The San Antonio Court of Appeals has reversed a trial court’s denial of the San Antonio Water System’s (SAWS) plea to the jurisdiction in a breach of contract case. City of San Antonio v. Campbellton Road, L.T.D. (No. 04-20-00569-CV) arose from an agreement between a residential property developer and SAWS under which SAWS agreed to provide sewer service to the developer’s proposed subdivisions in return for the developer’s participation in building a wastewater facility (“oversized to accommodate flows” from the developments) and payment of impact fees for collection and treatment components prior to service connection. The contract extended for 10 years and terminated on June 6, 2013. As of that date, if the developer had not completed the wastewater facilities or paid all impact fees, the developer would only have a right to the remaining unused capacity (rather than a vested right in the excess capacity) and “the ability to ‘exercise the credit procedures set forth’ in the contract ‘until all eligible costs’ were recouped by” the developer. By the time the developer approached SAWS in 2019 about the availability of sewer capacity to supply 1,500 residential units planned under the original contract, SAWS had already allocated the excess capacity to other developments in the area. The developer sued SAWS for breach of contract, monetary damages, specific performance, and a declaratory judgment that a regulation adopted by SAWS terminating certain agreements involving wastewater facilities 15 years after execution did not apply to the developer’s contract.

The trial court denied SAWS’ plea to the jurisdiction on the basis of governmental immunity. The court of appeals reversed and remanded, holding that the contract between the developer and SAWS was not a contract “for providing goods or services to the local government entity” as required for a waiver of immunity under Chapter 271, Local Government Code. Quoting SCOTX’s opinion in Lubbock Cty. Water Control & Imp. Dist. v. Church & Akin, L.L.C., 442 S.W.3d 297, 304 (Tex. 2014), the court of appeals explained that the definition of the term “contract” and Chapter 271’s limitation on recoverable damages mean that “the waiver will typically apply only to contracts in which the governmental entity agrees to pay the claimant for the goods and services that the claimant agrees to provide the governmental entity.” The absence an agreement by the governmental entity to pay for goods and services, moreover, “may indicate that the claimant did not in fact agree to provide goods or services to the government entity.” Id. at 305.

In the contract at issue, the court of appeals found no agreement under which the developer provided a good or service to SAWS. Instead, the contract required SAWS to provide sewer service to the developer without any recourse had the developer decided not to build the project or other proceed with the contract. In response to the developer’s argument that SAWS received a “benefit”
from the construction of additional wastewater capacity, the court of appeals distinguished several cases cited by the developer on the basis that they all involved the governmental entity’s agreement “to pay a purchase price for services rendered.” The court likewise distinguished cases finding waiver of immunity if the local governmental entity received a “direct,” as opposed to an “indirect,” benefit from the contract. Here the court of appeals found at best an indirect benefit that did not involve an essential term of the contract: that the developer needed sewer service for its subdivisions. The court thus held that immunity was not waived.

A second issue in the case involved Chapter 245, Local Government Code, which generally bars a local governmental entity from changing the rules after a permit application has been filed. As mentioned above, the developer sought a declaratory judgment that a regulation adopted by SAWS terminating contracts on a certain date if they did not otherwise specify a term did not apply to this contract. By its own terms this contract expired on June 6, 2013, so the regulation did not affect any vested rights the developer might have had until the contract terminated. The court of appeals thus remanded to the trial court for consideration of SAWS’ request for attorney’s fees and costs to the prevailing party in a declaratory judgment action.

TCJL has long held that sovereign immunity at all levels of government is crucial to controlling costs to taxpayers and protecting the state and local governments from a rash of litigation. While the Legislature has created limited exceptions, we are pleased to see the courts continuing to construe those exceptions narrowly and with an eye to the exigencies of efficiently managing governmental services.

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