City of Conroe, Texas City of Magnolia, Texas And City of Splendora, Texas v. the Attorney General of Texas and San Jacinto River Authority

• Court: Court of Appeals of Texas
• Decided: July 22, 2022
• Docket: 03-21-00137-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-21-00137-CV

City of Conroe, Texas; City of Magnolia, Texas; and City of Splendora, Texas, Appellants

v.

The Attorney General of Texas and San Jacinto River Authority, Appellees

FROM THE 98TH DISTRICT COURT OF TRAVIS COUNTY NO. D-1-GN-16-004151, THE HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

CONCURRING AND DISSENTING OPINION

This case concerns the scope of the Expedited Declaratory Judgment Act (EDJA),

see generally Tex. Gov’t Code §§ 1205.001–.152, which allows issuers of bonds and other

public securities to resolve certain disputes regarding their securities as to all interested parties

on an expedited basis. The San Jacinto River Authority (SJRA), which has contracts (GRP

Contracts) to sell water to municipalities and other customers and uses the revenue to pay down

its bonds, sought two declarations regarding those contracts. The district court granted relief,

and the City of Conroe, the City of Magnolia, and the City of Splendora (collectively, the Cities)

appealed, arguing that the district court lacked jurisdiction over the subject matter. See Cities of

Conroe, Magnolia, & Splendora v. Paxton, 559 S.W.3d 656, 668 (Tex. App.—Austin 2018)

(“[Q]uestions regarding the EDJA’s reach implicate the trial court's subject-matter jurisdiction to

adjudicate the claims the Act would authorize.”) [Conroe I], rev’d in part sub nom. City of Conroe v. San Jacinto River Auth., 602 S.W.3d 444 (Tex. 2020). The majority modifies the

declarations and affirms as modified. Ante at ___. I concur in part and dissent in part.

The Legislature enacted the EDJA as “a method of quickly and efficiently

adjudicating the validity of public securities and acts affecting those public securities.” Hotze

v. City of Houston, 339 S.W.3d 809, 814 (Tex. App.—Austin 2011, no pet.); see also Buckholts

Indep. Sch. Dist. v. Glaser, 632 S.W.2d 146, 149 (Tex. 1982) (observing that EDJA’s

predecessor was enacted to “stop the age old practice [of] allowing one disgruntled taxpayer to

stop the entire bond issue simply by filing suit”). The EDJA provides an issuer of public

securities “an expedited declaratory procedure to establish the ‘legality and validity’ of public

securities and ‘public security authorizations.’” City of Conroe v. San Jacinto River Auth.,

602 S.W.3d 444, 450 (Tex. 2020) (quoting Tex. Gov’t Code § 1205.021) [Conroe II]. Section

1205.001 defines “public security authorization” as “an action or proceeding by an issuer taken,

made, or proposed to be taken or made in connection with or affecting a public security.” Tex.

Gov’t Code § 1205.001(3). Section 1205.021 provides that an issuer may obtain declarations as

to the “legality and validity of each public security authorization relating to the public securities,

including if appropriate” the following:

(A) the election at which the public securities were authorized;

(B) the organization or boundaries of the issuer;

(C) the imposition of an assessment, a tax, or a tax lien;

(D) the execution or proposed execution of a contract;

(E) the imposition of a rate, fee, charge, or toll or the enforcement of a remedy relating to the imposition of that rate, fee, charge, or toll; and

(F) the pledge or encumbrance of a tax, revenue, receipts, or property to secure the public securities[.]

2 Id. § 1205.021(2).

The supreme court explained earlier in this case that the Legislature’s “use of the

word ‘authorization’ in defining the term ‘public security authorization’ indicates that an

authorizing connection with or effect on the public securities is required.” Conroe II,

602 S.W.3d at 452. More specifically, the Court explained:

“Authorization” generally refers to “[o]fficial permission to do something,” or “permission or power granted by an authority.” In the public securities context, authorization has long referred to the initial actions or approvals needed to ensure the proper issuance of public securities . . . . Thus, we hold that a public security authorization must have an authorizing connection with or effect on the public securities. Ordinarily, an action or proceeding constituting a public security authorization will occur before or close in time to the public security’s issuance.

Id. at 452–53 (internal citation and footnotes omitted). Section 1205.021’s list “further clarifies

which actions the Legislature views as having such an authorizing connection.” Id. at 453.

The supreme court then turned to whether the execution of each GRP Contract

constitutes a public security authorization. It analyzed this question in the context of

determining whether the district court exceeded its jurisdiction by declaring that SJRA “is

authorized to set rates for Participants pursuant to the procedures set forth in the GRP Contracts.”

