Wasson Interests, Ltd. v. City of Jacksonville, Texas

Opinion

IN THE SUPREME COURT OF TEXAS ══════════ No. 17-0198 ══════════ 10/5/2018 WASSON INTERESTS, LTD., PETITIONER,

v.

CITY OF JACKSONVILLE, TEXAS, RESPONDENT

══════════════════════════════════════════ ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE TWELFTH DISTRICT OF TEXAS ══════════════════════════════════════════

Argued February 27, 2018

JUSTICE BOYD delivered the opinion of the Court:

Having granted Petitioner’s motion for rehearing, we withdraw the judgment and opinion

we issued on June 1, 2018.

This case comes to us for the second time. As we explained the first time, “we have long

held that ‘[a] municipality is not immune from suit for torts committed in the performance of

its proprietary functions, as it is for torts committed in the performance of

its governmental functions.’” Wasson Interests, Ltd. v. City of Jacksonville (Wasson I), 489

S.W.3d 427, 430 (Tex. 2016) (quoting Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006)).1

As a matter of first impression, we held that this governmental/proprietary dichotomy “applies in

the contract-claims context just as it does in the tort-claims context.” Id. at 439. The issue now is

1 This case concerns immunity from suit, not liability. See Wasson I, 489 S.W.3d at 430 n.4. (“When the government contracts with private citizens, it waives immunity from liability, but not its immunity from suit.”).

whether the contract claim arises from the municipality’s performance of a governmental or

proprietary function. We hold that it arises from the municipality’s performance of a proprietary

function, so governmental immunity does not apply. We reverse the court of appeals’ judgment

and remand the case to the court of appeals.

I. Background

The City of Jacksonville constructed Lake Jacksonville in the late 1950s to serve as the

City’s primary source of water. Over the next several decades, the City developed the surrounding

area and began leasing lakefront lots to private parties. In 1996, James and Stacy Wasson entered

into long-term leases of City-owned lakefront lots and constructed a seven-bedroom house. The

lease agreements incorporated the City’s Rules & Regulations Governing Lake Jacksonville by

reference. Those rules provide that all lots outside the City’s corporate limits—which include the

Wassons’ lots—“shall be restricted to residential purposes only,” and that no lot may be used to

operate a “business or commercial enterprise.” The rules also provide that breach of “any of the

regulations . . . shall be grounds for cancellation of the lessee’s lease.”

The Wassons initially lived on the property but later moved and assigned the leases

to Wasson Interests, Ltd. Planning to use the property as a bed-and-breakfast and event center,

Wasson sought several variances from the Lake Jacksonville Advisory Board and the City Council,

although it believed the variances were unnecessary. The Board denied the requests. Undeterred,

Wasson began advertising and renting the property for short lease terms, weddings, and other

events. The City determined these activities violated the leases’ requirement that the property be

used only for residential purposes and threatened to terminate the leases unless Wasson ceased the

business-related rentals.

In June 2010, the City terminated Wasson’s leases and issued an eviction notice. A few

months later, the parties negotiated an agreement that reinstated the leases and permitted Wasson

to rent the property to single families and small groups, but only for periods of a month or longer

and only for private residential purposes. In early 2011, the City again terminated the leases,

alleging that Wasson had been using a “sham monthly residential agreement” to “circumvent” the

reinstatement agreement and use the property for “commercial” activities. Wasson filed this suit

in response, alleging the City breached the lease agreements and seeking declaratory and injunctive

relief. The City moved for summary-judgment on the grounds that (1) governmental immunity

bars Wasson’s breach-of-contract claim, (2) immunity is not waived, (3) the City and Wasson did

not enter into a valid, enforceable contract, (4) Wasson did not perform under the contract and its

non-performance was not excused, and (5) the City did not breach the contract. The trial court

granted the City’s motion without comment, and Wasson appealed.

