City of New Braunfels, Texas And YC Partners Ltd., D/B/A Yantis Company v. Carowest Land, Ltd.

578 S.W.3d 668

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-17-00696-CV

City of New Braunfels, Texas; and YC Partners Ltd., d/b/a Yantis Company, Appellants

v.

Carowest Land, Ltd., Appellee

FROM THE 22ND DISTRICT COURT OF COMAL COUNTY NO. C2017-0474A THE HONORABLE MARGARET G. MIRABAL, JUDGE PRESIDING

OPINION

The City of New Braunfels and YC Partners, Ltd., d/b/a Yantis Company appeal

district court orders denying each of their pleas to the jurisdiction asserted in a suit brought

against them by local property owner Carowest Land, Ltd. See Tex. Civ. Prac. & Rem. Code

§ 51.014(a)(8) (permitting interlocutory appeal of an order granting or denying a plea to the

jurisdiction). We will reverse the district court’s order denying the City’s plea to the jurisdiction

and will dismiss Yantis’s appeal.

This is the third appeal this Court has been called on to resolve in an ongoing

dispute among the City, Yantis, and Carowest. As a result, much of the background of this

controversy has been discussed in two earlier opinions, City of New Braunfels v. Carowest Land,

Ltd., 432 S.W.3d 501 (Tex. App.—Austin 2014, no pet.) (Carowest I), and City of New

Braunfels v. Carowest Land, Ltd., 549 S.W.3d 163 (Tex. App.—Austin 2017, pet. filed) (Carowest II). See also Carowest Land, Ltd. v. Y.C. Partners, Ltd., No. 03-11-00715-CV, 2012

Tex. App. LEXIS 3598 (Tex. App.—Austin, May 1, 2012, no pet.) (mem. op.) (granting

appellant Carowest’s unopposed motion to dismiss appeal); City of New Braunfels v. Carowest

Land, Ltd., No. 03-11-00211-CV, 2011 Tex. App. LEXIS 5039 (Tex. App.—Austin,

July 1, 2011, no pet.) (mem. op.) (granting appellant City’s unopposed motion to dismiss

appeal). In this latest appeal, the issue is whether the district court has subject-matter jurisdiction

to adjudicate the merits of a claim by Carowest seeking a declaratory judgment and attorney’s

fees as allowed by the Uniform Declaratory Judgments Act (UDJA). See Tex. Civ. Prac. &

Rem. Code §§ 37.004, .009. Accordingly, we take as true the facts alleged by Carowest in its

live pleadings or for which it has presented evidence except to the extent the City has presented

evidence sufficient to negate those facts. See, e.g., Texas Dep’t of Parks & Wildlife v. Miranda,

133 S.W.3d 217, 226 (Tex. 2004).

Carowest’s dispute with the City and Yantis

Carowest owns a 240-acre property in New Braunfels, a portion of which

Carowest voluntarily conveyed to the City to allow for construction of a drainage channel. The

City hired Yantis to construct the drainage channel. This project came to be called the South

Tributary Project, and it did not go smoothly. See Carowest I, 432 S.W.3d 507-12 (detailing the

facts of the underlying dispute). Eventually, in July of 2009, the City and Carowest entered into

a Letter Agreement in an attempt to “resolve issues related to the South Tributary Project.” The

Letter Agreement allowed Carowest to modify the location and design of the channel (the

Modification) in exchange for Carowest paying for certain costs related to the Modification.

Under the Letter Agreement, Carowest would receive all fill from the South Tributary Project.

2 The parties also agreed to work in good faith to complete the South Tributary Project, they

agreed Carowest would convey land to the City for certain other projects, and they agreed that

Carowest would receive 13,944 cubic yards of fill from another project—the North Tributary

Project—to compensate for the fill the City took from the South Tributary Project that was

supposed to have been given to Carowest. The City also hired Yantis as the contractor on the

North Tributary Project. The Letter Agreement also contained an indemnity clause under which

Carowest agreed:

to indemnify the City and hold the City harmless for any claims brought by The Yantis Company for any Modification Costs incurred by Yantis, such as delay costs, claimed by Yantis and directly attributable to the Modification (the “Yantis Claims”). Any invoices related to these Yantis Claims submitted to the City shall be promptly provided to Carowest. If either party disputes any claim, the claim shall be submitted to Halff and Pape-Dawson . . . .