Id. at 454. The supreme court concluded that this declaration involved the “execution . . . of a

contract” because:

In essence, the [ ] Declaration concern[ed] the legality and validity of SJRA’s contracts with GRP Participants, as GRP rate orders and rates are creatures of the contracts. As we have long held, contracts must be properly executed to be valid. Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007) (recognizing execution of contract is required for enforceable contract). The execution of these contracts undoubtedly has an authorizing connection with the bonds: the GRP contracts were executed in 2010, in close temporal proximity to the bonds’ issuance, and their revenues were immediately pledged as the sole source of repayment securing SJRA’s bonds. Furthermore, “the execution . . . of a

3 contract” explicitly qualifies as a public security authorization under section 1205.021(2). [Tex.] Gov’t Code § 1205.021(2)(D).

Id. The court applied the same logic to the district court court’s declaration that “SJRA’s fiscal

year 2017 rate, Rate Order, and the GRP Contracts, including the Contract with Conroe, are legal

and valid.” Id. at 456. It explained, “The EDJA confers [upon the district court] jurisdiction to

declare whether SJRA’s execution of each GRP contract was legal and valid, but it does not

extend to declaring whether a specific rate amount set in a particular rate order is valid.” Id.

On remand from the supreme court, SJRA asked the district court to declare “[t]he

GRP Contracts were legally and validly executed” (Declaration 1), and “SJRA has contractual

authority under the GRP Contracts to issue rate orders and rates that comply with the GRP

Contracts because those contracts were validly executed” (Declaration 2). The Cities argue that

the district court exceeded its jurisdiction because both declarations purport to declare whether

SJRA’s counterparties validly executed the contracts. The majority reasons that the definition of

public security authorization as “an action or proceeding by an issuer,” Tex. Govt Code

§ 1205.001(3) (emphasis added), should be read together with Subsection 1205.021(2)(D) and

concludes that “only the issuer’s execution of a contract meets the definition of, and therefore

constitutes, a public security authorization.” Ante at ___. Thus, “the trial court’s jurisdiction

under the EDJA was limited to declaring whether execution of the GRP Contracts by SJRA—

here, the ‘issuer’—was legal and valid.” Id. at ___.

I understand those provisions differently. The EDJA does not define “the

execution . . . of a contract,” but the term has a well-defined legal meaning. See Maxim Crane

Works, L.P. v. Zurich Am. Ins., 642 S.W.3d 551, 557 (Tex. 2022) (“We use definitions

prescribed by the Legislature and any technical or particular meaning the words have

4 acquired[.]” (citing City of Rockwall v. Hughes, 246 S.W.3d 621, 625–26 (Tex. 2008))). Black’s

Law Dictionary defines “execute” as “[t]o make (a legal document) valid by signing; to bring (a

legal document) into its final, legally enforceable form.” Execute, Black’s Law Dictionary

(11th ed. 2019). Quoting this definition with approval, the supreme court has explained, “The

execution of a contract includes the performance of all acts necessary to render it complete as an

instrument.” Mid-Continent Cas. Co. v. Global Enercom Mgmt., Inc., 323 S.W.3d 151, 157

(Tex. 2010) (per curiam). Execution of a contract is not unilateral: both parties must express

their mutual consent to be bound by the contract. See, e.g., Phillips v. Carlton Energy Group,

LLC, 475 S.W.3d 265, 277 (Tex. 2015) (“If a written draft of an agreement is prepared,

submitted to both parties, and each of them expresses his unconditional assent thereto, there is a

written contract.” (citing Mid-Continent Cas., 323 S.W.3d at 157))). If the contract is not

properly executed by both parties, it is not valid and enforceable. See Conroe II, 602 S.W.3d at

454 (stating that “contracts must be properly executed to be valid”); Sonnichsen, 221 S.W.3d at

635 (explaining that “one of the elements generally required to create an enforceable contract is

‘[e]xecution and delivery of the contract with an intent that it become mutual and binding on

both parties’” (quoting Angelou v. African Overseas Union, 33 S.W.3d 269, 278 (Tex. App.—

Houston [14th Dist.] 2000, no pet.))). Applying this meaning, Subsection 1201.021(2)(D)

necessarily authorizes a court to declare whether the issuer and its counterparties legally and

validly executed a contract.

