City of Hutto, Texas, Doug Gaul, Robin Sutton, Dan Thornton, Mike Snyder, Peter Gordon, Patti Martinez, Tanner Rose and Warren Hutmacher v. Legacy Hutto, LLC

• Court: Court of Appeals of Texas
• Decided: July 18, 2022
• Docket: 07-21-00089-CV
• Status: Published

Opinion

In The Court of Appeals Seventh District of Texas at Amarillo

No. 07-21-00089-CV

CITY OF HUTTO, TEXAS, DOUG GAUL, ROBIN SUTTON, DAN THORNTON, MIKE SNYDER, PETER GORDON, PATTI MARTINEZ, TANNER ROSE, AND WARREN HUTMACHER, APPELLANTS / CROSS-APPELLEES

V.

LEGACY HUTTO, LLC, APPELLEE / CROSS-APPELLANT

On Appeal from the 395th District Court Williamson County, Texas1 Trial Court No. 20-0863-C395, Honorable Ryan D. Larson, Presiding

July 18, 2022 MEMORANDUM OPINION Before QUINN, C.J., and PARKER and DOSS, JJ.

The trial court granted the plea to the jurisdiction and Rule 91a motion to dismiss

filed by the City of Hutto, Doug Gaul, Robin Sutton, Dan Thornton, Mike Snyder, Peter

Gordon, Patti Martinez, Tanner Rose, and Warren Hutmacher (collectively, “the City”),

1 Originally appealed to the Third Court of Appeals, this appeal was transferred to this Court by the Texas Supreme Court pursuant to its docket equalization efforts. TEX. GOV’T CODE ANN. § 73.001. Should a conflict exist between precedent of the Third Court of Appeals and this Court on any relevant issue, this appeal will be decided in accordance with the precedent of the transferor court. TEX. R. APP. P. 41.3. and, in the same order, granted Legacy Hutto, LLC’s request for leave to amend its

pleadings to include previously unpled causes of action. The City appeals from the trial

court’s order granting Legacy’s request for leave to amend, and Legacy appeals from the

order granting the plea to the jurisdiction and Rule 91a motion to dismiss. We affirm the

trial court’s order granting the City’s plea to the jurisdiction and dismiss the City’s appeal

for want of jurisdiction.

BACKGROUND

Legacy filed suit against the City in June of 2020 for breach of contract. The

contract in question was a Master Development Agreement (“MDA”) signed by Legacy’s

president, Dan Lowe, and the City’s former city manager, Odis Jones, in September of

2019. The MDA provided for the creation of a mixed-use real estate development that

would include commercial, residential, recreational, and other spaces. The project was

known by the City as “Project Expansion.” In its petition, Legacy alleged, among other

things, that the City failed to work toward the successful issuance of bonds, failed to work

in good faith toward the implementation of the project, and made misrepresentations.

Legacy later added a claim for violations of the Prompt Payment Act and ultra vires claims

against the city council and city manager. Legacy alleged that the City’s governmental

immunity from suit was waived under section 271.152 of the Texas Local Government

Code, which provides a waiver for certain breach of contract claims. See TEX. LOC. GOV’T

CODE ANN. § 271.152.

The City, a home-rule municipality, filed a plea to the jurisdiction and motion to

dismiss under Rule 91a claiming immunity from suit based on the doctrine of

2 governmental immunity. The City asserted that Legacy’s claims do not fall within the

waiver provided by section 271.152 because the contract in question was not “properly

executed” as required by the statute. The trial court granted the City’s motion to dismiss

and plea to the jurisdiction. It further ordered that Legacy could amend its petition to

include requested but previously unpled causes of action.

The City of Hutto appealed, raising two issues. In its first issue, the City asserts

that the trial court erred by granting Legacy’s request for leave to amend its pleadings to

include previously unpled causes of action because the trial court lacked jurisdiction to

do so. The City contends that once the trial court correctly granted its motion to dismiss

and plea to the jurisdiction, which fully and finally disposed of all of Legacy’s claims, the

trial court no longer had jurisdiction. The City argues in a second, alternative issue that

if the trial court retained jurisdiction, its order granting Legacy’s request for leave to amend

its pleading to assert previously unpled causes of action was an abuse of discretion.