The court of appeals affirmed based on governmental immunity, rejecting Wasson’s

argument that the governmental/proprietary dichotomy applies to breach-of-contract claims.2 We

reversed, holding that the dichotomy applies “whether a city commits a tort or breaches a contract.”

Wasson I, 489 S.W.3d at 439. Because the court of appeals had not addressed “whether the contract

at issue was proprietary or governmental,” we remanded for a determination of that issue. Id. On

remand, the court of appeals held that Wasson’s contract claim arose from the City’s performance

of a governmental function, and thus governmental immunity applied to bar the claim. 513 S.W.3d

at 222–23. We again granted Wasson’s petition for review.

2 Wasson Interests, Ltd. v. City of Jacksonville, — S.W.3d —, No. 12–13–00262–CV, 2014 WL 3368413, at *3–4 (Tex. App.—Tyler July 9, 2014) (mem. op.), rev’d, 489 S.W.3d 427.

II. The Dichotomy

“Municipal corporations exercise their broad powers through two different roles;

proprietary and governmental.” Gates v. City of Dallas, 704 S.W. 2d 737, 738 (Tex. 1986). The

governmental/proprietary dichotomy recognizes that immunity protects a governmental unit from

suits based on its performance of a governmental function but not a proprietary function. Wasson

I, 489 S.W.3d at 430. “Unlike governmental functions, for which municipal corporations have

traditionally been afforded some degree of governmental immunity, proprietary functions have

subjected municipal corporations to the same duties and liabilities as those incurred by private

persons and corporations.” Gates, 704 S.W.2d at 739.

The governmental/proprietary dichotomy is based on the reality that sovereign immunity

is inherent in the State’s sovereignty, and municipalities share that protection when they act “as a

branch” of the State but not when they act “in a proprietary, non-governmental capacity.” Wasson

I, 489 S.W.3d at 430. Whether a municipality enjoys immunity from suit thus depends on “the

relationship, or lack thereof, between the municipality and the state, not the relationship between

the municipality and the party bringing suit.” City of Georgetown v. Lower Colo. River Auth., 413

S.W.3d 803, 811 (Tex. App.—Austin 2013, pet. dism’d).

The distinction between a municipality’s governmental and proprietary functions “seems

plain enough, but the rub comes when it is sought to apply the test to a given state of facts.” City

of Houston v. Wolverton, 277 S.W.2d 101, 103 (Tex. 1955). As we noted in Wasson I, “determining

which functions are proprietary and which are governmental is not always a cut-and-dried task.”

489 S.W.3d at 438. “It is in the application of this rule to a particular fact situation that the difficulty

arises.” City of Houston v. Shilling, 240 S.W.2d 1010, 1012 (Tex. 1951).

We have explained that, “generally,” governmental functions consist of a municipality’s

activities “in the performance of purely governmental matters solely for the public benefit.” Tooke,

197 S.W.3d at 343 (quoting Dilley v. City of Houston, 222 S.W.2d 992, 993 (Tex. 1949)).

Historically, governmental functions have consisted of activities “normally performed by

governmental units” such as “police and fire protection.” Joe R. Greenhill and Thomas V. Murto

III, Governmental Immunity, 49 TEX. L. REV. 462, 463 (1971) [hereinafter Greenhill]. “Acts done

as a branch of the state—such as when a city ‘exercise[s] powers conferred on [it] for purposes

essentially public . . . pertaining to the administration of general laws made to enforce the general

policy of the state’—are protected by immunity.” Wasson I, 489 S.W.3d at 433 (quoting City of

Galveston v. Posnainsky, 62 Tex. 118, 127 (1884)).

Proprietary functions, by contrast, are those “performed by a city, in its discretion,

primarily for the benefit of those within the corporate limits of the municipality,” and “not as an

arm of the government.” Gates, 704 S.W.2d at 739; Dilley, 222 S.W.2d at 993. These are usually

activities “that can be, and often are, provided by private persons.” Greenhill at 463. “Acts that are

proprietary in nature, therefore, are not done as a branch of the state,” and thus “do not implicate

the state’s immunity for the simple reason that they are not performed under the authority, or for

the benefit, of the sovereign.” Wasson I, 489 S.W.3d 427.