I do not read the definition of public security authorization—“an action or

proceeding by an issuer,” Tex. Gov’t Code § 1205.001(3)—as limiting the scope of this authority

for two reasons. First, the supreme court has already explained in this case that the list in Section

1205.021(2) “clarifies which actions” have the “authorizing connection” required by Section

5 1205.001(3). See Conroe II, 602 S.W.3d at 453 (“The list in section 1205.021(2) further clarifies

which actions the Legislature views as having such an authorizing connection.”). These items do

not concern only “an action or proceeding by an issuer.” For example, the statute authorizes a

court to declare the legality and validity of “the election at which the public securities were

authorized” and “the imposition of an assessment, a tax, or a tax lien.” See Tex. Gov’t Code

§ 1205.021(2)(A), (C). It does not state that the court may declare only the legality and validity

of the issuer’s actions or proceedings in connection with those matters. If the Legislature had

intended to limit the scope of relief in that way, it would have said so; the provision that precedes

the list authorizes a declaratory judgment as to “the authority of the issuer to issue the public

securities.” Id. § 1205.021(1). I must presume the difference in language reflects the

Legislature’s intent. See Hogan v. Zoanni, 627 S.W.3d 163, 169 (Tex. 2021) (“[W]e ‘presume

the Legislature chose statutory language deliberately and purposefully,’ and that it likewise

excluded language deliberately and purposefully.” (quoting Crosstex Energy Servs., L.P. v. Pro

Plus, Inc., 430 S.W.3d 384, 390 (Tex. 2014))).

This construction furthers the legislative purpose behind the EDJA, which is “to

dispose of public securities validation litigation with dispatch.” Hotze, 339 S.W.3d at 814 (citing

Rio Grande Valley Sugar Growers, Inc. v. Attorney Gen. of Tex., 670 S.W.2d 399, 401 (Tex.

App.—Austin 1984, writ ref’d n.r.e.)). Construing Subsection 1205.021(2)(D) to authorize

declarations that a contract was validly executed by the issuer and its counterparties furthers this

purpose. As we explained the first time we heard this case, the GRP Contracts required SJRA to

set rates and charges sufficient to service the bonds. See Conroe I, 559 S.W.3d at 675–76.

Declaring the GRP Contracts to be incontestable served as assurances to bondholders that SJRA

would meet its obligations. The majority’s construction of Subsection 1205.021(2)(D) would

6 preclude SJRA from determining whether any of the GRP Contracts even exist. See Conroe II,

602 S.W.3d at 454 (“As we have long held, contracts must be properly executed to be valid.”). I

cannot interpret Subsection 1205.021(2)(D) in a way that undermines the EDJA’s purpose absent

clearer signs the Legislature intended it.

Subsection 1205.021(D) authorizes a court to declare whether a contract was

validly executed by the issuer and its counterparties. 1 See Mid-Continent Cas., 323 S.W.3d at

157; Sonnichsen, 221 S.W.3d at 635. I would not modify Declaration 1 to state that the GRP

Contracts were validly executed by SJRA alone because SJRA is entitled to the relief it received.

As the supreme court has explained, “SJRA may not obtain EDJA declarations concerning the

Cities’ in personam rights and liabilities. The EDJA permits only in rem declarations concerning

property rights.” See Conroe II, 602 S.W.3d at 456. An “‘in rem action affects the interests of

all persons in the world in the thing,’ but an “in rem judgment’s effect is limited only ‘to the

property that supports jurisdiction.’” Id. at 458 (quoting Bodine v. Webb, 992 S.W.2d 672, 676

(Tex. App.—Austin 1999, pet. denied)). A judgment that SJRA and a counterparty validly

executed a GRP Contract would declare “the interests of all persons in the world” in the contract

but would not establish the in personam liabilities of any party. See id.

I agree, however, that Declaration 2 “must be cabined to addressing only the valid

execution of the GRP Contracts and may not purport to declare the general nature or scope of

SJRA’s authority to issue rate orders and rates.” Ante at ___. And because modifying

1 The majority points out that the supreme court stated, “[T]he EDJA confers jurisdiction to declare whether SJRA’s execution of each GRP contract was legal and valid.” City of Conroe v. San Jacinto River Auth., 602 S.W.3d 444, 456 (Tex. 2020) (emphasis added). The majority views this statement as providing “additional insight into the supreme court’s understanding that the declarations at issue pertained only to SJRA’s execution of the GRP Contracts.” Ante at ___. I disagree because the sole question before that court was whether SJRA’s role in the execution of the GRP contracts was valid. See Conroe II, 602 S.W.3d at 456 & n. 20. 7 Declaration 2 in that way would make it “essentially mirror Declaration 1,” it should be redacted

as superfluous. Id. at ___. I would then proceed to address the Cities’ constitutional challenges.

I respectfully concur in part and dissent in part.

__________________________________________ Edward Smith, Justice

Before Chief Justice Byrne, Justices Kelly and Smith

Filed: July 22, 2022