Among the many continuing points of contention between the parties, Yantis ended up

submitting to the City a delay claim for $556,248 for work Yantis attributed to the Modification

on the South Tributary Project. Pursuant to the Letter Agreement’s indemnity provision, the City

submitted the claim to Carowest, and on May 13, 2010, the City directed Carowest “to negotiate

with Yantis and work out a payment, if any, for delay damages and obtain a release for the

benefit of the City.” However, in October 2009, unbeknownst to Carowest, the City and Yantis

had executed a change order containing language that Carowest says had already released all of

Yantis’s claims against the City for the Carowest portion of the South Tributary Project. In

addition, on May 31, 2010, Yantis applied to the City for a progress payment for Yantis’s work

on the South Tributary Project. As a condition of receiving that payment, Yantis executed a

“Partial Waiver and Release of Lien,” which stated, “Yantis hereby acknowledges complete

3 satisfaction of, and waives and releases, any and all claims of every kind against [the City], the

[South Tributary] Project and the property.” Despite these releases, Yantis resubmitted its delay

claim to the City in July 2010, this time seeking $276,270.80 in damages related to the Carowest

portion of the South Tributary Project. In October 2010, the City sent a letter to Yantis

containing the City’s “written response to Yantis’ delay claim against the City.” The letter stated

that “based on the execution of [the October 2009 change order], Yantis has waived ‘any and all

costs associated with or resulting from the change(s) ordered herein, including all impact, delays,

and acceleration costs’.” (Emphasis and punctuation in original.) Because Yantis did not

abandon its delay claim and the City did not rescind its request that Carowest handle Yantis’s

delay claim, Carowest sued Yantis and the City in November 2010. During the course of the

ongoing lawsuit, Carowest asserted multiple causes of action, including three sets of declaratory

claims. The City asserted counterclaims, including a breach-of-contract claim seeking monetary

damages for alleged breach of the Letter Agreement by Carowest. The City filed a plea to the

jurisdiction, asserting that Carowest’s claims were barred by sovereign immunity. The trial court

denied that plea and the City appealed. This Court resolved that interlocutory appeal in 2014 in

Carowest I, which is further discussed below. In 2015, the parties agreed to sever two of

Carowest’s three sets of declaratory judgment claims, which related to the North Tributary

Project, into a separate suit. The suit on the North Tributary Project declaratory claims

eventually formed the basis for Carowest II. The remaining set of declaratory judgment claims

related to the validity of Yantis’s delay claim and the parties’ corresponding obligations under

the Letter Agreement pertaining to the South Tributary Project. The district court granted

summary judgment in favor of Carowest on the declaratory claims related to the South Tributary

Project in 2016, specifically ordering that:

4 a. The October 21, 2009 Change Order fully and finally released and waived the Yantis Delay Claim.

b. The May 31, 2010 Waiver fully and finally released and waived the Yantis Delay Claim.

c. Under the July 27, 2009 Letter Agreement, the City has no right to indemnification from Carowest for the Yantis Delay Claim.

Carowest sought the first two of these declarations solely against Yantis and the third solely

against the City. The district court expressly declined to dispose of any other claims by

Carowest, including the claim for attorney’s fees under section 37.009 of the Civil Practice and

Remedies Code. In January 2017, Carowest filed an opposed motion to sever the South

Tributary Project declaratory claims into a separate cause. Carowest argued that severance was

appropriate because the South Tributary Project declaratory claims “are not interwoven with the

other counts because they were purely legal issues decided by summary judgment on an

undisputed record.” Carowest further urged that severance would “allow the summary judgment,

once the issue of fees is resolved, to become final while the remaining claims proceed.” 1 The

district court granted Carowest’s motion in March 2017. Three months after the claims were

severed, this Court issued its opinion in Carowest II, holding that sovereign immunity barred the

North Tributary Project declaratory claims. Believing that Carowest II’s reasoning should also

apply to the more recently severed South Tributary Project declaratory claims, the City and

