Tri-Stem, Ltd v. the City of Houston

Affirmed in Part; Reversed in Part; Remanded; and Opinion filed November
29, 2018.

In The

Fourteenth Court of Appeals

NO. 14-17-00545-CV

TRI-STEM, LTD, Appellant
V.

THE CITY OF HOUSTON, Appellee

On Appeal from the 215th District Court
Harris County, Texas
Trial Court Cause No. 2016-76229

OPINION

In this breach-of-contract case, Tri-Stem, Ltd. appeals from a summary
judgment in favor of the City of Houston. Tri-Stem contends the trial court erred in
(1) granting summary judgment before addressing the City’s assertion of
governmental immunity, (2) denying Tri-Stem’s motion for a continuance,
(3) sustaining all of the City’s objections to Tri-Stem’s summary-judgment
evidence, and (4) granting the City’s summary-judgment motion. We conclude that
the trial court implicitly and correctly denied the City’s assertion of governmental
immunity because the City performed a proprietary function in entering into its
contract with Tri-Stem. We further agree that, on this record, the trial court abused
its discretion in denying Tri-Stem’s motion for a continuance to allow it to obtain
necessary discovery and deposition testimony. Our disposition of these two issues
renders Tri-Stem’s remaining issues moot. We therefore reverse the trial court’s
judgment and remand the case without further addressing them.

I. BACKGROUND

The City of Houston contracted for Tri-Stem, Ltd. to audit the City’s utility
bills and seek refunds for past billing errors and overcharges. In Phase One, Tri-
Stem would audit the bills for the City’s unmetered streetlights, and in Phase Two,
Tri-Stem would audit all other electric and natural-gas utility bills.

The contract required the City to pay Tri-Stem “45% of any cash refunds the
City actually receive[d]” as a result of Tri-Stem’s work for up to four years after the
contract terminated. The City agreed to pay Tri-Stem on the basis of invoices
submitted by Tri-Stem and approved by the director of the City’s general services
department or by the person designated by the director to administer the contract.
Payment was “contingent upon the City’s receipt of all Refunds described in the
invoice.”

The contract also contained the following express limitation of liability:

1. The City’s duty to pay money to [Tri-Stem] under this Contract is
limited in its entirety by the provisions of this Section.
2. The City has not appropriated and will not appropriate any funds for
[Tri-Stem’s] performance under this Contract. The City’s obligation of
payment under this Contract, if any, is limited to actual Refunds
received by the City as a result of [Tri-Stem’s] performance under this
Contract. Unless the City receives actual Refunds, the City shall have
no obligation to pay [Tri-Stem]. [Tri-Stem] must look to the actual
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 Refunds received by the City and to no other funds for the City’s
payment under this Contract.
The contract contained a merger clause stating that it constituted the parties’
entire agreement, including all prior negotiations and understandings, and
disclaiming any other express or implied covenants. The parties agreed that the
contract could be amended “only by written instrument executed on behalf of the
City (by authority of an ordinance adopted by the City Council)” and by Tri-Stem.
The parties further agreed that the contract is subject to state and federal law and to
the City’s charter and ordinances.

The parties entered into the three-year contract in October 2009, then extended
the contract for an additional year.

A. The Streetlight Litigation and the Contract’s Amendment

The City’s streetlights were installed, maintained, and powered by
CenterPoint Energy Houston Electric, LLC (“CenterPoint”). When CenterPoint
refused to refund alleged overcharges found by Tri-Stem, the City hired the law firm
Beck Redden LLP to sue CenterPoint.

Beck Redden filed suit against CenterPoint in a Harris County district court
(“the Streetlight Litigation”). To address the Streetlight Litigation, the City and Tri-
Stem amended the contract as authorized by an ordinance adopted by the City
Council. As amended, the contract distinguishes between Tri-Stem’s payments
based on “cash refunds” and its payments based on “cash recovery related to” the
Streetlight Litigation or “related to judgments or settlements obtained through
judicial or administrative processes or appeals.” Under the contract as amended, the
City was required to pay Tri-Stem (a) 45% of any “cash refunds” actually received
by the City as a result of Tri-Stem’s work, and (b) 20% of any “cash recovery”
related to the Streetlight Litigation or its settlement. The amendment further

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clarified that Tri-Stem “shall have no claim upon amounts paid to the City as
reimbursement for expenses associated with the recovery, court costs or attorney’s
fees.” Finally, the parties agreed in the amendment that Tri-Stem’s compensation
“shall never exceed” the stated percentages of the City’s cash refunds and cash
recovery.