Legacy filed a cross-appeal, raising three issues. Legacy first argues that the trial

court erred in granting the City’s plea to the jurisdiction. In its second issue, Legacy claims

the trial court erred in granting the City’s Rule 91a motion to dismiss. By its third issue,

Legacy claims that the trial court erred in refusing to rule on Legacy’s objections and strike

the City’s evidence submitted in support of its plea to the jurisdiction.

PLEA TO THE JURISDICTION

We first address Legacy’s cross-appeal. Subject matter jurisdiction is essential to

the authority of a court to decide a case. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852

S.W.2d 440, 443 (Tex. 1993). The subject matter jurisdiction of a trial court may be

3 challenged by a party filing a plea to the jurisdiction. Tex. Dep’t of Transp. v. Jones, 8

S.W.3d 636, 638 (Tex. 1999) (per curiam). “A plea to the jurisdiction is a dilatory plea,

the purpose of which is to defeat a cause of action without regard to whether the claims

asserted have merit.” Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000).

Because the existence of jurisdiction is a question of law, we review the trial court’s

ruling on a plea to the jurisdiction de novo. Tex. Dep’t of Parks & Wildlife v. Miranda, 133

S.W.3d 217, 226 (Tex. 2004). We start our review with the live pleadings. Id. The

allegations found in the pleadings may either affirmatively demonstrate or negate the trial

court’s jurisdiction. City of Waco v. Kirwan, 298 S.W.3d 618, 622 (Tex. 2009). We

construe the pleadings liberally in favor of the plaintiff and look to the pleader’s intent.

Miranda, 133 S.W.3d at 226; see also Westbrook v. Penley, 231 S.W.3d 389, 405 (Tex.

2007).

The party suing a governmental entity bears the burden of affirmatively

demonstrating the trial court has jurisdiction to hear the dispute. See Tex. Dep’t of Crim.

Justice v. Miller, 51 S.W.3d 583, 587 (Tex. 2001). When Legacy sued the City, it relied

on section 271.152 of the Texas Local Government Code as the basis upon which the

City’s governmental immunity was waived. See W. Tex. Mun. Power Agency v. Republic

Power Partners, L.P., 428 S.W.3d 299, 306 (Tex. App.—Amarillo 2014, no pet.) (“In the

context of a breach-of-contract claim against a government entity, there is but one route

to the courthouse and that route is through section 271.152.”). Under section 271.152,

“A local governmental entity that is authorized by statute or the constitution to enter into

a contract and that enters into a contract subject to this subchapter waives sovereign

immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject 4 to the terms and conditions of this subchapter.” TEX. LOCAL GOV’T CODE ANN. § 271.152.

For section 271.152’s waiver to apply, three elements must be established: (1) the party

against whom waiver is asserted must be a “local governmental entity,” (2) the entity must

be authorized to enter into contracts, and (3) the entity must have in fact entered into a

“contract subject to this subchapter.” City of Houston v. Williams, 353 S.W.3d 128, 134

(Tex. 2011). The first two requirements for waiver of immunity are not in dispute in this

case, but the parties disagree as to whether they formed a contract subject to the

subchapter.

A “contract subject to this subchapter” is defined as “a written contract stating the

essential terms of the agreement for providing goods or services to the local

governmental entity that is properly executed on behalf of the local governmental entity.”

TEX. LOCAL GOV’T CODE ANN. § 271.151(2)(a); Williams, 353 S.W.3d at 135. A contract is

“properly executed” under chapter 271 when the contract’s execution comports with the

authority the legislature granted the government entity. El Paso Educ. Initiative, Inc. v.

Amex Props., LLC, 602 S.W.3d 521, 532 (Tex. 2020). In Amex, the Supreme Court

explained that establishing that a contract is “properly executed” requires more than

showing that a representative of the governmental entity signed the contract. Id. In that

case, a charter school district’s president was authorized by the district’s board of

directors to negotiate a lease and did sign a lease; however, administrative rules require

the approval of such contracts by the school district’s board of directors or the delegation

of authority through an amendment to the school’s charter. Id. at 531–33. Amex, the

lessor, “understood that the district’s board had to approve the lease to finalize it” and

requested that the district verify the board’s approval with a resolution or minutes of a

5 board meeting. Id. at 525, 533–34. Because there was no evidence that the board

approved the lease or delegated its authority via an amendment, the high court held that

the lease sued on was not properly executed. Id. at 533.

