 15, 2024).

When governmental entities enter into contracts with business entities, the business entity typically must submit a “Disclosure of Interested Parties” form, commonly called a Form 1295. When the Texas Legislature enacted this requirement in 2015, the sole purpose was to provide the public with transparency into government contracts. Because the statute in Texas Government Code § 2252.908(d) stated that a “governmental entity or state agency may not enter into a contract . . . unless the business entity submits a disclosure of interested parties,” the City of Hutto (the “City”) was able to use this statute to temporarily void a contract. In 2019, the City entered into a Master Development Agreement (the “MDA”) with Legacy Hutto, LLC for the creation of a mixed-use real estate development. This development included commercial, residential, recreational, and other spaces, and had an estimated value in the hundreds of millions of dollars. Along the way, Legacy Hutto incurred about $3 million under the contract.

When progress on the project deteriorated, Legacy Hutto sued the City, and the City filed a motion to dismiss and a plea to the jurisdiction, arguing that it was immune from suit. Specifically, the City contended that the MDA was not properly executed sufficient to waive governmental immunity because Legacy Hutto never submitted the Form 1295 as required by Texas Government Code § 2252.908(d).

The district court granted the City’s plea to the jurisdiction and its motion to dismiss. The Amarillo Court of Appeals affirmed, holding that the plain language of the statute was clear: a governmental entity may not enter into a contract unless the business entity submits the Form 1295. Because no evidence showed that Legacy Hutto had submitted the Form 1295, the contract was not properly executed sufficient to waive the City’s governmental immunity.

After the Court of Appeals affirmed, Legacy Hutto appealed to the Texas Supreme Court. While on appeal, the Texas Legislature passed H.B. 1817 adding Section 2252.908(f-1). This section now expressly makes contracts voidable for failure to provide the Form 1295 if: (1) the governmental entity submits to the business entity written notice of the business entity’s failure to provide the Form 1295; and (2) the business entity fails to submit to the governmental entity the Form 1295 within 10 days.

On March 15, 2024, the Texas Supreme Court remanded the case to district court, holding that the amended law applies retroactively to Legacy Hutto’s lawsuit against the City. Consequently, Legacy Hutto will have another shot in district court against the City on its breach of contract claim. This case highlights that a contract with a business entity may now be voidable by the governmental entity in the rare instance that the governmental entity gives the business entity notice that the Form 1295 is missing, and the business entity fails to submit the Form 1295 within 10 days of the notice. Ultimately, though, this case serves as a reminder that governmental contractors should verify procedures are in place to ensure the Form 1295 is submitted, as the public has an interest in transparency in governmental contracts.

Tex. State Univ. v. Guillen, No. 03-23-00333-CV, 2024 WL 39819, at *1 (Tex. App.—Austin Jan. 4, 2024, pet. filed).

The Texas Tort Claims Act (the “TTCA”) creates a limited waiver of immunity for personal injury or death caused by premise defects. But even when a premise defect exists, governmental entities can retain immunity in a couple of instances. One instance is when the premise defect was “based on an act or omission occurring before January 1, 1970”—i.e., a governmental entity would be immune for a defect existing on a structure built in 1960. Another instance is when the decision to act or not act is a “discretionary decision.”

Texas State University v. Guillen provides an example of both exceptions, and the difficulty governmental entities may have in utilizing them. In this case, the plaintiff, Sylvia Guillen, visited Texas State University (“Texas State”) to help her granddaughter move out of her dorm. Unknown to Guillen, the ground below the bottom step of a fourteen-step exterior staircase had naturally lowered, causing the bottom step to have a difference in height almost twice that of the other steps. When Guillen stepped off the fourteenth step, she lost her balance and fractured her ankle. As a result, she needed emergency surgery, and was left with permanent implants and hardware in her body.

Guillen sued Texas State for her injuries, alleging that the staircase was a dangerous condition. She also alleged it violated the International Building Code because the Code requires stairs to have uniform size and shape and provides that the difference between the largest and smallest step height cannot exceed 3/8th inch.

Texas State filed a plea to the jurisdiction, asserting that it had governmental immunity on two grounds. First, the staircase was constructed in 1961 and there was no record of modification prior to Guillen’s injury. The Court of Appeals explained that a governmental entity is entitled to immunity if it can prove (1) the structure was completed before January 1, 1970, and (2) the structure has remained in the same condition since that time. The Court of Appeals ultimately held that Texas State was not immune because it had not established that the staircase had remained in the same condition between its construction and Guillen’s injury.