B. The City’s Agreements with CenterPoint

The Streetlight Litigation was not tried on the merits but was dismissed
without prejudice on the ground that the Public Utility Commission of Texas had
exclusive jurisdiction over the City’s claims. Our sister court affirmed the judgment.
See City of Houston v. CenterPoint Energy Hous. Elec., LLC, No. 01-11-00885-CV,
2012 WL 6644982, at *1–2 (Tex. App.—Houston [1st Dist.] Dec. 20, 2012, no pet.)
(mem. op.).

Rather than relitigate the case before the Public Utility Commission, the City
and CenterPoint negotiated a settlement. Tri-Stem alleges that the City reached a
non-cash settlement with CenterPoint in a deal involving three agreements. In the
document we will refer to as “the Audit Agreement,” the City and CenterPoint
released their claims against each other for, respectively, streetlight overbilling and
streetlight underbilling, and they established an administrative process for auditing
streetlight invoices in the future. In “the Trail Agreement,” CenterPoint granted the
City a revocable license to construct and maintain public hiking and biking trails on
CenterPoint’s property. In “the LED Agreement,” CenterPoint agreed to convert the
City’s streetlights to more efficient LED lighting over a five-year period. Tri-Stem
claims that the real estate involved in the Trail Agreement is likely worth tens of
millions of dollars, and that the LED Agreement will save the City approximately
$28 million per year annually, for which Tri-Stem claims a right to a $5.6 million

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fee for the first year alone. Tri-Stem was paid nothing in connection with the
Streetlight Litigation.

C. Tri-Stem’s Suit Against the City

Tri-Stem sued the City for breach of contract seeking to recover a percentage
of any cash the City received under the Audit Agreement, the Trail Agreement, or
the LED Agreement. Tri-Stem also sought to recover “the cash value of 20% of the
[non-cash] consideration” that CenterPoint paid the City as a result of Tri-Stem’s
work.

Tri-Stem alleged that it had an agency relationship with the City, under which
the City was bound to act in good faith and fair dealing in the performance of its
contractual duties, and that the City “expressly agreed, and impliedly covenanted to
only take cash recoveries and for Tri-Stem to negotiate settlements on its behalf.”
According to Tri-Stem, the City breached the contract by “unilaterally negotiating
and accepting a non-cash settlement” of the Streetlight Litigation and by failing to
pay Tri-Stem a percentage of the cash value of the non-cash recovery the City
received in the settlement. Despite its allegations that the City reached a non-cash
settlement with CenterPoint, Tri-Stem additionally pleaded for recovery of “20% of
the $1,633,265 cash actually paid by CenterPoint.”1 Tri-Stem further asserted that
it has sustained damages as a result of the City’s failure to provide documents
necessary for Tri-Stem to perform under Phase Two of the contract.

1. The City’s Motion for Traditional Summary Judgment

A few weeks after the trial court issued a docket control order in Tri-Stem’s
suit, the City moved for traditional summary judgment. The City argued that under

1
Tri-Stem’s pleading does not describe the factual basis for the assertion that CenterPoint
paid the City this amount.

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the contract’s unambiguous terms, Tri-Stem was entitled only to 20% of any cash
recovery the City received in settlement of the Streetlight Litigation and to 45% of
any cash refunds CenterPoint paid the City. Regarding the “cash recovery”
provision of the contract, the City argued that the Audit Agreement is the only
agreement concerning Tri-Stem’s work that is related to the Streetlight Litigation,
and because the City received no cash recovery under the Audit Agreement, it owes
Tri-Stem nothing under the “cash recovery” provision of the contract. As for the
contract’s “cash refunds” provision, the City asserted that when it received a cash
refund from a utility, Tri-Stem would invoice the City for the portion due to Tri-
Stem and that the City has paid the full amount invoiced. In support of the motion,
the City attached copies of its original and amended contract with Tri-Stem, the
City’s live pleading in the Streetlight Litigation at the time that suit was dismissed,
Tri-Stem’s original petition in this suit, and the Audit, Trail, and LED Agreements.
The City also produced the affidavit of Gertha Ferguson, who was a management
analyst in the City’s general services department at the time of these events.
Ferguson attested that Tri-Stem submitted invoices to the City totaling $325,654.02,
which represented 45% of the cash refunds the City received, and that the City paid
the full amount invoiced.

