iOn April 1, 2016, the Texas Supreme Court issued opinions in Houston Belt & Terminal Railway Co. v. City of Houston and Wasson Interests, Ltd. v. City of Jacksonville, in which the Court further constrained the application of governmental immunity.
Houston Belt & Terminal Railway Co. v. City of Houston, No. 14-0459, Texas Supreme Court, April 1, 2016
Under the ultra vires doctrine, governmental immunity does not apply to a government official’s failure to perform a ministerial duty or to any action taken by a government official that is outside that official’s legal authority. City of El Paso v. Heinrich, 284 S.W.3d 366, 372 (Tex. 2009). Following Heinrich’s establishment of the framework for evaluating whether a claim properly alleges ultra vires conduct, the general consensus has been that where government officials are vested with discretion, suits involving the exercise of that discretion do not properly present ultra vires claims and are therefore barred by governmental immunity.
In Houston Belt, the Texas Supreme Court considered this issue in the context of limited official discretion (as opposed to instances of absolute discretion) and found that allegations asserting that an official exceeded his discretion constitute ultra vires claims for which there is no governmental immunity. The Court held that a plaintiff can avoid dismissal on immunity grounds by adequately pleading that an official’s action was inconsistent with a grant of limited discretion. The Court reasoned that where only limited discretion exists, it is possible to act without legal authority in connection with the exercise of that discretion, and, thus, immunity is not applicable.
The decision in Houston Belt will make it more challenging for governmental entities to obtain dismissal on immunity grounds in suits asserting ultra vires claims relating to actions for which the government official has only limited discretion. In order to determine the applicability of governmental immunity in such suits, courts will have to determine the limits of a government official’s discretion and then resolve any fact issues concerning whether the government official’s act was within those limits. The Texas Supreme Court has previously held that trial courts can consider evidence to resolve jurisdictional fact issues when ruling on a jurisdictional plea. Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 227-28 (Tex. 2004). If the evidence is undisputed or fails to establish the existence of a disputed issue of material fact, the court should determine its jurisdiction as a matter of law. Id. at 228. However, when the evidence establishes that there are disputed issues of material jurisdictional fact, such as whether an official exceeded his or her limited discretion, the court cannot grant the plea, as the fact issues must be reserved for the jury. Id. at 227-28.
Wasson Interests, Ltd. v. City of Jacksonville, No. 14-0645, Texas Supreme Court, April 1, 2016
In 2006, Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) established that a city is not immune from suit for torts committed in its proprietary capacity. Since that time, there has been disagreement in the courts of appeals as to whether this governmental/proprietary dichotomy also applies to contract actions against cities.Compare City of San Antonio v. Wheelabrator Air Pollution Control, Inc., 381 S.W.3d 597 (Tex. App.—San Antonio 2012, pet. denied) (holding that there is a presumption of immunity and immunity was not “waived” in breach of contract cases where the contract was entered into in a city’s proprietary capacity); Republic Power Partners, L.P. v. City of Lubbock, 424 S.W.3d 184, 193 (Tex. App.—Amarillo 2014, no pet.) (same) with City of Georgetown v. Lower Colo. River Auth., 413 S.W.3d 803, 812 (Tex. App.—Austin 2013, pet. dism’d) (determining that the governmental/proprietary dichotomy applies to contract actions).
The Texas Supreme Court resolved the circuit split in Wasson Interests, holding that when cities enter into contracts in their proprietary capacity, they are not shielded by immunity from lawsuits related to those contracts. The Court reasoned that the governmental immunity afforded to political subdivisions of the State is not inherent in the political subdivision, but rather is derived from the State’s immunity. That is, for cities, there is no “default immunity.” Within that framework, the Court held immunity only attaches to actions performed by a municipality in its governmental capacity, because those actions are the only ones that are performed by a city as an agent of the State. Accordingly, the Court concluded that when a city contracts in its proprietary capacity, immunity never attaches.
Until now, the general understanding has been that the only instance in which immunity did not apply to bar a contract action was when the contract came within the scope of Subchapter I of Chapter 271 of the Texas Local Government Code, which waives immunity from suit and provides the process for adjudicating disputes involving contracts for goods or services. Tex. Loc. Gov’t Code Ann. §§ 271.151-.160 (West 2005 & Supp. 2015). In Wasson Interests, the City of Jacksonville argued that these provisions abrogated the common law governmental/proprietary dichotomy with respect to contracts. The Court disagreed, reiterating that when a contract is entered into by a municipality in its proprietary capacity, no immunity exists and, thus, there is no immunity to waive.
Notably, the Court resolved another question that had been left open after Tooke, and confirmed in a footnote that the governmental/proprietary dichotomy applies only to municipalities, because they are the only political subdivisions that can act in a proprietary capacity.
Following Wasson Interests, in order to invoke the protections of governmental immunity in breach of contract actions, cities will have to show that they were acting in a governmental capacity. The practical reality is that there will be increased litigation over what is governmental and what is proprietary in breach of contract cases. As guidance, the Court noted that the Legislature is empowered to delineate the functions of a municipality that are governmental and those that are proprietary, as it has done in the Texas Tort Claims Act (the “TTCA”), see Tex. Civ. Prac. & Rem. Code Ann. § 101.0215. The Court and directed trial judges to look to the TTCA for guidance when resolving the governmental/proprietary question in contract actions, just as they do in tort cases. It is important to note, however, that the TTCA does not establish an exclusive list of proprietary functions and, thus, is simply a jumping off point for courts considering whether a contract was entered into in a proprietary or governmental capacity.
As overarching takeaways from Houston Belt and Wasson Interests, municipalities need to be mindful of the fact that they do not have “default immunity.” Municipalities should therefore consider establishing limitations on their liability within the terms of any contracts they enter into in their proprietary capacity. Likewise, to the extent municipalities intend to imbue their officials with absolute discretion sufficient to invoke governmental immunity, they should take care to ensure that municipal ordinances clearly effectuate that goal.