Here, Legacy asserts that it entered into the written contract with the City on

September 20, 2019. The City attached to its answer the written MDA, which was signed

by the City’s city manager, Odis Jones, on behalf of the City. When taken as true, Legacy

has sufficiently alleged that the parties entered into the contract. But, following the

reasoning of Amex, we must take the inquiry one step further and determine whether the

contract was properly executed by Jones on behalf of the City. See id. at 534 (“Chapter

271 . . . conditions a waiver of immunity on a ‘properly executed’ contract, placing contract

authorization as a jurisdictional consideration, in addition to a contract defense.”).

At the outset, Legacy argues that the issue of proper execution should not be

considered because the City did not file a verified denial. See TEX. R. CIV. P. 93(7)

(defendant must make verified denial to contest “the execution by himself or by his

authority of any instrument in writing, upon which any pleading is founded, in whole or in

part”). Without a sworn plea, the instrument is received in evidence as fully proved. Id.

Because the City did not contest the authenticity of Jones’s signature in a verified denial,

the contract was admissible as fully proved in that regard. See Taylor v. Hill, No. 03-03-

00540-CV, 2004 Tex. App. LEXIS 5747, at *5–6 (Tex. App.—Austin July 1, 2004, no pet.)

(mem. op.); see also Kressenberg v. Nationstar HECM Acquisition Trust 2015-2, No. 02-

18-00261-CV, 2020 Tex. App. LEXIS 3013, at *11 (Tex. App.—Fort Worth Apr. 9, 2020,

pet. denied) (mem. op.) (appellant’s failure to file verified denial of execution freed

appellee from having to prove execution of note). 6 But the City contends that, even if Jones had authority to execute the MDA on

behalf of the City, the contract was nonetheless not properly executed because Legacy

did not comply with section 2252.908 of the Texas Government Code. Section 2252.908

provides that governmental entities are not authorized to enter into contracts that have a

value of at least one million dollars unless the contracting business entity first submits a

disclosure of interested parties. See TEX. GOV’T CODE ANN. § 2252.908(d).

We look to the City’s regulating documents and applicable law to determine

whether the contract was properly executed. See Amex, 602 S.W.3d at 532 (noting

charter schools “may enter into a contract only in the manner the legislature has

authorized.”). In Amex, the Supreme Court explained that it is “not enough” that a

governmental entity’s representative signs a contract. Id. Rather, “a party asserting a

breach-of-contract claim against [the entity] must demonstrate that the contract’s

execution comports with the authority the legislature granted [the entity], . . . including the

statutory and regulatory requirements placed on [the entity] entering (or seeking to enter)

contractual relationships.” Id. Thus, “a contract is properly executed when it is executed

in accord with the statutes and regulations prescribing [its] authority.” Id. (emphasis in

the original). To be “proper,” contract execution must be done “according to the rules.”

Id. Thus, not all executed contracts qualify for a statutory waiver. See id.

Section 2252.908 of the Texas Government Code is a governmental transparency

law that prohibits a governmental entity, including a municipality, from entering into certain

contracts with a business entity unless the business entity submits a disclosure of

interested parties. TEX. GOV’T CODE ANN. § 2252.908(d). The statute requires that the

contracting business entity submit the disclosure “at the time the business entity submits 7 the signed contract to the governmental entity . . . .” Id. Unless the governmental entity

receives the disclosure, it “may not enter into” the contract. Id. (emphasis added).

Because the City is statutorily prohibited from entering the contract in the absence of the

disclosure form, the contract cannot be “properly executed” unless Legacy complied with

section 2252.908 at its execution.

In an amended petition, Legacy pleaded that it “has submitted a disclosure of

interested parties pursuant to § 2252.908,” but it did not present evidence of a submission.

Moreover, Legacy did not plead or present evidence that any such submission was made

at the time it submitted the contract to the City, as required by the statute.