Texas State also argued that the decision not to modify the staircase was a discretionary decision for which the TTCA expressly preserves immunity. Under the “discretionary-function exception,” a governmental entity retains immunity for policy decisions made when the law does not require a particular action. The Court of Appeals provided an example involving water districts: the decision to release water from a spillway constitutes policy formulation for which the district is immune, but its subordinate decision of determining the volume of the outflow from the spillway is an implementation or operational decision for which the district is not immune. Applying this exception to this case, the Court of Appeals held that the decision not to repair or modify the staircase was an operational or maintenance decision, not a policy decision. Consequently, Texas State could not claim immunity under the discretionary function exception.

This case serves as a reminder that a governmental entity’s immunity may be waived when injuries occur on its premises. It also illustrates that repairing dangerous conditions (e.g., a dangerous step on a staircase) is not only safer for its citizens, but also a cheaper alternative than litigation. Nevertheless, this case illustrates that the TTCA contains several intricate exceptions, including for defects existing before 1970 and discretionary decisions, and governmental entities should work with attorneys well-versed in these nuances.

Garland Indep. Sch. Dist. v. Reeder Gen. Contractors, Inc., No. 05-22-00855-CV, 2024 WL 301917, at *1 (Tex. App.—Dallas Jan. 26, 2024, no pet. h.).

Governmental entities are not liable for as many types of money damages as non-governmental entities. The total amount of money awarded against a local governmental entity for a breach of contract is limited to the balance due and owed under the contract, the amount owed for change orders or additional work, reasonable attorney’s fees, and interest. In other words, damages awarded against a local governmental entity cannot include consequential damages or exemplary or punitive damages. Common examples of consequential damages are lost profits and delay damages. Thus, while non-governmental entities may be liable for consequential damages, governmental entities are not.

In this case, the Court of Appeals addressed whether a governmental entity’s plea to the jurisdiction can be granted when the plaintiff seeks liquidated damages and delay damages alongside other types of damages. The plaintiff, Reeder, contracted with Garland ISD to perform construction work. When Reeder discovered an undisclosed electrical feeder line that made it impossible to finish the project as called for in the plans, Reeder incurred significant additional costs resulting from the six-month delay. Reeder submitted various proposed change orders for delay damages, including a change order seeking $154,504. Ultimately, Reeder sued Garland ISD for breach of contract seeking various damages, including actual damages, liquidated damages, change order damages, and damages for retainage balance still owed.

In response, Garland ISD filed a plea to the jurisdiction, arguing that it was immune and that the damages sought were outside the scope of the waiver of immunity provided in the Local Government Contract Claims Act. Specifically, Garland ISD alleged that immunity was not waived for Reeder’s claim for liquidated damages nor Reeder’s claim for delay damages of $154,504 because it was not an amount due and owed under the contract.

The Court of Appeals stated that the Local Government Contract Claims Act does not waive immunity from suit when the claim for damages are not recoverable. In other words, Garland ISD would be immune from suit unless Reeder sought damages that were recoverable. The Court of Appeals explained that Reeder did request recoverable damages because the amounts resulting from increased costs from Garland ISD-caused delays, amounts owed for changed orders, attorney’s fees, and interest are recoverable damages. Because the Court of Appeals concluded that Reeder did plead recoverable damages, Garland ISD did not have immunity from suit.

Instead, the Court of Appeals held that Garland ISD’s arguments did not address its immunity, but rather addressed its liability and whether Reeder would ultimately recover those other types of damages. The Court concluded that it did not have to address whether Reeder will ultimately be able to recover those damages because at least some of the damages were recoverable.

Though governmental entities are statutorily not liable for “consequential damages,” governmental entities must exercise care when contracting because certain categories of damages such as delay-damages may be recoverable in some instances.

Air and Waste Cases

Texas Supreme Court Rules that a “Skeleton Day” is a Business Day When Replying to Public Information Act Requests.

After a Public Information Act (“PIA”) Request served by the Sierra Club on the Texas Commission on Environmental Quality (“TCEQ”) created a dispute about the definition of “business days” in 2023, the Sierra Club requested an official opinion from the Texas Attorney General (“AG”). The AG responded by issuing an opinion that stated a “skeleton crew day,” a day when TCEQ operates with a smaller staff than usual in lieu of an official Agency holiday, is considered a business day when calculating response times under the PIA. Having always operated under the alternative, TCEQ appealed the AG’s opinion; both the District Court and Third Court of Appeals upheld the AG’s opinion. In May 2023, TCEQ filed a petition for review, and the Texas Supreme Court denied the petition on December 15, 2023, leaving the AG opinion to stand that a skeleton crew day is a business day under the PIA. A motion for rehearing has been pending since January 16, 2024. While the opinion relates directly to PIA responses, it may have broader implications for other state statutes or policies that have deadlines. Texas Comm’n on Envtl Quality v. Sierra Club, No. 03-21-00256-CV, 2022 WL 17096693 (Tex. App. 2022. pet. denied).

Florida Court Deems a Class of Residents Has Standing Against a Resource Recovery Facility.

