Stuart Thomas Gerstacker v. Kimberly Ann Gerstacker

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-10-00085-CV

City of San Antonio, Acting By and Through the San Antonio Water System, Appellant

v.

Lower Colorado River Authority; Rebecca A. Klein; Michael G. McHenry; Linda C. Raun;
Tom Martine; Steve K. Balas; Lori A. Berger; Ida A. Carter; John C. Dickerson, III;
Vernon E. “Buddy” Schrader; W.F. “Woody” McCasland; Franklin Scott Spears, Jr.;
Timothy T. Timmerman; Kathleen Hartnett White; and Richard “Dick” White, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-09-002760, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

OPINION

The City of San Antonio, acting by and through the San Antonio Water System

(“SAWS”), sued the Lower Colorado River Authority (“LCRA”) and its directors for breach of

contract. SAWS and LCRA entered into a contract under which SAWS would finance a project to

increase the usable water output from the Colorado River in exchange for the right to buy some of

the output from LCRA. The parties spent several years planning the project under certain parameters

before LCRA declared that some parameters had to change. SAWS filed suit, alleging that LCRA

breached the parties’ contract. LCRA filed a plea to the jurisdiction that argued it was immune from

suit under Texas Local Government Code sections 271.152 and 271.153. See Tex. Loc. Gov’t Code

Ann. §§ 271.152, 271.153 (West 2005 & Supp. 2010). The trial court granted LCRA’s plea to the
jurisdiction. For the reasons explained below, we reverse the trial court’s judgment and remand the

cause for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

In 1997, the Texas Legislature created regional planning groups to address Texas’s

long-term water needs. See Act of June 19, 1997, 75th Leg., R.S., ch. 1010, § 1.02, 1997 Tex. Sess.

Law Serv. 3611, 3611-16 (West 1997) (codified at Tex. Water Code Ann. § 16.053 (West 2008)).

The planning group for Region K, which includes the lower Colorado River area, realized that it

faced a shortage of water for agricultural use. The planning group for Region L, which includes San

Antonio, realized that it faced a shortage of water for municipal use. The two planning groups

agreed to try to pool resources to meet their respective needs.

Under the plan they devised, the City of San Antonio would finance capital

improvements for a project that would increase the Colorado River’s usable water output by

330,000 acre-feet.1 In exchange, San Antonio would have the right to purchase up to 150,000 acre-

feet of water for its municipal water needs. The remaining water would stay in the lower Colorado

River area for agricultural use. The Texas Legislature authorized SAWS and LCRA to enter into

a contract implementing this plan, see Tex. Spec. Dists. Local Laws Code Ann. § 8503.030

(West 2009), provided that the contract would “protect and benefit the lower Colorado River

watershed and [LCRA’s] water service area, including municipal, industrial, agricultural,

1
An acre-foot of water is equivalent to about 325,851 gallons. Edwards Aquifer
Auth. v. Chem. Lime, Ltd., 291 S.W.3d 392, 398 n.36 (Tex. 2009).

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recreational, and environmental interests.” Id. § 8503.030(n)(1). LCRA and SAWS signed a

“definitive” contract on March 1, 2002.

The contract divided the project into two phases. The first phase was a “Study

Period” during which “the Parties [would] determine if up to 330,000 acre-feet per annum of water

[could] be made available from sources within the Lower Colorado River Basin.” During the Study

Period, the parties would conduct various analyses of the project’s proposed components. The

second phase of the project would be an “Implementation Period” of up to eighty years, during which

time SAWS would have the right to purchase up to 150,000 acre-feet of water annually from LCRA

depending on how much water the project generated.

The parties’ contract provided that SAWS would pay for all studies conducted during

the Study Period and LCRA would have exclusive ownership of the studies. SAWS ultimately spent

over forty-three million dollars during the Study Period, including thirty-five million on studies and

four million on non-refundable “option fees.”

The contract provided that if either party defaulted by failing to fulfill a contractual

obligation, the other party would be “entitled to any remedy available . . . at law and/or in equity.”

The contract also provided that a default would not automatically terminate the contract. Rather,

SAWS could terminate the contract “in its sole discretion, with or without cause,” at any point

during the Study Period, whereas LCRA could terminate during the Study Period only if it concluded

that the capital cost of the project should be increased and SAWS refused.

By the middle of 2008, studies had established that under its original parameters, the

project would generate between 90,000 and 115,000 acre-feet of water for SAWS. In December of

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2008, however, LCRA declared that certain parameters of the project had to change.2 For example,

LCRA determined that Region K would need significantly more water than originally projected.