2. Tri-Stem’s Motions for a Continuance and to Compel Discovery
Responses
Tri-Stem initially responded to the summary-judgment motion by filing
motions to continue the summary-judgment hearing and to compel the City to
respond to Tri-Stem’s discovery requests. In a supplemental motion for
continuance, Tri-Stem stated that it needed discovery to authenticate or “prove up”
the City’s business records, CenterPoint’s business records, notes or memoranda of
city council business, and correspondence. Tri-Stem also stated that it needed

6
deposition testimony on fact issues such as ascertaining the amount of cash the City
received from CenterPoint.

The City then moved to stay discovery pending a ruling on the summary-
judgment motion, and each side filed responses to the other’s motions. The City
objected to all of Tri-Stem’s summary-judgment evidence except for those few
exhibits that duplicated evidence the City already had offered in support of its
summary-judgment motion. All of the motions, including the City’s motion for
summary judgment, were set for hearing at the same time.

At the hearing, the trial court granted the City’s motion for summary judgment
and rendered judgment that Tri-Stem take nothing by its suit. The trial court later
signed additional orders denying Tri-Stem’s motion for a continuance, sustaining all
of the City’s objections to Tri-Stem’s summary-judgment evidence, and denying
Tri-Stem’s motion for a new trial.

II. ISSUES PRESENTED

On appeal, Tri-Stem first contends that the trial court erred in granting the
City’s motion for summary judgment before addressing whether it had subject-
matter jurisdiction.2 As a subsidiary issue, Tri-Stem argues that the trial court has
subject-matter jurisdiction over all of its claims, for which the City’s immunity is
either non-existent or has been statutorily waived. In its second issue, Tri-Stem
maintains that the trial court abused its discretion in denying its motion to continue
the summary-judgment hearing to allow Tri-Stem to obtain further discovery. Tri-
Stem argues in its third issue that the trial court erred in sustaining all of the City’s
objections to Tri-Stem’s summary-judgment evidence. In its fourth issue, Tri-Stem
challenges the trial court’s grant of the City’s motion for summary judgment.

2
We have reordered Tri-Stem’s issues.

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 III. JURISDICTION

If a trial court lacks subject-matter jurisdiction to make the challenged ruling,
then the ruling is void. See Mapco, Inc. v. Forrest, 795 S.W.2d 700, 703 (Tex. 1990)
(orig. proceeding) (per curiam). And if a ruling is void, then the appellate court lacks
jurisdiction to review the ruling’s merits. See Phillips v. Bramlett, 407 S.W.3d 229,
236 (Tex. 2013) (citing Times Herald Printing Co. v. Jones, 730 S.W.2d 648, 649
(Tex. 1987) (per curiam)); Waite v. Waite, 150 S.W.3d 797, 800 (Tex. App.—
Houston [14th Dist.] 2004, pet. denied). The appellate court instead must declare
the ruling void or vacate it. See Doan v. TransCanada Keystone Pipeline, LP, 542
S.W.3d 794, 806 (Tex. App.—Houston [14th Dist.] 2018, no pet.). We therefore
must begin our analysis with Tri-Stem’s jurisdictional arguments.

A. The Trial Court Overruled the Jurisdictional Challenge.

Tri-Stem first contends that the trial court erred in granting the City’s
summary-judgment motion without ruling on the City’s challenge to the trial court’s
jurisdiction. Here, the City filed a motion that combined a traditional motion for
summary judgment on the merits with an alternative motion for summary judgment
based on governmental immunity. Regarding immunity, the City stated in its motion
that the City “only requests ruling on this alternative basis for summary judgment
subject to the Court’s ruling on the City’s Traditional Motion for Summary
Judgment on the Contract.” The record contains a ruling granting the City summary
judgment but contains no ruling on the jurisdictional challenge.

We conclude, however, that the trial court implicitly denied the City’s
assertion of immunity. Governmental immunity defeats subject-matter jurisdiction,
and in the absence of subject-matter jurisdiction, a trial court lacks authority to
decide claims on the merits. See Meyers v. JDC/Firethorne, Ltd., 548 S.W.3d 477,
484 (Tex. 2018). The trial court therefore was not permitted to reach the merits of
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the case without first determining that it had subject-matter jurisdiction to do so. Cf.
Zachry Constr. Corp. v. Port of Hous. Auth. of Harris Cty., 449 S.W.3d 98, 105
(Tex. 2014) (court is not permitted to “assume jurisdiction for the purpose of
deciding the merits of the case” (quoting Sinochem. Int’l Co. v. Malaysia Int’l
Shipping Corp., 549 U.S. 422, 431 (2007) (internal quotation marks omitted))).