1 The City opposed the motion to sever on the ground that Carowest’s South Tributary Project declaratory claims were interwoven with and implicate the same provision of the Letter Agreement as the City’s affirmative counterclaim for relief under the Letter Agreement. See Dalisa, Inc. v. Bradford, 81 S.W.3d 876, 880-81 (Tex. App.—Austin 2002, no pet.) (holding the trial court abused its discretion in severing claims for declaratory relief from interwoven counterclaims that involved the same facts and issues). 5 Yantis each filed a plea to the jurisdiction in the new lawsuit. In two separate orders, the district

court denied the pleas, and the City and Yantis appealed.

The parties all argue that the present interlocutory appeal should be guided by a

controlling prior opinion of this Court: the City and Yantis argue that Carowest II’s disposition

of the North Tributary Project declaratory claims requires us to reverse in this case as well, while

Carowest observes that Carowest II did not address the South Tributary Project declaratory

claims and their distinct jurisdictional bases and argues that “this Court has already decided the

issues presented in this appeal in Carowest I and should therefore affirm in this case as well.” In

addition, Carowest has filed a motion to dismiss Yantis’s appeal, arguing that section

51.014(a)(8) of the Civil Practice and Remedies Code does not authorize interlocutory appeal of

an order denying a plea to the jurisdiction of a non-governmental unit. We will first address the

City’s governmental immunity, and because the parties’ arguments on this issue center on this

Court’s prior opinions, we begin with a summary of those opinions as they relate to the present

issues on appeal.

This Court’s prior opinions

So far, Carowest has sought determination of three sets of questions under the

UDJA: (1) whether the City violated the Texas Open Meetings Act (TOMA) in meetings relating

to the North Tributary Project, (2) whether the City’s contract awarding Yantis the North

Tributary Project was void under Local Government Code chapter 252, and (3) whether Yantis’s

delay claims related to the South Tributary Project are valid. This Court directly addressed these

UDJA claims in its prior opinions. The parties have brought the third set of questions (those

related to the South Tributary Project) before us in this appeal because of our differing

6 resolutions of whether the district court had jurisdiction over the North Tributary Project

declaratory claims in Carowest I and II.

Carowest I

In Carowest I, this Court was asked to determine whether the district court had

jurisdiction over a host of claims by Carowest, including the three sets of UDJA claims. This

Court concluded that the district court had subject-matter jurisdiction over all the UDJA claims.

Carowest I, 432 S.W.3d at 535. This Court reasoned that Carowest’s UDJA claims under the

Texas Open Meetings Act fell within TOMA’s express waiver of immunity allowing an

interested person to bring an action by mandamus or injunction to reverse a violation or

threatened violation of TOMA. See Tex. Gov’t Code §§ 551.141 (an action taken by a

governmental body in violation of TOMA is voidable), .142 (an interested person may bring an

action by mandamus or injunction). This Court stated, “[t]he fact that Carowest has sought the

remedy of declaratory rather than equitable relief does not change the jurisdictional analysis

here.” Carowest I, 432 S.W.3d at 531 (citing Texas State Bd. of Veterinary Med. Exam’rs v.

Giggleman, 408 S.W.3d 696, 708 (Tex. App.—Austin 2013, no pet.) (observing that a cause of

action and waiver of immunity in the Public Information Act parallel to that in TOMA could

provide “a jurisdictional basis” for UDJA claims challenging withholding of information in

alleged violation of the PIA)); Hendee v. Dewhurst, 228 S.W.3d 354, 379 n.31 (Tex. App.—

Austin 2007, pet. denied) (noting that if plaintiffs had standing under a taxpayer exception to

prevent expenditures by injunction, then the UDJA would also allow a claim for declaratory

relief); cf. Jackson v. State Office of Admin. Hearings, 351 S.W.3d 290, 301 (Tex. 2011)

(illustrating limitations on use of the UDJA to recover attorney’s fees).