Although we have recognized the governmental/proprietary dichotomy as a matter of

common law, the Texas Constitution authorizes the Legislature to “define for all purposes those

functions of a municipality that are to be considered governmental and those that are proprietary,

including reclassifying a function’s classification assigned under prior statute or common law.”

TEX. CONST. art. XI, § 13. Exercising that authority, the Legislature has defined and enumerated

governmental and proprietary functions for the purposes of determining whether immunity applies

to tort claims against a municipality. See TEX. CIV. PRAC. & REM. CODE § 101.0215.

The Tort Claims Act generally defines governmental functions as those “that are enjoined

on a municipality by law and are given it by the state as part of the state’s sovereignty, to be

exercised by the municipality in the interest of the general public.” Id. § 101.0215(a). The Act

enumerates thirty-six governmental functions, ranging from “police and fire protection and

control” to “animal control.” See id. § 101.0215(a)(1), (33). Conversely, the Act defines

proprietary functions as those “that a municipality may, in its discretion, perform in the interest of

the inhabitants of the municipality.” Id. § 101.0215(b). The Act provides a non-exclusive list of

propriety functions, such as “the operation and maintenance of a public utility;” “amusements

owned and operated by the municipality”; and “any activity that is abnormally dangerous or

ultrahazardous.” Id. Proprietary functions, however, do not include any of the Act’s enumerated

governmental functions. Id. § 101.0215(c).

Although these statutory definitions and designations apply expressly to tort claims, we

explained in Wasson I that they can also “aid our inquiry” when applying the dichotomy in the

contract-claims context. Wasson I, 489 S.W.3d at 439. We thus consider both the statutory

provisions and the common law in determining whether a city’s contractual conduct is

governmental or proprietary.

III. The City’s Relevant Activity

The parties dispute which of the City’s various activities are relevant to the

governmental/proprietary inquiry. The City asserts that immunity applies because all of its

activities constituted governmental functions, including its creation of Lake Jacksonville as a water

supply, its decision to lease the property surrounding the lake, its adoption of ordinances and rules

governing use of the leased property, and its attempt to enforce those rules against Wasson. And

if one or more of these activities is not relevant, the City argues, its attempt to enforce the rules

against Wasson is independently controlling because Wasson bases its breach-of-contract claim

on that conduct.

The court of appeals agreed with the City and considered all of the “specific acts”

underlying Wasson’s claims.” 513 S.W.3d at 221–22. In particular, the court focused on “the

City’s act of enforcing its ordinance to prevent commercial activity and terminate [Wasson’s]

lease” because that “act form[s] the basis of” Wasson’s claim. Id. at 222. Concluding that the City

performed that act as a “government function to maintain a safe and healthy water supply for its

citizens and to preserve the property values of the lease lots,” the court held that governmental

immunity applies. Id. at 222–23.

Wasson, however, argues the only relevant activity is the City’s decision to lease the

property. Instead of focusing on the City’s reasons for creating the lake or engaging in the conduct

that allegedly breached the contract, Wasson contends the court of appeals should have focused

on the nature of the City’s conduct when it entered into the lease agreements—the “City’s decision

to lease the surrounding area for private use.”

We agree with Wasson. When we decided in Wasson I that the dichotomy applies to

breach-of-contract claims, we noted that the court of appeals had not “address[ed] whether the

lease contract was entered into in the city’s proprietary or governmental capacity.” Wasson I, 489

S.W.3d at 430 (emphasis added). We remanded the case for the court to consider “whether the

contract at issue was proprietary or governmental,” not whether the City breached the contract in

either capacity. Id. at 439 (emphasis added). Contrary to the court of appeals’ understanding, we

did not remand for the court to “determine whether the [City’s] actions in terminating” the lease

“is a governmental or proprietary function.” 513 S.W.3d at 219 (emphasis added).