LCRA concluded that under the new parameters, the project would not be able to provide any

water to SAWS.

SAWS filed suit in district court, alleging that LCRA breached the parties’ contract

by requiring changes to the project’s parameters. SAWS sought over one billion dollars in damages,

which it alleged was the difference between the cost of obtaining water under the contract and the

cost of obtaining water from a different source. Alternatively, SAWS sought approximately fifty

million dollars in “restitution damages” for the amount LCRA was allegedly unjustly enriched during

the Study Period by, among other things, getting to retain the studies SAWS had financed.

LCRA filed a plea to the jurisdiction in which it argued that it was immune from suit

under Texas Local Government Code sections 271.152 and 271.153. See Tex. Loc. Gov’t Code

§§ 271.152, 271.153. The trial court granted LCRA’s plea. SAWS appeals.

STANDARD OF REVIEW

Governmental immunity has two components: immunity from liability and immunity

from suit. Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006). A governmental entity that

enters into a contract waives its immunity from liability but retains its immunity from suit unless its

immunity from suit is specifically waived by the legislature. Id. Governmental immunity from suit

deprives the trial court of subject-matter jurisdiction. Texas Dep’t of Parks & Wildlife v. Miranda,

2
SAWS contends that this declaration was motivated by improper political and financial
considerations.

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133 S.W.3d 217, 224 (Tex. 2004). A plea to the jurisdiction is a proper instrument to raise the issue

of governmental immunity. Id. at 226. Whether a court has subject-matter jurisdiction is a question

of law, and we review the trial court’s grant of a plea to the jurisdiction de novo. Id. When

reviewing a grant or denial of a plea to the jurisdiction, we consider the plaintiff’s pleadings,

construed in favor of the plaintiff, and any evidence relevant to jurisdiction without weighing the

merits of the claim. County of Cameron v. Brown, 80 S.W.3d 549, 555 (Tex. 2002).

DISCUSSION

LCRA is a governmental agency of the State of Texas and a political subdivision of

the State. See Tex. Spec. Dists. Local Laws Code Ann. § 8503.001(a) (West 2009). Thus, it is

immune from suit unless its immunity is waived. Tooke, 197 S.W.3d at 332. SAWS argues that

LCRA’s immunity was waived four ways: by statute, by agreement, by conduct, and by the Texas

Constitution. We will consider only waiver by statute, as it is sufficient to dictate the outcome

of this appeal.

The parties agree that if any statute serves to waive LCRA’s immunity from suit, it

is Texas Local Government Code section 271.152 (“section 271.152”). Section 271.152, titled

“Waiver of Immunity to Suit for Certain Claims,” provides:

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.3

3
The subchapter in question is subchapter I of chapter 271 of the local government code
(sections 271.151-.160).

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Tex. Loc. Gov’t Code § 271.152. SAWS argues that all elements of this statute are met here, so

LCRA’s immunity from suit is waived. LCRA argues that the contract at issue is not “subject to

this subchapter.”

A contract is “subject to this subchapter” if it is “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. Loc. Gov’t Code Ann.

§ 271.151(2) (West 2005). LCRA first argues that the contract at issue does not meet this definition

because it is not an agreement to provide goods or services to LCRA, but rather is an agreement for

LCRA to provide goods or services to SAWS. We disagree. Among other things, the contract

obligated SAWS to identify, pursue, and fund feasibility studies that subsequently became LCRA’s

exclusive property. This clearly qualifies as “providing goods [and] services to” LCRA. See Kirby

Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 839 (Tex. 2010) (courts should

liberally interpret section 271.152’s phrase “providing goods or services to”); Ben Bolt-Palito Blanco

Consol. Indep. Sch. Dist. v. Texas Political Subdivisions Prop./Cas. Joint Self-Ins., 212 S.W.3d 320,

327 (Tex. 2006) (same); Clear Lake City Water Auth. v. Friendswood Dev. Co., 256 S.W.3d 735,

751 (Tex. App.—Houston [14th Dist.] 2008, pet. dism’d) (same).

LCRA next argues that even if the parties’ contract satisfies all the requirements for

a waiver of immunity under section 271.152, local government code section 271.153

(“section 271.153”) imposes additional requirements for a waiver of immunity that are not met here.

Section 271.153 provides:

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 (a) The total amount of money awarded in an adjudication brought against a local
governmental entity for breach of a contract subject to this subchapter is limited to
the following:

(1) the balance due and owed by the local governmental entity under the
contract as it may have been amended, including any amount owed as
compensation for the increased cost to perform the work as a direct result of
owner-caused delays or acceleration;

(2) the amount owed for change orders or additional work the contractor is
directed to perform by a local governmental entity in connection with the
contract;

(3) reasonable and necessary attorney’s fees that are equitable and just; and

(4) interest as allowed by law.

