The Houston [14th] Court of Appeals has ruled that Type A economic development corporations, although their liability is limited by statute, are not entitled to governmental immunity from suit.
In Hitchcock Industrial Development Corp. v. Cressman Tubular Products Corp. (No. 24-0831; filed July 18, 2024) the question was whether Type A corporations created under the authority of Chapter 504, Local Government Code, have governmental immunity against tort claims. In May 2014, the city of Hitchcock entered into an economic development agreement with Cressman Tubular Products Corp, under which, Hitchcock alleged, Cressman agreed to develop a business plan in the city in return for a rebate of city sales taxes. Hitchcock Industrial, however, denied that it was ever part of the agreement. Consequently, Cressman filed third-party claims against the Hitchcock Industrial for breach of contract, negligent misrepresentation, and fraud. Hitchcock Industrial filed a plea to the jurisdiction based on government immunity, which the trial court denied. Hitchcock Industrial appealed.
The court of appeals affirmed. Hitchcock Industrial argued that the Legislature granted governmental immunity to Type A economic development corporations pursuant to § 504.107(b), Local Government Code, which extends protection from liability and damages to the corporation, its directors, the city, city employees, and employees of the corporation. The section further declares that Type A corporations are governmental units for purposes of the Tort Claims Act and that their actions are governmental functions. the trial court made a mistake in denying their plea, but the judiciary has the authority and sovereign immunity to develop doctrines and to define the boundaries of where jurisdiction lies. Relying on SCOTX’s decision in Rosenberg Development Corp. v. Imperial Performing Art, Inc., 571 S.W.3d 738 (Tex. 2019), which held that [Type B] development corporations are not government entities and, consequently, not entitled to government immunity,” the court held that Type A corporations aren’t either and have no immunity. As to § 504.107(b), the statute simply sets limits on liability and damages but does not confer immunity from suit.
Justice Hecht’s concurring opinion in Rosenberg pointed an anomaly in the statute, by which the Legislature held harmless Type A and Type B corporations from tort liability, unless waived by the Texas Tort Claims Act, while withholding immunity from suit for breach of contract. He also pointed out that even if a claimant got a judgment against a corporation, it might not be able to enforce it because the governing body of the municipality that created the corporation in the first place would have to approve the expenditure to pay the judgment anyway. It would appear that the statute could use some cleaning up.
TCJL Intern Hannah Greer provided the research for and substantially drafted this article.