Despite our directive in Wasson I, the City argues that the court of appeals properly focused

on the nature of “the actions complained of,” quoting City of Houston v. Downstream

Environmental, L.L.C., 444 S.W.3d 24, 32 (Tex. App.—Houston [1st Dist.] 2014, pet. denied) (“In

determining whether a governmental entity is immune from suit, we consider whether the actions

complained of were in furtherance of governmental or proprietary functions.”). Downstream cited

Tooke as authority, but we said no such thing in Tooke. We explained in Tooke that a “municipality

is not immune from suit for torts committed in the performance of its proprietary functions, as it

is for torts committed in the performance of its governmental functions.” 197 S.W.3d at 343

(emphases added). But we did not apply that rule to “breaches committed” in the breach-of-

contract context. To the contrary, we explained in Tooke that “even if the City were not immune

from suit for breach of a contract whose subject lies within its proprietary functions, the Tookes’

contract [did] not qualify” because that contract involved governmental functions like “garbage

and solid waste removal, collection, and disposal.” Id. at 343–44. Although we did not decide

whether the dichotomy applies to breach-of-contract claims in Tooke, we suggested that if it did,

the contract’s nature would determine the city’s immunity, not the nature of the breach.

In addition to Tooke, we have suggested in other cases that courts should focus on the

nature of the municipality’s contracting conduct, not the nature of its breaching conduct. In City

of Corpus Christi v. Gregg, for example, we held that the city’s suit to cancel oil-and-gas-leases

was subject to estoppel because the city acted in its proprietary capacity when “making the leases

upon which suit was brought.” 289 S.W.2d 746, 750 (Tex. 1956). In Gates, we held that a city that

breached an insurance contract by failing to pay benefits was subject to statutory attorney’s fees

because it acted in its proprietary capacity when it “entered into the insurance contract.” 704

S.W.2d at 739. In PKG Contracting, Inc. v. City of Mesquite, we held that immunity barred a

breach-of-contract claim against the city because the city “was acting in its governmental capacity

when it contracted with PKG to construct a storm drainage system.” 197 S.W.3d 388, 389 (Tex.

2006) (per curiam). And in Wheelabrator Air Pollution Control, Inc. v. City of San Antonio, in

which we first applied our holding in Wasson I, we held that governmental immunity did not shield

the city from a claim for attorney’s fees for breaching a contract to install pollution-control

equipment in a city power plant because the city’s actions “in entering the contract” were

proprietary. 489 S.W.3d 448, 450 (Tex. 2016).

On the surface, focusing on the breaching conduct may seem reasonable to decide whether

immunity applies to a breach-of-contract claim against a municipality. The dichotomy, however,

is a tool with a particular purpose: it determines whether a municipality shares the State’s sovereign

immunity because it was acting “as a branch” of the State, or whether it lacks immunity because

it was acting “on its own behalf.” Wasson I, 489 S.W.3d at 436. We do not see how a city can act

as a branch of the State when it breaches a contract it entered on its own behalf and in its proprietary

capacity. Even if the City terminated Wasson’s leases to enforce the rules that protect the City’s

water supply, the rules only applied to Wasson because the leases incorporated them by reference,

and the City would have had no reason to terminate the leases had it not agreed to them in the first

place. Enforcing rules that protect a city’s water supply is one matter, but it is another matter to

terminate a contract that incorporates those rules.

We hold that, to determine whether governmental immunity applies to a breach-of-contract

claim against a municipality, the proper inquiry is whether the municipality was engaged in a

governmental or proprietary function when it entered the contract, not when it allegedly breached

that contract. Stated differently, the focus belongs on the nature of the contract, not the nature of

the breach. If a municipality contracts in its proprietary capacity but later breaches that contract

for governmental reasons, immunity does not apply. Conversely, if a municipality contracts in its

governmental capacity but breaches that contract for proprietary reasons, immunity does apply.