7 Similarly, this Court determined that Carowest’s claims under Local Government

Code chapter 252 fell within that statute’s express waiver of immunity, which provides: “[i]f the

contract is made without compliance with this chapter, it is void and the performance of the

contract, including the payment of any money under the contract, may be enjoined by . . . any

property tax paying resident of the municipality.” Tex. Loc. Gov’t Code § 252.061. The City

challenged Carowest’s right to bring the claim based on an assertion that Carowest was not a

“resident,” but this Court determined that, assuming there is a material distinction between a

property-owning taxpayer (which Carowest is) and a resident, the district court would not have

erred in finding that Carowest is a resident. Carowest I, 432 S.W.3d at 533-34. Therefore,

Carowest had standing to bring a claim under chapter 252 and could also pursue a declaratory

claim regarding the North Tributary Project contract.

Finally, this Court concluded that the claims for declaratory relief related to

Yantis’s delay claim were properly before the district court “by virtue of the waiver of immunity

in Local Government Code chapter 271, subsection I and the limited jurisdiction that arises by

virtue of the City’s claim for monetary relief.” Id. at 534. This Court further determined that the

declaratory claims concerning the Yantis delay claim were not moot and would remain a

justiciable controversy “as long as Carowest is prosecuting a viable declaratory claim seeking to

invalidate the ‘North Tributary Deal’ in which the delay claim purportedly was settled.” Id. at

535. The record included a Rule 11 agreement from May 9, 2011, signed by counsel for the City

and Yantis, in which Yantis agreed to release the City from Yantis’s delay claim if “Yantis is

awarded the North Tributary Contract . . . at the New Braunfels City Council meeting scheduled

for this evening.” The offer to release the claim would have been withdrawn by its own terms if

Yantis had not been awarded the contract. Carowest had separately asserted that this was an

8 impermissible quid-pro-quo arrangement negotiated in an improperly convened executive

session such that the North Tributary Contract entered into as a result of this negotiation and the

accompanying agreement to settle the delay claim were invalid or void. This Court continued,

“even if the release is assumed to resolve the delay claim prospectively from the date of its

execution, the validity of the delay claim would still remain a live and justiciable issue to the

extent it bears upon the parties’ past compliance with the Letter Agreement’s indemnification

provisions.” Id.

Thus this Court concluded the district court did not err in overruling the City’s

plea to the jurisdiction as to Carowest’s UDJA claims.

Carowest II

The merits of Carowest’s severed UDJA claims relating to the North Tributary

Project under TOMA and Local Government Code chapter 252 proceeded to a jury trial on the

merits and a bench trial on attorney’s fees, costs, and expenses. Carowest II, 549 S.W.3d at 168.

The district court entered declaratory judgment in favor of Carowest and awarded attorney’s

fees, costs, and expenses against the City and Yantis jointly and severally. Id. at 169. On

appeal, this Court concluded that two intervening Texas Supreme Court opinions, one addressing

sovereign immunity and one addressing the redundant remedies doctrine, required a different

outcome than that reached in Carowest I. Id. at 172-74; see Patel v. Texas Dep’t of Licensing &

Regulation, 469 S.W.3d 69, 79 (Tex. 2015) (redundant remedies doctrine); Zachry Constr. Corp.

v. Port of Hous. Auth. of Harris Cty., 449 S.W.3d 98, 109-10 (Tex. 2014) (sovereign immunity).

This Court reasoned that in Zachry Construction, the Texas Supreme Court directed that the

scope of an express waiver of immunity is limited to the express relief provided in the statute.

9 Carowest II, 549 S.W.3d at 173. Therefore, this Court concluded that section 551.142 of TOMA

waives immunity from suit for only injunctive and mandamus relief and section 252.061 of the

Texas Local Government Code waives immunity from suit for only injunctive relief, but neither

statute waives immunity for declaratory relief. Id. (citing Zachry Constr., 449 S.W.3d at 109-10;

Tooke v. City of Mexia, 197 S.W.3d 325, 328-29 (Tex. 2006)). In addition, this Court

determined that the redundant remedies doctrine provided a second reason to deny Carowest

declaratory relief against the City. Id. at 173-74. This Court vacated the trial court’s judgment

and remanded the case to the trial court.