If a trial court rules on the merits of claims for which its subject-matter
jurisdiction is challenged, then the trial court has implicitly rejected those
jurisdictional arguments. See Thomas v. Long, 207 S.W.3d 334, 339 (Tex. 2006).
Here, the trial court did not dismiss the case for want of jurisdiction but instead
rendered a take-nothing judgment on Tri-Stem’s claims. By ruling on the merits of
the claims, the trial court implicitly rejected the City’s argument that the claims are
barred by governmental immunity.

B. Governmental Immunity Does Not Apply to Tri-Stem’s Claims.

The parties have joined issue on the question of whether the trial court has
jurisdiction over Tri-Stem’s claims—or to restate their arguments in light of the trial
court’s implicit ruling, they dispute whether the trial court correctly rejected the
City’s assertion of governmental immunity. Tri-Stem contends that the trial court
properly exercised subject-matter jurisdiction over the claims because (1) in entering
into its contract with Tri-Stem, the City performed a proprietary function to which
governmental immunity does not apply; and (2) even if entering into the contract
was a governmental function, the City’s immunity nevertheless was waived under
the Local Government Contract Claims Act. See TEX. LOC. GOV’T CODE ANN.
§§ 271.151–.160 (West 2016). The City takes the opposite position on both of these
points.

An issue implicating a court’s subject-matter jurisdiction presents a question
of law, which we review de novo. See In re H. S., 550 S.W.3d 151, 155 (Tex. 2018).
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We begin with the question of whether immunity applies in the first place, because
if it does not, then there is no question of whether immunity has been waived.

A Texas municipality’s immunity is derived solely from the State of Texas,
which possesses sovereign immunity. Wasson Interests, Ltd. v. City of Jacksonville
(Wasson I), 489 S.W.3d 427, 429 (Tex. 2016). When a municipality performs a
governmental function, it acts as a branch of the state and shares in the state’s
immunity, which is then called “governmental immunity.” Id. at 429–30. Unless
such governmental immunity is constitutionally or statutorily waived, a trial court
lacks subject-matter jurisdiction over claims against municipalities. Suarez v. City
of Texas City, 465 S.W.3d 623, 631 (Tex. 2015).

But not all of a municipality’s actions are governmental functions. A city also
may perform “proprietary functions,” which are acts conducted by the city “in its
private capacity, for the benefit only of those within its corporate limits, and not as
an arm of the government.” Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex.
2006) (quoting Dilley v. City of Houston, 222 S.W.2d 992, 993 (Tex. 1949),
superseded by statute on other grounds, Act of June 3, 1987, 70th Leg., 1st C.S., ch.
2, § 4.05, 1987 TEX. GEN. LAWS 37, 51). When a municipality acts in a proprietary,
non-governmental capacity, governmental immunity does not apply. See Wasson I,
489 S.W.3d at 429–30. As we previously have explained, “the key difference
between governmental and proprietary functions—both of which are performed by
municipalities for the benefit of their citizens—is this: [g]overnmental functions are
what a municipality must do for its citizens and proprietary functions are what a
municipality may, in its discretion, perform for its inhabitants.” Oldfield v. City of
Houston, 15 S.W.3d 219, 226 (Tex. App.—Houston [14th Dist.] 2000, pet. denied),
superseded by statute on other grounds as recognized in Thin Van Truong v. City of
Houston, 99 S.W.3d 204 (Tex. App.—Houston [1st Dist.] 2002, no pet.). Thus,

10
when a city performs discretionary functions on its own behalf, governmental
immunity does not apply. See Wasson I, 489 S.W.3d at 436.

Here, the City was not required to engage in a post-payment, private audit of
the electric bills for its streetlights. These facts contrast with those in Perry v.
Greanias, 95 S.W.3d 683, 693 (Tex. App.—Houston [1st Dist.] 2002, pet. denied).
As our sister court pointed out in Perry, Houston’s City Charter requires the City to
perform a pre-payment, internal audit before paying any debt. See id. (“Houston
City Charter prescribes that the city controller cannot pay any debt owed by the city
‘until he has audited and examined the claim and found the same justly and legally
due and payable, and that the payment has been legally authorized.’” (quoting
HOUSTON, TEX., CITY CHARTER art. VIII, § 3 (Act of 1905; added by amend. Oct.
15, 1913))).3 The First Court of Appeals concluded that the city controller’s
performance of this advance, internal audit is a governmental function. Id. at 694.
But when determining “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.”
Wasson Interests, Ltd. v. City of Jacksonville (Wasson II), No. 17-0198,
__S.W.3d__, 2018 WL 4838309, at *5 (Tex. Oct. 5, 2018) (op. on reh’g) (emphasis
added). Nothing required the City to perform—or to contract for a private entity to
perform—a second, post-payment audit of the City’s utility bills.