This approach is most consistent with the purposes of both immunity and the

governmental/proprietary dichotomy, and it provides clarity and certainty regarding the

contracting parties’ rights and liabilities.

IV. The Nature of the City’s Activity

In light of our holding, we must determine whether the City acted in its governmental or

proprietary capacity when it leased the lakefront lots to the Wassons. Because the Tort Claims Act

does not enumerate leasing property as a governmental or a proprietary function, we must apply

the general definitions. As explained, governmental functions “are enjoined on a municipality by

law and are given it by the state as part of the state’s sovereignty, to be exercised by the

municipality in the interest of the general public.” TEX. CIV. PRAC. & REM. CODE § 101.0215(a).

And proprietary functions are those “that a municipality may, in its discretion, perform in the

interest of the inhabitants of the municipality.” Id. § 101.0215(b).

Applying these definitions in light of the parties’ arguments in this case, we consider

whether (1) the City’s act of entering into the leases was mandatory or discretionary, (2) the leases

were intended to benefit the general public or the City’s residents, (3) the City was acting on the

State’s behalf or its own behalf when it entered the leases, and (4) the City’s act of entering into

the leases was sufficiently related to a governmental function to render the act governmental even

if it would otherwise have been proprietary. We conclude that the City acted in its proprietary

capacity when it leased the property to the Wassons.

A. Mandatory or discretionary

The City’s decision to lease its lakefront property to the Wassons was discretionary. “To

carry out a municipal purpose, the municipality may . . . lease . . . property located in or outside

the municipality,” but nothing requires it to do so. TEX. LOC. GOV’T CODE § 51.015(a) (emphasis

added); see TEX. GOV’T CODE § 311.016(1) (“‘May’ creates discretionary authority or grants

permission or a power.”). That is why we and the courts of appeals have routinely held that a city’s

decision to lease city-owned property for private use may constitute a proprietary function.3 After

all, the discretionary management of property has served as a fundamental underpinning of the

dichotomy for over one-hundred years. See Posnainsky, 62 Tex. at 131 (noting that municipalities

are not exempt from liability “in managing or dealing with property or rights held by them for their

own advantage or emolument”).

As we observed in Wasson I, a city can control its contractual liabilities by “refusing to

enter into the contract.” 489 S.W.3d at 437 n.10. Here, the City had no obligation to lease the

3 See Gregg, 289 S.W.2d at 750–51 (holding that in granting an oil and gas lease upon property belonging to it, city was acting in a proprietary capacity and thus subject to estoppel); City of Dallas v. Trinity E. Energy, LLC, No. 05–16–00349–CV, 2017 WL 491259, at *4 (Tex. App.—Dallas Feb. 7, 2017, pet. filed) (mem. op.) (“Consequently, we conclude that the City was engaged in a proprietary function when it leased the minerals to Trinity.”); City of Lubbock v. Phillips Petroleum Co., 41 S.W.3d 149, 163 (Tex. App.—Amarillo 2000, no pet.) (holding city was subject to the doctrine of estoppel because it acted in its proprietary capacity in executing easement); City of Crystal City v. Crystal City Country Club, 486 S.W.2d 887, 889 (Tex. Civ. App.—Beaumont 1972, writ ref’d n.r.e.) (“City was acting in its proprietary capacity, as distinguished from governmental capacity, in its dealings with Country Club in executing the lease in question.”); Moore v. City of Beaumont, 195 S.W.2d 968, 991–92 (Tex. Civ. App.—Beaumont 1946), aff’d, 202 S.W.2d 448 (Tex. 1947).

lakefront lots to private parties. It could have left the land unused, used it strictly for the City’s

purposes, or designated it as parks, a golf course, or some other form of recreational activity.