Jurisdiction over declarations related to the Yantis delay claim

Although the question of the City’s immunity is once again before us, this appeal

differs from Carowest I in that the underlying suit seeks solely declaratory relief and differs from

Carowest II in that it is an interlocutory appeal with alleged waivers of immunity that were not at

issue in Carowest II. We review de novo whether the district court lacked jurisdiction due to the

City’s assertion of immunity. Ben Bolt-Palito Blanco Consol. Indep. Sch. Dist. v. Texas Political

Subdivisions Prop./Cas. Joint Self-Ins. Fund, 212 S.W.3d 320, 324 (Tex. 2006) (“Whether a trial

court has jurisdiction is a question of law subject to de novo review.”). “Governmental

immunity protects a political subdivision performing governmental functions as the state’s

agent.” Rosenberg Dev. Corp. v. Imperial Performing Arts, Inc., No. 17-0660, 2019 Tex. LEXIS

242, at *2 (Tex. Mar. 8, 2019). In addition, “sovereign immunity bars UDJA actions against the

state and its political subdivisions absent a legislative waiver.” Texas Dep’t of Transp. v. Sefzik,

355 S.W.3d 618, 620 (Tex. 2011) (per curiam).

10 Carowest argues the district court has jurisdiction over the South Tributary

Project UDJA claims for two reasons: (1) the City asserted counterclaims for affirmative relief

against Carowest in the parent cause, and (2) chapter 271 of the Local Government Code waives

immunity for declaratory judgment claims arising from contracts subject to that chapter.

Carowest asserts that Carowest I’s acknowledgment of the “waiver of immunity in Local

Government Code chapter 271, subsection I and the limited jurisdiction that arises by virtue of

the City’s claim for monetary relief” continues to apply to the present appeal. Carowest I, 432

S.W.3d at 534. However, unlike the circumstances in Carowest I, this appeal concerns a bare

claim for declaratory relief. In the suit initiated by Carowest in 2010, the City had asserted

claims for monetary relief based on breach of a contract that this Court determined invoked the

limited jurisdiction that exists “if the governmental entity interjects itself into or chooses to

engage in litigation to assert affirmative claims for monetary damages.” Reata Constr. Corp. v.

City of Dallas, 197 S.W.3d 371, 375 (Tex. 2006); Carowest I, 432 S.W.3d at 526-27. However,

in the severed cause on appeal, the City has not asserted any claim for relief. In the absence of

any affirmative claim for relief by the City, the limited jurisdiction that might have arisen from

the City’s claims for affirmative relief is not available. See Sharyland Water Supply Corp. v.

City of Alton, 354 S.W.3d 407, 415 (Tex. 2011) (plaintiff cannot recover if the government is not

pursuing a claim for damages to which an offset would apply). The City’s counterclaims in the

cause of action filed in 2010 do not waive governmental immunity in the cause that was severed

in 2017 on Carowest’s motion. 2

2 In asserting affirmative claims for monetary relief against Carowest, the City would not have immunity from Carowest’s claims “germane to, connected to, and properly defensive to claims asserted by the City” to the extent any recovery on those claims would offset any recovery by the City. Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 378 (Tex. 2006). 11 Nor does Local Government Code chapter 271 waive immunity for Carowest’s

claim that the City is not entitled to indemnification from Carowest for the Yantis delay claim

under the UDJA. Under chapter 271, 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 to the terms and conditions of this subchapter.” Tex. Loc. Gov’t Code

§ 271.152. In this severed case, there is no pending claim for breach of a contract. Chapter

271’s waiver of immunity from suit to allow adjudication of a claim for breach of contract does

not waive immunity from suit for a declaration of rights under a contract when there is no

pleaded breach-of-contract action. Lower Colo. River Auth. v. City of Boerne, 422 S.W.3d 60

(Tex. App.—San Antonio 2014, pet. dism’d) (“Based on the plain language of section 271.152,

the legislature has not expressly and unambiguously waived immunity from suit for a declaratory

judgment claim.”); McCandless v. Pasadena Indep. Sch. Dist., No. 03-09-00249-CV, 2010 Tex.

App. LEXIS 2383, at *9 (Tex. App.—Austin Apr. 2, 2010, no pet.) (mem. op.) (“Without a

properly pleaded breach-of-contract action, section 271.152 does not waive governmental

immunity.”). As a result, the district court lacked subject matter jurisdiction to issue a

declaratory judgment that “the City has no right to indemnification from Carowest for the Yantis

Delay Claim” under the Letter Agreement.