On March 3, 2023, property owners and citizens living near a Miami Waste Management Facility sued the facility owner for damages caused by a fire at the facility. The complaint alleges the fire was caused by the facility’s negligence and caused hazardous and toxic fumes to enter the air and onto the plaintiffs’ properties, contaminating soil and water. The complaint further alleges that migration of toxic fumes from the waste-to-energy plant at the facility and adjacent landfills caused a trespass to land, a continuous nuisance, and the need for medical monitoring of potential ongoing health issues. The facility’s operator requested that the Court dismiss the case, claiming the plaintiffs are unable to demonstrate a viable claim for trespass and nuisance and exposure to toxic fumes and the need for specific medical monitoring. On January 2, 2024, the federal judge denied the facility’s request, allowing the case to move forward and the citizens to continue investigating the extent of damages and the number of citizens to include within its class. This leaves open the possibility for the facility to be held liable for the trespass to property by migration of the fire’s toxic fumes and for the continued medical monitoring of citizens who may later develop health issues as a result. A jury trial is currently set for November 4, 2024. Brashevitzky v. Covanta Dade Renewable Energy, LLC, No. 23-20861-CIV-ALTONAGA/Damian (S.D. Fla. Jan. 02, 2024).

Utility Cases

Travis County District Court Rules Against ERCOT Stakeholders, Upholds ERCOT Bylaws Amendments.

On March 4, 2024, the Honorable Judge Maya Guerra Gamble of the 455th District Court of Travis County issued a final order in Cause No. D-1-GN-23-001430 denying the Public Utility Commission of Texas’ (“Commission”) Plea to the Jurisdiction but affirming the challenged Commission order. As previously reported, Texas Industrial Energy Consumers (“TIEC”) sued the Commission seeking judicial review of the Commission’s December 20, 2022 order approving amendments to ERCOT’s bylaws (the “Order”). The Texas Coalition for Affordable Power (“TCAP”) and Steering Committee of Cities Served by Oncor (“OCSC”) (collectively, “Cities”) jointly intervened seeking to invalidate the Order. The parties convened for a final hearing on December 19, 2023, and Judge Gamble ultimately issued the final order approving the Order.

The Electric Reliability Council of Texas (“ERCOT”) operates as a non-profit corporation under the Texas Business Organizations Code (“TBOC”) and is therefore bound by its corporate bylaws. Prior to the Order, ERCOT’s bylaws required a majority vote by Corporate Members—including city members—to approve proposed ERCOT bylaws amendments. Nevertheless, ERCOT unilaterally approved bylaws amendments removing the provision that required Corporate Member approval. Under the proposed amendments, only the ERCOT board has a say over ERCOT bylaws, albeit with oversight from the Commission. The bylaws change was uniformly opposed by stakeholder groups.

The Commission subsequently issued the Order adopting the bylaws amendment outside a Commission contested case. TIEC, TCAP, and OCSC sued, asserting the Commission violated the substantial evidence rule because, among other things, it failed to provide notice of ERCOT’s petition to amend the bylaws and ratified amendments that violated the TBOC. As such, the plaintiffs argued the Order was arbitrary and capricious and should be reversed. In response, the Commission filed a Plea to the Jurisdiction claiming the Order was not issued in a “proceeding” and, therefore, the Public Utility Regulatory Act (“PURA”) did not entitle the plaintiffs to judicial review of the Order.

Judge Gamble first addressed the Commission’s Plea to the Jurisdiction. In a few sentences, she dismissed the Plea, holding the Commission “held a proceeding…as that term is defined in [PURA] and the Commission’s rules.” The 455th District Court, therefore, had jurisdiction to review the Order under PURA § 15.001. Despite this finding, however, Judge Gamble affirmed the Order necessarily finding the Commission “proceeding” conformed with Commission rules and the Administrative Procedure Act. Judge Gamble therefore rejected TIEC, TCAP, and OCSC’s claims that ERCOT bypassed the Corporate Member vote required under the TBOC. Further, she dismissed claims that the Commission violated Corporate Members’ due process rights by approving the amendments without notice or a hearing. Judge Gamble did not provide any reasoning or analysis behind her decision. Judge Gamble’s order will likely be appealed to the Austin Third Court of Appeals.

“In the Courts” is prepared by Lora Naismith in the Firm’s Water Practice Group; Riley Zoch in the Firm’s Litigation Practice Group; Mattie Neira in the Firm’s Air and Waste Practice Group; and Rick Arnett in the Firm’s Energy and Utility Practice Group. If you would like additional information or have questions related to these cases or other matters, please contact Lora at 512.322.5850 or lnaismith@lglawfirm.com, or Riley at 512.322.5863 or rzoch@lglawfirm.com, or Mattie at 512.322.5804 or mneira@lglawfirm.com, or Rick at 512.322.5855 or rarnett@lglawfirm.com.