Instead, it chose to generate revenue by granting long-term leases to private parties. We think that,

under these circumstances, the City “should have no greater dignity as regards the controversy

presented than would any other person who subdivides property and imposes restrictions thereon.”

Blythe v. City of Graham, 287 S.W.2d 527, 530 (Tex. Civ. App.—Fort Worth 1956, writ ref’d

n.r.e.). We thus agree with Wasson that the City exercised its discretion when it entered into the

leases.

B. Public or Resident Benefits

Generally, a city’s governmental functions benefit the general public and its proprietary

functions benefit its own residents. TEX. CIV. PRAC. & REM. CODE § 101.0215(a). The City argues

that Lake Jacksonville benefits the general public and not just the City’s residents. More

specifically, the City contends that a proprietary action must be “for the benefit only of those within

its corporate limits.” The City submits that we cannot find the lease agreement to be proprietary

because Wasson’s leased property is not located within the City’s corporate limits. The City claims

this geographic distinction is “relevant, if not decisive,” and for support relies primarily on City of

Weslaco v. Borne, 210 S.W.3d 782, 794 (Tex. App.—Corpus Christi 2006, pet. denied) (mobile

home park located outside of city’s corporate limits did not “militiate[] in favor of classifying the

functions as proprietary”).

We have not been entirely clear with regard to the “benefits test.” We have said that

proprietary functions only benefit the municipality’s residents, but we have also stated that

proprietary acts are those performed “primarily for the benefit of those within the corporate limits

of the municipality.” Gates, 704 S.W.2d at 739 (emphasis added) (citing City of Crystal City, 486

S.W.2d at 889).4 We clarify today that Gates states the proper rule. A city’s proprietary contracts

will often benefit some nonresidents, and its governmental contracts will often benefit some

residents, but whether a contract primarily benefits one or the other will often indicate whether it

is proprietary or governmental.

Here, although non-residents certainly benefited from the City’s decision to lease its

lakefront property, the record indicates the City’s primary objective was to develop the lake and

that leasing the properties raised funds for the City’s budget.5 And as Wasson notes, “the very

nature of the private Lease Agreements necessarily excludes the general public from benefitting

from the premises.” We agree with Wasson that the City entered into the leases primarily to benefit

its own residents, not the general public.

4 See Wasson I, 489 S.W.3d at 433 (noting proprietary acts are performed “for the private advantage and benefit of the locality and its inhabitants”) (emphasis added) (quoting Posnainsky, 62 Tex. at 127); Tooke, 197 S.W.3d at 343 (“[P]roprietary functions are those conducted ‘in its private capacity, for the benefit only of those within its corporate limits, and not as an arm of the government.’”) (emphasis added) (quoting Dilley, 222 S.W.2d at 993); City of Gladewater v. Pike, 727 S.W.2d 514, 519 (Tex. 1987) (“A proprietary function is one intended primarily for the advantage and benefit of persons within the corporate limits of the municipality rather than for use by the general public.”) (emphasis added); City of Houston v. Quinones, 177 S.W.2d 259, 261 (Tex. 1944) (“The underlying test is whether the act performed by a city . . . is performed primarily for the benefit of those within the corporate limits of the municipality.”) (emphasis added). 5 See Trinity E. Energy, LLC, 2017 WL 491259, at *4 (noting that city’s lease of city-owned land for the development of minerals “would benefit the residents within the City’s corporate limits, but they would not benefit the public at large, that is, the State”); City of Dallas v. City of Corsicana, No. 10–14–00090–CV, 2015 WL 4985935, at *4 (Tex. App.—Waco Aug. 20, 2015, pet. denied) (mem. op.) (noting that “business recruiting via tax abatement is in the category of functions that a municipality may, in its discretion, perform and that, in this situation, benefits the citizens of Dallas, rather than the general public at large”); City of Lubbock, 41 S.W.3d at 163 (“The land was purchased to increase groundwater available to the City’s residents. That was primarily for the benefit of the residents within the City’s limits rather than the public at large. There is nothing essentially governmental about the mere fact of owning real property outside the City or in granting an easement across that property.”).

