The Texas Supreme has granted a financial institution’s petition for review of a Waco Court of Appeals decision upholding the termination of a Chapter 380 economic development agreement.
JP Morgan Chase Bank, N.A. v. City of Corsicana and Navarro County (No. 24-0102; No. 10-17-00316-CV; granted May 30, 2025) arose from a Chapter 380, Local Government Code, agreement between the city and county and Gander Mountain, which prior to its bankruptcy in 2017 operated retail stores across the nation (the successor, Gander Outdoors, reopened some stores in 2018). In 2004, the city and county entered into a Chapter 380 agreement with the Corsicana Industrial Foundation, under which the city and county dedicated sales tax revenues generated by businesses located in the development to the Foundation. The Foundation agreed to use the proceeds solely to repay Gander Mountain’s debt for the construction of its facility. Chase, which loaned Gander $10 million to finance the construction, was a third-party beneficiary of the agreement.
When the Gander Mountain store closed in 2015, the city and county determined that the initial purpose of the public funds was extinguished, and that there was no constitutionally sound public purpose for which they could continue to use these funds to repay Chase. They filed a declaratory judgment action seeking a declaration of:
- Whether the closing of the Gander Mountain store extinguished the public purpose of the grants of public money;
- Whether the interlocal agreement between the city and county regarding dedication of public funds and retail center development agreement (RCDA) with the Foundation failed to place sufficient controls on the transaction to secure that public interest was being carried out;
- Whether the RCDA and interlocal agreements were unconstitutional, void, or illegal because they allowed the use of public funds without the necessary controls to ensure the enactment of public purposes;
- Whether it would be unconstitutional, illegal, or void for the city and county to continue to grant sales tax to pay off the loan when public purposes were no longer being served and the facility was closed:
- Whether the interlocal agreement and RCDA were unconstitutional, void or illegal to the extent they required a continuation of the grant when public purposes are no longer served.
The Foundation filed counterclaims against the city and county. Chase filed a separate plea for declaratory relief regarding the constitutionality of the disputed agreement. When Gander Mountain filed for bankruptcy in March 2017, the trial court granted the city’s and county’s motion for partial summary judgment and severed their claims against the Foundation, Gander Mountain, and Chase. The trial court signed a judgment in favor of the cty and county and dismissed the Foundation’s counterclaims.
The trial court determined that the closure of the Gander Mountain facility extinguished the public purpose for the Chapter 380 grant. The court found that the agreements were insufficient in the first place because they lacked the necessary controls to uphold the public purpose, and that continuing the grant of sales tax revenues would violate the Texas Constitution. The Foundation appealed. So did Chase, as Gander Mountain’s assignee.
In an opinion by Justice Smith, the court of appeals affirmed. In general, the court noted, the Texas Constitution forbids the lending of credit or grant of public money to aid any individual or association, or corporation. Article III, § 52-a, however, authorizes the legislature to provide for loans, programs, and grants for the purposes of public development or expansion of commerce in the state. Chapters 380 and 381 implement this constitutional authority. Chase argued that § 52-a creates an exception to the general prohibition. Rejecting Chase’s argument that it didn’t apply, the court looked to the three-part test anunciated in Tex. Mun. League Intergovernmental Risk Pool v. Tex. Workers’ Comp. Comm’n 74 S.W.3d 377, 383 (Tex. 2002), a case regarding whether an injury fund violated § 52-a. According to the so-called TML test, the Legislature must: 1) ensure that the statute’s predominant purpose is to accomplish public purpose rather than benefit private parties; 2) retain public control over the funds to ensure that public purpose is accomplished; and 3) ensure that the political subdivision receives a return benefit. What constitutes a “public purpose” is for the courts to decide. Hous. Auth. v. Higginbotham, 143 S.W.2d 79, 83 (Tex. 1940) It is generally defined as “promotion of the general prosperity and welfare of residents within a given political subdivision.” See Davis, 67 S.W.2d at 1034.
As Justice Smith reasoned, the promised grant, generated by sales tax revenue, was meant to pay for the construction of the Gander Mountain facility. He concluded that because payment was tied to the opening of the store, it followed that payment was also tied to the store’s continued operation. When the store closed, the grant could no longer be used for a public purpose and merely benefited Chase. As to the second prong, the RCDA contained an unconditional obligation to repay the loan, it left the city and county without the oversight or control necessary to make the agreements constitutional. The court didn’t need to address the third prong, since Chase didn’t try to argue that the city and county received a return benefit after the store’s closure. The court thus affirmed the trial court.
Chief Justice Gray dissented. He pointed out that the store operated for 10 years before closing, at least raising a fact issue of whether the city and county got what they bargained for. If the city and county had meant for the grant to terminate upon the store’s closure or Gander’s bankruptcy, they could have said so in the contract (and, as Justice Gray noted, they even took that language out of the contract during negotiations). As to control over the funds, Justice Gray argued that the city and county had absolute control over how the funds were spent: to repay the loan. And, if local entities can simply call King’s X on on agreement they no longer like, Chapter 380 and 381 agreements will likely disappear because project developers won’t be able to rely on their partners.
The Court scheduled oral argument on September 11.
TCJL Research Intern Satchel Williams researched and substantially drafted this article.