(b) Damages awarded in an adjudication brought against a local governmental entity
arising under a contract subject to this subchapter may not include:

(1) consequential damages, except as expressly allowed under Subsection
(a)(1);

(2) exemplary damages; or

(3) damages for unabsorbed home office overhead.

Tex. Loc. Gov’t Code § 271.153. LCRA asserts that SAWS is not seeking a “balance due and owed”

as permitted by subsection (a)(1), but rather is seeking “consequential damages” as prohibited by

subsection (b)(1). LCRA argues that this means its immunity from suit is not waived.

LCRA’s argument relies on Tooke v. City of Mexia, in which the supreme court

appeared to hold that the City of Mexia had not waived its immunity from suit on a contract because

the plaintiff sought damages precluded by section 271.153. See 197 S.W.3d at 346 (“[T]he Tookes

do not claim damages within [the] limitations [established by section 271.153]. Their only claim

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is for . . . consequential damages excluded from recovery under the statute. Consequently, we

conclude that the City’s immunity from suit . . . has not been waived.”). Tooke does not directly

address the relationship between sections 271.152 and 271.153, but taken at face value, it seems to

suggest that even if the elements of section 271.152 are satisfied, the State’s immunity from suit is

not waived if the plaintiff seeks damages precluded by section 271.153. See id. at 329 (even though

section 271.152 waiver “would . . . reach the claim in this case,” “recovery is barred” because “the

consequential damages awarded the plaintiffs are not allowed by the statute”). Citing Tooke, LCRA

argues that the trial court properly granted its plea to the jurisdiction because SAWS seeks damages

precluded by section 271.153.

Recently, however, the supreme court has suggested that section 271.153 is not a

proper basis for granting a dispositive pre-trial plea to the jurisdiction like the one at issue here. In

Kirby Lake, 320 S.W.3d 829, a State agency claimed (as LCRA does) that its immunity from suit

was not waived because there was no “balance due and owed” the plaintiff under the contract at

issue. See Kirby Lake, 320 S.W.3d at 840. The supreme court rejected this argument, stating: “The

purpose of section 271.153 is to limit the amount due by a governmental agency on a contract once

liability has been established, not to foreclose the determination of whether liability exists.” Id.

(emphasis added). Here, section 271.153 would obviously “foreclose the determination of whether

liability exists” if it served as the basis for granting LCRA’s plea to the jurisdiction.

In keeping with Kirby Lake, several courts of appeals have held that section 271.153

is not a proper basis for granting a plea to the jurisdiction. See, e.g., City of N. Richland

Hills v. Home Town Urban Partners, Ltd., Nos. 02-10-00224-CV & 02-10-00236-CV, 2011 Tex.

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App. LEXIS 3249, at *17-18 (Tex. App.—Fort Worth Apr. 28, 2011, no pet. h.) (op. on reh’g);

Clear Lake City Water Auth. v. MCR Corp., No. 01-08-00955-CV, 2010 Tex. App. LEXIS 2194, at

*29-31 (Tex. App.—Houston [1st Dist.] Mar. 11, 2010, pet. denied) (mem. op.) (whether balance

is due under section 271.153 goes to merits of case, not to trial court’s jurisdiction; at pre-trial stage,

plaintiff satisfies section 271.153 by alleging facts to support claim that balance is due and owing

under contract); City of Houston v. Southern Elec. Servs., Inc., 273 S.W.3d 739, 744

(Tex. App.—Houston [1st Dist.] 2008, pet. denied) (same); see also Jones v. City of Dallas,

310 S.W.3d 523, 527-28 (Tex. App.—Dallas 2009, pet. denied) (on plea to the jurisdiction involving

sections 271.152 and 271.153, courts should “not delve into the nature and extent of damages,”

which means section 271.153 is not basis for granting State’s plea to the jurisdiction); Dallas Area

Rapid Transit v. Monroe Shop Partners, Ltd., 293 S.W.3d 839, 842 (Tex. App.—Dallas 2009, pet.

denied) (acknowledging Tooke but stating that “statutory limitations on a plaintiff’s recoverable

damages do not deprive the trial court of subject matter jurisdiction to adjudicate the plaintiff’s

breach of contract claims”); City of Mesquite v. PKG Contracting, Inc., 263 S.W.3d 444, 448

(Tex. App.—Dallas 2008, pet. denied) (same). We find their logic compelling for several reasons.