C. State’s or City’s Behalf

Consistent with the nature of sovereign immunity, which protects the State as a sovereign

and political subdivisions when they act on the State’s behalf,6 governmental functions are those

in which a city acts as a “branch of the state,” Wasson I, 489 S.W.3d at 430, or an “arm of the

government,” Tooke, 197 S.W.3d at 343, rather than on its own behalf. Here, we conclude the City

acted on its own behalf by leasing its lakefront property, not on behalf of the State. The fact that

the City’s decision to lease the property was entirely discretionary and primarily benefitted the

City’s residents supports this conclusion, and we find no facts to counter it. See Wasson I, 489

S.W.2d at 436 (“When a city performs discretionary functions on its own behalf, it ceases to derive

its authority—and thus its immunity—from the state’s sovereignty. Such proprietary functions,

therefore, do not stem from the root of immunity that is ‘the people,’ and lacking that common

root, they cannot be performed as a branch of the state.”) (internal citations omitted).

D. Relation to a governmental function

Finally, we consider the extent to which the City’s decision to lease the lakefront lots was

related to its governmental functions. The City contends it acted in its governmental capacity when

it entered into the lease agreements because the “overarching purpose” of the leases, rules, and

regulations “centers on the development of a water supply reservoir used as part of the City’s

waterworks.” The court of appeals essentially agreed. It observed: “In and of itself, a lease of real

6 Technically, “sovereign immunity” protects the State, while “governmental immunity” protects political subdivisions. See Wasson I, 489 S.W.3d at 430 (referring to “the realm of sovereign immunity as it applies to such political subdivisions” as “governmental immunity”).

property by a city could be a proprietary function in certain circumstances. But when it is on real

property used for a government purpose, it becomes part of that governmental function.” 513

S.W.3d at 222. According to the court, when a city’s activity involves “mixed functions, the rule

is that if any one component of a function is governmental, the entire function will be considered

governmental.” Id. at 221.

We disagree. We have long held that not all activities “associated” with a governmental

function are “governmental.” In Shilling, for example, we rejected the argument that a city’s

discretionary operation of a garbage-truck repair shop was a governmental function because it was

necessary to perform the city’s governmental function of garbage collection. 240 S.W.2d at 1011–

12. Noting that the city’s argument “would lead to the conclusion that in any operation necessary

to the collection of garbage the city would be immune to liability for the acts of its employees,”

we held that a “line must be drawn at which point the city ceases to be immune to liability.” Id. at

1012.

Consistent with our decision in Shilling, the courts of appeals “repeatedly have recognized

that governmental functions encompass activities that are closely related to or necessary for

performance of the governmental activities designated by statute.” City of Houston v. Petroleum

Traders Corp., 261 S.W.3d 350, 356 (Tex. App.—Houston [14th Dist.] 2008, no pet.) (emphasis

added).7 We agree this statement more closely depicts the proper rule. The fact that a city’s

7 See also Davis v. City of Lubbock, No. 07–16–00080–CV, 2018 WL 736344, at *4 (Tex. App.—Amarillo Feb. 6, 2018, no pet. h.) (mem. op.) (“[T]he sale of the baled hay is sufficiently closely related to the performance of the City’s TCEQ-permitted activities as to come within the governmental functions the permit authorizes.”); Smith v. City of League City, 338 S.W.3d 114, 128 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (holding city’s decisions concerning bridge “were closely related to the governmental function of ‘bridge construction and maintenance.’”); City of Elgin v. Reagan, No. 03–06–00504–CV, 2009 WL 483344, at *3 (Tex. App.—Austin Feb. 26, 2009, no pet.) (mem. op.) (allowing the public to adopt animals from a city-owned shelter was “so closely related to” the enumerated

proprietary action “touches upon” a governmental function is insufficient to render the proprietary

action governmental. City of Corpus Christi v. Absolute Indus., 120 S.W.3d 1, 4 (Tex. App.—