A defendant may challenge the plaintiff’s factual allegations with supporting

evidence. See Sampson v. Univ. of Tex. at Austin, 500 S.W.3d 380, 384 (Tex. 2016). If

the relevant evidence is undisputed, the trial court rules on the plea to the jurisdiction as

a matter of law. Miranda, 133 S.W.3d at 228. Here, the City proffered evidence, in the

form of the city secretary’s affidavit, that the City had no record of receiving from Legacy

the disclosure required under section 2252.908 at the time the contract was submitted to

the City. Legacy did not produce any evidence to controvert the City’s evidence. Instead,

Legacy argues that (1) section 2252.908 does not declare a contract void for failure to

comply with the disclosure requirement, (2) the affidavit is conclusory, and (3) Legacy is

not a “business entity” subject to section 2252.908’s requirements. We do not find

Legacy’s arguments persuasive. First, we need not determine whether the failure to

comply with section 2252.908 renders the MDA void; we need only determine whether

the failure to comply means the MDA was not properly executed. Second, the affidavit is

not conclusory. The city secretary attested that she was the custodian of records for the 8 City and that the City had no record of the required disclosure form from Legacy. Her

affidavit is clear, positive, and direct: the City has no record of receiving a disclosure form

from Legacy. Her statement is based on her personal knowledge as the custodian of

records. See Choctaw Props., L.L.C. v. Aledo Indep. Sch. Dist., 127 S.W.3d 235, 243

(Tex. App.—Waco 2003, no pet.) (custodian of records bears responsibility for being

familiar with records; therefore, statement that he is custodian provides adequate factual

support for his statements regarding nature of records); Jones v. Citibank (South Dakota),

N.A., 235 S.W.3d 333, 337 (Tex. App.—Fort Worth 2007, no pet.) (evidentiary foundation

for knowledge of records was provided by statements that affiant was company officer,

custodian of company’s records, and duties involved having custody and control of

relevant records). And, her affidavit is susceptible of being readily controverted. Legacy,

which was responsible for making the submission to the City, could have produced

evidence that it submitted the document to the City. Although the city secretary’s affidavit

could have been more detailed, it was not conclusory. Third, we reject Legacy’s argument

that, as a limited liability company, it is not responsible for submitting the disclosure.

Section 2252.908(a)(1) defines “business entity” as “any entity recognized by law through

which business is conducted, including a sole proprietorship, partnership, or corporation.”

TEX. GOV’T CODE ANN. § 2252.908(a)(1). Legacy argues that because it is not a sole

proprietorship, partnership, or corporation, section 2252.908 does not apply to it. “As a

straightforward definitional matter, including does not mean only or limited to . . . .”

Stonegate Fin. Corp. v. Broughton Maint. Ass’n, No. 02-18-00091-CV, 2019 Tex. App.

LEXIS 6553, at *13 (Tex. App.—Fort Worth July 30, 2019, no pet.) (mem. op.) (emphasis

9 in original). The short list of business entities set forth in 2252.908(a)(1) is not exhaustive,

but merely illustrative, and thus we read it to include a limited liability company.

By statute, the City was prohibited from entering into the contract unless the

disclosure was procured at the time the contract was submitted to the City. Therefore, in

the absence of evidence that Legacy timely submitted the required disclosure, we

conclude the MDA was not “properly executed” by the parties. Without a properly

executed contract, there is no waiver of immunity under section 271.152 of the Texas

Local Government Code. Thus, we find no error in the trial court’s decision to grant the

City’s plea to the jurisdiction as to Legacy’s breach of contract claim and claim for violation

of the Prompt Payment Act, which also relied on section 271.152 for a waiver of immunity.

Additionally, we find no error in granting the plea to the jurisdiction as to Legacy’s

alternative claim that the City’s officials acted ultra vires. The only available remedy in an

ultra vires suit is prospective injunctive relief against individual government officials in

their official capacities. City of El Paso v. Heinrich, 284 S.W.3d 366, 373–77 (Tex. 2009).

Here, Legacy’s pleadings seek money damages, which is a remedy not available in the

context of an ultra vires suit. Thus, we conclude that the trial court did not err in granting

the City’s plea to the jurisdiction on these claims.

In its second, related issue, Legacy argues that the trial court erred in refusing to

rule on its objections and to strike the City’s evidence submitted in its plea to the

jurisdiction. Legacy bases its argument on the City’s attempt to admit (1) a printout from

the Texas Ethics Commission website and (2) affidavits from the city secretary, to which

10 Legacy objected at the hearing on the City’s plea to the jurisdiction. The trial court did

not rule on Legacy’s objections.

