City of Carrizo Springs v. Gregory Howard

Fourth Court of Appeals
San Antonio, Texas
MEMORANDUM OPINION
No. 04-18-00061-CV

CITY OF CARRIZO SPRINGS,
Appellant

v.

Gregory HOWARD,
Appellee

From the 365th Judicial District Court, Dimmit County, Texas
Trial Court No. 15-02-12509-DCVAJA
Honorable Amado J. Abascal III, Judge Presiding

Opinion by: Patricia O. Alvarez, Justice

Sitting: Sandee Bryan Marion, Chief Justice
Patricia O. Alvarez, Justice
Irene Rios, Justice

Delivered and Filed: June 13, 2018

AFFIRMED

Appellant City of Carrizo Springs hired Appellee Gregory Howard as its City Manager.

About eight months into the two-year contract, the City terminated Howard’s contract. Howard

sued the City for breach of contract. The City filed a plea to the jurisdiction, which the trial court

denied, and the City seeks review by interlocutory appeal.

Because the City waived its immunity from suit by entering into the employment contract,

we affirm the trial court’s order.
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BACKGROUND

On November 5, 2013, the City of Carrizo Springs, Texas hired Gregory Howard as its

City Manager and the parties executed an employment contract. In the “Terms” section, the

contract states that Howard “accepts employment as the City Manager for a term commencing

November 5, 2013, and ending December 31, 2015.” In the “Termination of Employment

Contract” section, under “Unilateral Termination by the City,” the contract states as follows:

The City may, at its option, and by a minimum of 90 days’ notice to the City
Manager, unilaterally terminate this contract. In the event of such termination, the
City shall pay to City Manager, as severance pay, all of the aggregate salary and
other compensation he would have earned under this employment contract from the
actual date of termination to the termination date set forth in this employment
contract. All City paid benefits shall continue until the expiration date of the
cont[r]act unless otherwise settled by mutual agreement. In any event, the
severance pay will not be less than 12 months.

On July 15, 2014, Howard’s employment contract was terminated. Howard sued the City

for breach of contract. He argued that the City terminated the contract “without cause and without

notice,” and he sought damages and attorney’s fees.

The City filed a plea to the jurisdiction; it argued that its immunity from suit was not waived

because the contract was not properly executed. The City argued that “because Howard’s

Severance Pay Provision was not contemplated to be paid from the current revenues of fiscal year

2013–2014,” the contract constituted a debt under article XI, section 7 of the Texas Constitution,

see TEX. CONST. art. XI, § 7, the City did not meet the tax and sinking fund requirements to validate

the contract, see id., and thus the contract did not invoke the Local Government Code’s waiver.

After a hearing, the trial court denied the City’s plea.

The City raises this interlocutory appeal. The City argues the trial court erred by denying

its plea because its immunity from suit was not waived.

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PLEA TO THE JURISDICTION, STANDARD OF REVIEW

“In Texas, sovereign immunity deprives a trial court of subject matter jurisdiction for

lawsuits in which the state or certain governmental units have been sued unless the state consents

to suit.” Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 224 (Tex. 2004); accord

Shamrock Psychiatric Clinic, P.A. v. Tex. Dep’t of Health & Human Servs., 540 S.W.3d 553, 559

(Tex. 2018). Consenting to suit in certain circumstances, the Legislature waived local

governmental entities’ immunity from suit in section 271.152 of the Local Government Code:

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 ANN. § 271.152 (West 2016) (“Waiver of Immunity to Suit for Certain

Claims”); see Zachry Const. Corp. v. Port of Hous. Auth. of Harris Cty., 449 S.W.3d 98, 106 (Tex.

2014) (recognizing that the statute “waives immunity from contract suits for local governmental

entities”).

A local governmental entity, such as a city, may assert its immunity from suit in a plea to

the jurisdiction. See Miranda, 133 S.W.3d at 225–26; Tex. Dep’t of Transp. v. Jones, 8 S.W.3d

636, 638 (Tex. 1999). “[I]f a plea to the jurisdiction challenges the existence of jurisdictional facts,

we consider relevant evidence submitted by the parties when necessary to resolve the jurisdictional

issues raised, as the trial court is required to do.” Miranda, 133 S.W.3d at 227; accord City of

Magnolia 4A Econ. Dev. Corp. v. Smedley, 533 S.W.3d 297, 301 (Tex. 2017) (per curiam) (quoting

Miranda).