To prevail on its motion to sever, Carowest argued that its South Tributary Project declaratory claims were independent claims that could have been asserted in a separate lawsuit and that the claims “are not interwoven with the other counts because they were purely legal issues decided by summary judgment on an undisputed record.” 12 Yantis’s interlocutory appeal

Having determined that governmental immunity shields the City from Carowest’s

declaratory claim against it, we next consider whether Yantis may appeal from the district

court’s interlocutory order denying Yantis’s plea to the jurisdiction. “A person may appeal from

an interlocutory order of a district court, county court at law, statutory probate court, or county

court that: . . . grants or denies a plea to the jurisdiction by a governmental unit as that term is

defined in Section 101.001.” Tex. Civ. Prac. & Rem. Code § 51.014(a)(8). Yantis agrees it is a

private contractor, but argues that it is a governmental unit because it is an “organ of

government” under section 101.001 for purposes of this lawsuit. See id. §101.001(3)(D). To

qualify as a governmental unit under section 101.001, Yantis must be an “organ of government,”

and it also must derive its “status and authority . . . from the Constitution of Texas or from laws

passed by the legislature under the constitution.” See University of the Incarnate Word v. Redus,

518 S.W.3d 905, 909 (Tex. 2017) (addressing the requirements for being a “governmental unit”

under Tex. Civ. Prac. & Rem. Code § 101.001(3)(D)). The Texas Supreme Court has recognized

that a private institution can be a governmental unit for the purpose of an interlocutory appeal.

Id. at 907-08 (holding that University of the Incarnate Word could pursue an interlocutory appeal

relating to its police department and discussing LTTS Charter School, Inc. v. C2 Construction,

Inc., 342 S.W.3d 73, 77 (Tex. 2011)). The Court has explained that “an ‘organ of government’ is

an entity that operates as part of a larger governmental system.” Id. at 910. The Court expressly

cautioned that consideration of whether an entity shares immunity is distinct from whether the

entity meets section 101.001’s definition of governmental unit: “whether an entity is entitled to

an interlocutory appeal and whether an entity has sovereign immunity are separate questions

with separate analytical frameworks.” Id. at 911.

13 Yantis argues that it should be considered an “organ of government” essentially

because Yantis’s actions relevant to this lawsuit have been on the City’s behalf, Yantis is being

sued for merely following the City’s directives, and Yantis’s position is aligned with the City.

However, the delay claim at issue in this appeal is a claim that Yantis had, if at all, against the

City. In submitting the delay claim to the City and maintaining the claim even after the City

opined that the claim had been released, it does not appear that Yantis was carrying out the

City’s directives with no independent discretion. In any event, Yantis’s argument does not

explain how, in providing construction services for the drainage channel and billing the City for

those services, Yantis was acting as part of a larger governmental system. Nor are we persuaded

that the existence of statutes authorizing the City to enter into contracts with private entities

satisfies section 101.001’s requirement that an entity’s status and authority be “derived from the

Constitution of Texas or from laws passed by the legislature under the constitution.” Cf. id. at

909-10 (discussing laws that supported private university’s status as a governmental unit as to its

law enforcement function and comparing and contrasting those attributes to the charter schools at

issue in LTTS Charter School, 342 S.W.3d at 78). Because Yantis has not shown that it is a

governmental entity under section 101.001, Yantis may not pursue an interlocutory appeal.

Conclusion

We conclude that the City’s immunity was not waived and that Yantis has not

demonstrated that it is a governmental unit entitled to an interlocutory appeal of a ruling on a

plea to the jurisdiction. Accordingly, we reverse the district court’s order denying the City’s plea

to the jurisdiction, dismiss Yantis’s appeal for lack of jurisdiction, and remand the case to the

trial court for further proceedings consistent with this opinion.

14 __________________________________________ Gisela D. Triana, Justice

Before Justices Baker, Triana, and Smith

Reversed and Remanded in part; Dismissed in part

Filed: May 16, 2019