Corpus Christi 2001, pet. denied) (holding that city’s threat to retaliate against refineries that did

not use city’s landfill was proprietary, even though it “touche[d] upon waste and disposal to [a]

remote degree”); see also Williams v. City of Midland, 932 S.W.2d 679, 683–84 (Tex. App.—El

Paso 1996, no writ); City of Dallas v. Arnett, 762 S.W.2d 942, 953 (Tex. App.—Dallas 1988, writ

denied). Instead, a city’s proprietary action may be treated as governmental only if it is essential

to the city’s governmental actions.

The Tort Claims Act identifies “waterworks,” “reservoirs,” and “water and sewer service”

as governmental functions. TEX. CIV. PRAC. & REM CODE § 101.0215(a)(11), (19), (32). Relying

on these designations, the court of appeals concluded that the City’s conduct in leasing the

lakefront property was also governmental because it was merely a part of the City’s broader

conduct in support of a governmental function.8 We disagree, because the City’s leasing of the

lakefront property was not “essential” to the City’s operation or maintenance of the lake.

Having considered the definitions and the parties’ arguments, we conclude that the City

was performing a proprietary function—not a governmental function—when it leased its lakefront

property to the Wassons. As we noted in Wasson I, drawing this distinction “is not always a cut-

governmental function of “animal control” as to be governmental); Ethio Exp. Shuttle Serv., Inc. v. City of Houston, 164 S.W.3d 751, 756 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (holding operation of shuttle service to airport was “well aligned” with enumerated governmental functions of “airports, regulation of traffic, and transportation systems”); Tex. River Barges v. City of San Antonio, 21 S.W.3d 347, 356 (Tex. App.—San Antonio 2000, pet. denied) (“Clearly, the City’s removal of TRB’s barge from the City-owned marina was a governmental function, since the Act expressly defines the operation of marinas as a governmental function.”). 8 See 513 S.W.3d at 221 (holding that because the Tort Claims Act “specifically classifies ‘reservoirs,’ ‘waterworks,’ and ‘water and sewer service’ as governmental functions,” “[t]he operation and maintenance thereof are likewise governmental functions”) (quoting TEX. CIV. PRAC. & REM. CODE § 101.0215(a)(11), (19), (32)).

and-dried task.” 489 S.W.3d at 438. Based on the common-law and statutory definitions, we have

considered four factors relevant to these facts. In some cases, some factors may point to one result

while others point to the opposite result. In such cases, courts should consider immunity’s nature

and purpose and the derivative nature of a city’s access to that protection. Here, however, all four

relevant factors establish that the City was performing a proprietary function when it leased its

lakefront property. As a result, governmental immunity does not protect the City against Wasson’s

suit for breach of the lease agreements.

V. Conclusion

We held in Wasson I that the governmental/proprietary dichotomy applies to the

determination of whether governmental immunity bars a breach-of-contract claim against a

municipality. We hold today that the nature of the function the municipality was performing when

it entered into the contract governs that analysis. In this case, we hold that the City was engaged

in a proprietary function when it leased its lakefront lots to the Wassons, and thus governmental

immunity does not bar Wasson’s claim that the City breached those leases.

Because the court of appeals affirmed the trial court’s summary judgment on the ground

that governmental immunity bars Wasson’s claim, it did not address any of the City’s other

summary-judgment grounds. Having concluded that governmental immunity does not bar

Wasson’s claim, we reverse the court of appeals’ judgment and remand the case to that court so

that it may consider the City’s additional grounds.

_____________________ Jeffrey S. Boyd Justice

Opinion delivered: October 5, 2018