We consider whether the plaintiff has “allege[d] facts that affirmatively demonstrate a trial

court’s subject matter jurisdiction,” Miranda, 133 S.W.3d at 226, and whether the governmental

entity has “assert[ed] and support[ed] with evidence [the proposition] that the trial court lacks

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subject matter jurisdiction,” id. at 228. The court must “take as true all evidence favorable to the

nonmovant [and] indulge every reasonable inference and resolve any doubts in the nonmovant’s

favor.” Id.; accord Suarez v. City of Texas City, 465 S.W.3d 623, 633 (Tex. 2015).

WAIVER OF IMMUNITY FROM SUIT

In its sole issue, the City argues its immunity from suit was not waived because the

employment contract violated article XI, section 7’s prohibition on creating an unfunded debt, the

contract was outside the City’s authority, and thus the City’s immunity was not waived by the

Local Government Code. We briefly review the constitutional provision and the applicable law.

A. Constitutionally Proscribed Unfunded Debt

The Texas Constitution prohibits a city from incurring a debt unless it meets certain tax

and sinking fund requirements:

[N]o debt for any purpose shall ever be incurred in any manner by any city or county
unless provision is made, at the time of creating the same, for levying and collecting
a sufficient tax to pay the interest thereon and provide at least two per cent (2%) as
a sinking fund . . . .

TEX. CONST. art. XI, § 7; see Brown v. Jefferson Cty., 406 S.W.2d 185, 187 (Tex. 1966).

However, “[a] contract which runs for more than one year is a commitment only of current

revenues, and so is not a ‘debt,’ if it reserves to the governing body the right to terminate at the

end of each budget period.” City-County Solid Waste Control Bd. v. Capital City Leasing, Inc.,

813 S.W.2d 705, 707 (Tex. App.—Austin 1991, writ denied) (first emphasis added); accord City

of Bonham v. Sw. Sanitation, Inc., 871 S.W.2d 765, 768 (Tex. App.—Texarkana 1994, writ denied)

(“A contract that runs for more than a year but gives the city a right to terminate it at the end of

each year is a commitment of current revenues only and is not a debt.” (emphasis added)).

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B. Statutory Waiver of Immunity

The Legislature has authorized a city to enter into certain contracts. See, e.g., TEX. LOC.

GOV’T CODE ANN. § 271.151(2)(A) (addressing contracts for “services to the local governmental

entity”); City of Houston v. Williams, 353 S.W.3d 128, 135 (Tex. 2011). If a city enters into a

contract for services, the contract invokes “section 271.152’s waiver of immunity [if] it (1) [is] in

writing, (2) state[s] the essential terms of the agreement, (3) provide[s] for goods or services, (4)

to the local governmental entity, and (5) [is] executed on behalf of the local governmental entity.”

See City of Pearsall v. Tobias, 533 S.W.3d 516, 522 (Tex. App.—San Antonio 2017, pet. denied)

(citing TEX. LOC. GOV’T CODE ANN. § 271.151(2); Williams, 353 S.W.3d at 135); see also City of

Galveston v. CDM Smith, Inc., 470 S.W.3d 558, 566 (Tex. App.—Houston [14th Dist.] 2015, pet.

denied) (“Waiver of immunity is triggered by the mere act of entering into a contract for goods or

services.”).

C. City’s Argument

The City argues Howard’s employment contract violates the Texas Constitution because

the two-year term and the severance pay provisions create an unfunded debt. The City contends

the contract “did not specifically reserve the right to terminate the contract at the end of each

budget period,” and the contract improperly attempted to force the City to incur a debt without

meeting the constitutionally required tax or sinking fund provisions for such a debt. See TEX.

CONST. art. XI, § 7 (tax, sinking fund requirements); Brown, 406 S.W.2d at 187. Because the City

did not meet the constitutional requirements, the contract was not properly executed, and section

271.152 does not operate to waive the City’s immunity from suit. See TEX. LOC. GOV’T CODE

ANN. § 271.152.

