In a case transferred from Bexar County, the El Paso Court of Appeals has held that San Antonio Water System has governmental immunity in a claim brought by a surety company contesting SAWS’s release of contract funds to a contractor without the company’s consent.
The facts in San Antonio Water System, An Agency of the City of San Antonio v. The Guarantee Company of North America USA (No. 08-23-00123-CV; delivered January 3, 2024) are these. SAWS contracted with Thyssen-Laughlin, Inc. to build two projects. Thyssen contracted with Guarantee as surety on both of them. SAWS sued Thyssen for breach of contract and Guarantee for breach of its performance bond on one of the projects. Guarantee filed counterclaims against SAWS for breach of contract and for releasing nearly $350,000 in contract payments to Thyssen nine days after Guarantee notified SAWS not to release funds without its consent. Guarantee further asserted violations of the Texas Prompt Payment Act and sought attorney’s fees. SAWS filed a plea to the jurisdiction, which the trial court denied.
In an opinion by former 4th Court Chief Justice Marion, the court of appeals reversed as to Guarantee’s claims for improper release of funds and PPA violations (under § 271.152, Local Government Code, governmental immunity for a breach of contract claim is waived, so that claim remains in the trial court). The problem with Guarantee’s improper release claim, the court noted, was that Guarantee did not contract with SAWS, Thyssen did. Guarantee could thus not invoke § 271.152’s waiver of immunity. Guarantee sought to get around the problem by asserting equitable subrogation, whereby it could stand in the shoes of the contractor for purposes of asserting tort and contract claims. Unfortunately for Guarantee, in this case the construction contract between SAWS and Thyssen did not specify that funds could not be released without the surety’s consent, defeating Guarantee’s reliance on case authority that found equitable subrogation under those circumstances. Moreover, since SAWS paid Thyssen the $350,000, it doesn’t owe Thyssen anything and has not breached its contract with Thyssen. Consequently, Guarantee has no claim under a subrotation theory in any event.
As to the prompt payment counterclaim, the court held that the pertinent statute, § 28.002, Property Code, is inapplicable because it does not apply to owners that are governmental entities. Guarantee’s attorney’s fees claim likewise failed because it is based on the breach of contract claim, for which immunity was not waived.