First, whether a governmental entity can be liable for damages in a particular suit is

a completely separate question from whether the entity can be subjected to the suit in the first place.

That is to say, immunity from suit and immunity from liability are distinct concepts. See Tooke,

197 S.W.3d at 332. Immunity from suit bars suit against a governmental entity altogether and

deprives a court of jurisdiction, whereas immunity from liability bars enforcement of a judgment but

does not affect a court’s jurisdiction. See Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 696

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(Tex. 2003). LCRA essentially argues that section 271.152 waives its immunity from suit only to

the extent that section 271.153 permits liability. Some statutes do evince a clear legislative intent

to tie immunity from suit to immunity from liability in this way. See, e.g., Texas Tort Claims Act,

Tex. Civ. Prac. & Rem. Code Ann. § 101.025(a) (West 2011) (“Sovereign immunity to suit is

waived and abolished to the extent of liability created by this chapter.”); Private Real Property Rights

Preservation Act, Tex. Gov’t Code Ann. § 2007.004(a) (West 2008) (“Sovereign immunity to suit

and liability is waived and abolished to the extent of liability created by this chapter.”). But the

statutes at issue here do not. Rather, the titles of sections 271.152 (“Waiver of Immunity to Suit For

Certain Claims”) and 271.153 (“Limitations on Adjudication Awards”) make clear that the

Legislature intended the former to govern immunity from suit and the latter to govern liability. See

Tex. Gov’t Code Ann. § 311.023(7) (West 2005) (court may consider statutes’ titles in construing

statutes). Indeed, no part of section 271.153 even mentions waiver of immunity from suit; the statute

discusses nothing but limitations on liability. See Tex. Loc. Gov’t Code § 271.153. Therefore, we

cannot conclude that the Legislature intended section 271.153 to bear on immunity from suit.

Further, as a matter of logic, discussing limitations on liability makes sense only if

liability can be imposed in the first place. Liability can be imposed on a governmental entity only

if the entity’s immunity from suit has been waived. See Tooke, 197 S.W.3d at 332 (if governmental

entity’s immunity from suit not waived, suit against entity barred altogether). Thus, discussing

limitations on liability (as section 271.153 does) implies that the State’s immunity from suit has

already been waived. See Baylor College of Med. v. Hernandez, 208 S.W.3d 4, 10

(Tex. App.—Houston [14th Dist.] 2006, pet. denied) (“A damages cap limits damages but does not

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imply immunity from suit. To the contrary, damages caps . . . that ‘insulate public resources from

the reach of judgment creditors’ indicate immunity from suit has been waived.”) (quoting Taylor,

106 S.W.3d at 698). This fact suggests that courts should look first to section 271.152 to determine

whether the State’s immunity from suit is waived, and if it is, courts should then apply section

271.153 to determine the limitations of the State’s liability. See City of Mesquite, 263 S.W.3d at 448

(“Once the trial court determines whether the contract falls within the provisions of section 271.152,

it need not parse further the pleadings or the contract to determine whether the legislature has waived

immunity for breach of contract claims.”). Kirby Lake supports this two-step approach. See Kirby

Lake, 320 S.W.3d at 840 (“The purpose of section 271.153 is to limit the amount due by a

governmental agency on a contract once liability has been established.”) (emphasis added).

Finally, local government code section 271.158 states that “Nothing in this subchapter

shall constitute a grant of immunity to suit to a local governmental entity.” Tex. Loc. Gov’t Code

Ann. § 271.158 (West 2005). This seems to preclude any interpretation of section 271.153 that

would grant immunity in a case where section 271.152 would otherwise waive immunity.4

For all these reasons, we hold that section 271.153 was not a proper basis for granting

LCRA’s plea to the jurisdiction.

4
No reported case has analyzed local government code section 271.158, and the
statute’s legislative history is unilluminating. See House Comm. on Civil Practices,
Bi ll An alysis, Tex. H.B. 2039,79th Leg., R.S. (2005), avai l abl e at
http://www.capitol.state.tx.us/tlodocs/79R/analysis/html/HB02039H.htm (last visited June 20, 2011).

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 CONCLUSION

The parties’ contract satisfies the elements of local government code section 271.152.

Under the statute’s plain terms, this means that LCRA’s immunity from suit is waived.

Section 271.153 does not negate this waiver. The trial court therefore erred by granting LCRA’s plea

to the jurisdiction. We reverse the trial court’s judgment and remand the cause for further

proceedings consistent with this opinion.

__________________________________________

David Puryear, Justice

Before Chief Justice Jones, Justices Puryear and Pemberton

Reversed and Remanded

Filed: July 29, 2011

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