Legacy contends that the affidavits from the city secretary are conclusory and

constitute hearsay. For reasons set forth above, we have determined they are not

conclusory. Further, Legacy did not obtain a ruling on its hearsay objection to the trial

court. An objection that an affidavit contains hearsay is an objection to the form of the

affidavit. Stone v. Midland Multifamily Equity REIT, 334 S.W.3d 371, 374 (Tex. App.—

Dallas 2011, no pet.) The failure to obtain a ruling from the trial court on an objection to

the form of the affidavit waives the objection. Id. Because the affidavits produced by the

City were unrebutted, the admissibility of the printout from the TEC is immaterial, and we

need not address it as it is not necessary for our resolution of this appeal. See TEX. R.

APP. P. 47.1. Therefore, we overrule Legacy’s second issue.

In its third issue, Legacy asserts that the trial court erred in granting the City’s Rule

91a motion to dismiss. Unlike a dismissal based on a plea to the jurisdiction, dismissal

under 91a is a judgment on the merits. Dallas Cty. Republican Party v. Dallas Cty.

Democratic Party, No. 05-18-00916-CV, 2019 Tex. App. LEXIS 7687, at *9 (Tex. App.—

Dallas Aug. 26, 2019, pet. denied) (mem. op.). However, subject matter jurisdiction is a

prerequisite to entertaining the merits, and when a court finds a lack of jurisdiction, it is

obligated to go no further and dismiss. Id. at *10. Because the trial court properly granted

the City’s plea to the jurisdiction, the trial court lacked jurisdiction to reach the merits of

Legacy’s claims. Id. at *10–11. Therefore, while the trial court’s ruling on the Rule 91a

motion was inappropriate, any complaint regarding error is rendered moot.

11 REQUEST FOR LEAVE TO AMEND PLEADINGS

In its appeal, the City maintains that, while the trial court properly granted its plea

to the jurisdiction, it erred by granting Legacy’s request for leave to amend its pleadings

to include previously unpled causes of action. The City contends that the trial court did

not have jurisdiction to grant Legacy the ability to replead. In the alternative, the City

asserts that, even if the trial court retained jurisdiction after granting the plea, it abused

its discretion by granting Legacy’s request for leave to replead. Legacy responds that the

order from which the City seeks to appeal is neither final nor otherwise appealable. We

agree with Legacy.

Our jurisdiction is invoked upon the filing of a notice of appeal from either a final

judgment that disposes of all parties and claims in a case or an interlocutory order the

legislature has deemed appealable. See Lehmann v. Har-Con Corp., 39 S.W.3d 191,

195 (Tex. 2001) (general rule is that appeal may be taken only from final judgment);

Qwest Commc’ns Corp. v. AT&T Corp., 24 S.W.3d 334, 336 (Tex. 2000) (appellate court

has jurisdiction to immediately review interlocutory order only if specifically permitted by

statute). The City is challenging the portion of the trial court’s order of April 16, 2021, that

grants Legacy’s request to amend its pleadings. The order does not finally dispose of all

the issues and parties pending before the court. See Lehmann, 39 S.W.3d at 200. Nor

is it an appealable interlocutory order. Although section 51.014 of the Texas Civil Practice

& Remedies Code allows an interlocutory appeal to be considered from an order granting

or denying a plea to the jurisdiction by a governmental unit, it does not authorize an

interlocutory appeal from an order granting a party leave to amend its pleadings. TEX.

CIV. PRAC. & REM. CODE ANN. § 51.014(a)(8); see also Walker Sand, Inc. v. Baytown 12 Asphalt Materials, Ltd., 95 S.W.3d 511, 514 (Tex. App.—Houston [1st Dist.] 2002, no pet.)

(Texas courts strictly construe statutes authorizing interlocutory appeals). Consequently,

we dismiss the City’s appeal for want of jurisdiction.

CONCLUSION

We affirm the trial court’s order granting the City’s plea to the jurisdiction and

dismiss for want of jurisdiction the City’s appeal challenging other portions of the trial

court’s order.

Judy C, Parker Justice