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D. Howard’s Argument

Howard argues the City’s immunity from suit has been waived because his employment

contract falls within the scope of sections 271.151 and 271.152. See id. §§ 271.151, .152. He

asserts the contract was an exercise of a proprietary function—which waives immunity—and the

contract was payable in full out of then-current-year funds. He also argues the contract did not

create a debt because the City had a unilateral right to terminate the contract.

E. Evidence of Valid Contract

The City acknowledges that the parties executed the written employment contract for

Howard to provide his services to the City. Neither party disputes the text of the contract’s

“Terms” or “Unilateral Termination by the City” provisions.

The City does not argue that the employment contract did not meet all the essential

elements of a valid contract, see TEX. LOC. GOV’T CODE ANN. § 271.151; Williams, 353 S.W.3d

at 135; Tobias, 533 S.W.3d at 522, or challenge the sufficiency of Howard’s pleadings, see

Miranda, 133 S.W.3d at 226. Instead, the City argues the contract is void because it created a debt

without meeting the constitutional tax and sinking fund requirements. See TEX. CONST. art. XI,

§ 7; Brown, 406 S.W.2d at 187.

Thus, we look to the contract’s terms and the applicable law to determine whether the

contract created an unfunded debt and the trial court should have granted the City’s plea. See TEX.

LOC. GOV’T CODE ANN. § 271.152 (waiver of immunity); Tobias, 533 S.W.3d at 522 (creating a

debt); City-County Solid Waste Control Bd., 813 S.W.2d at 707 (debt); Sw. Sanitation, 871 S.W.2d

at 768 (debt).

F. Evidence of Waiver of Immunity

Here, Howard’s employment contract contemplated a two-year period of employment, but

it also includes a termination provision that allows the City to, “at its option, and by a minimum
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of 90 days’ notice to the City Manager, unilaterally terminate this contract.” Because the City had

the right to unilaterally terminate Howard’s contract before the end of each budget period, or at

any other time, the contract did not create a debt. See Tobias, 533 S.W.3d at 522 (“[B]ecause the

‘governing body [maintains] the right to terminate [the contract] at the end of each budget period,’

the agreement does not create an unconstitutional debt.” (second alteration in original)); City-

County Solid Waste Control Bd., 813 S.W.2d at 707 (same); Sw. Sanitation, 871 S.W.2d at 768

(same). The City’s two-year term argument is unavailing.

The City’s severance pay provision argument fares no better. The City asserts—without

any supporting authorities—that because Howard’s claim is for more than one year’s salary, his

claim creates “a multi-year obligation.” Even if we assume any severance was to be paid in more

than one payment (rather than in a single, lump-sum payment), the City provides no authorities to

show how the severance pay provision created a constitutionally proscribed debt. The evidence

shows the City had funds within its immediate control to pay any severance amount several times

over, and the City failed to affirmatively negate that evidence. See Tobias, 533 S.W.3d at 524

(“[A] contract does not create a ‘debt,’ however, if the parties lawfully and reasonably contemplate

that the obligation will be satisfied out of current revenues or out of some fund then within the

immediate control of the governing body.”).

Taking all the evidence favorable to Howard as true and making all reasonable inferences

in his favor, see Suarez, 465 S.W.3d at 633; Miranda, 133 S.W.3d at 228, we conclude Howard

has “alleged facts that affirmatively demonstrate [the] trial court’s subject matter jurisdiction,” see

Miranda, 133 S.W.3d at 226, and the City failed to “support[] with evidence [the proposition] that

the trial court lacks subject matter jurisdiction,” see id. at 228. We overrule the City’s issue.

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CONCLUSION

The City’s only argument on appeal is that the City’s immunity from suit was not waived

by Howard’s employment contract because there was no provision to meet the constitution’s tax

and sinking fund requirements and thus the contract created a proscribed debt. But the City’s right

to unilaterally terminate the contract at any time means Howard’s contract did not create an

unfunded debt, and that ground does not void the employment contract.

Taking the evidence favoring Howard as true, we conclude it shows the employment

contract includes section 271.151’s essential elements and invokes section 271.152’s waiver of the

City’s immunity to suit. Howard met his burden to show the trial court has subject matter

jurisdiction; the City failed to meet its burden to show the trial court does not.

We affirm the trial court’s order.

Patricia O. Alvarez, Justice

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