The facts of the Wasson cases, recited in Wasson II, are instructive in deciding
whether the City was acting in a proprietary or governmental function in contracting
with Tri-Stem. In Wasson II, the City of Lake Jacksonville constructed Lake
Jacksonville as the city’s primary source of water and leased lakefront lots to private

3
See also HOUSTON, TEX., CITY CHARTER art. IX, § 14 (“This Act shall be deemed a public
Act, and judicial notice shall be taken thereof in all courts.”).

11
parties, including the Wassons. See id. at *1. The lease incorporated the city’s rules
and regulations concerning Lake Jacksonville, and the rules barred the business use
of the leased property. See id. The Wassons constructed a large house on the lot,
assigned the lease to Wasson Interests, and began leasing the property for weddings
and other events. See id. The city terminated its lease with Wasson Interests, which
then sued the city for breach of contract and for declaratory and injunctive relief.
See id. The trial court granted the city summary judgment based on governmental
immunity, and Wasson Interests appealed. See id. at *2. The intermediate appellate
court affirmed on the ground that the distinction between governmental and
proprietary functions applies to tort claims but not to breach-of-contract claims. See
id. The Supreme Court of Texas had reversed this ruling in Wasson I, explaining
that the dichotomy applies to both tort and contract claims. See id.

On remand, the intermediate appellate court held that the contract claim arose
from the city’s performance of a governmental function, and the Supreme Court of
Texas again granted Wasson Interest’s petition for review. See id. The city argued
that governmental immunity applied “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.” Id. at *3. The Supreme Court rejected this reasoning,
reminding the city that the question is “whether the contract at issue was proprietary
or governmental.” Id. at *4 (quoting Wasson I, 489 S.W.3d 439) (alteration in
original).

In holding that the city was performing a proprietary function, the Supreme
Court of Texas considered whether (a) the act of entering into the lease was
mandatory or discretionary, (b) the leases were intended to benefit the general public

12
or the city’s residents, (c) the city acted on the State’s behalf or its own behalf in
entering into the leases, and (d) the city’s act in entering into the leases “was
sufficiently related to a governmental function to render the act governmental even
if it would otherwise have been proprietary.” Id. at *5.

Regarding the first factor, the city in Wasson II had discretion to enter into the
leases at issue but was not required to do so. See id. As the court explained, the city
“chose to generate revenue by granting long-term leases to private parties.” Id. at
*6. Here, the City of Houston was not required to submit its utility bills to a post-
payment audit but did so on the chance that it might recapture a portion of the
payments it already had made.

In evaluating the second factor, the court considered the contract’s intended
beneficiaries. The court clarified that “[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.” Id. The Wasson II court held
that the primary objective in leasing the properties was to raise funds for the city’s
budget. Id. Here, any refunds that Tri-Stem was able to obtain similarly were paid
directly to the City of Houston. The refunds primarily benefitted the City and its
residents, not the general public.

Turning to the third factor, the Wasson II court determined whether the city
acted on behalf of the State or on its own behalf in entering into the lease. The court
held that the city acted on its own behalf because (a) the decision to lease the
lakefront property was discretionary, (b) the leases primarily benefitted the city’s
residents, and (c) no facts countered the conclusion that the city was acting on its
own behalf. Id. at *7. Similarly, the City of Houston’s decision to contract with Tri-

13
Stem was entirely discretionary; the contract primarily benefitted Houston residents;
and there is no evidence to the contrary.

The last factor in determining whether a municipality was performing a
governmental or proprietary function when it entered into a contract is whether the
contract was so related to a governmental function that the city’s act in entering into
the contract must be considered governmental. The Supreme Court in Wasson II
rejected the intermediate appellate court’s reasoning that when a municipality’s
action involves both proprietary and governmental elements, the entire function is
governmental. See id. The Supreme Court instead held that “a city’s proprietary
action may be treated as a governmental only if it is essential to the city’s
governmental actions.” Id. (emphasis added). Applying this rule, the court held that
leasing the lakefront property was not “essential” to the city’s operation or
maintenance of the lake that served as the city’s reservoir. See id. at *8. In the case
before us, the City of Houston identifies no governmental function for which Tri-
Stem’s post-payment audit of the City’s utility bills was essential.

In arguing that governmental immunity applies, the City states that its
“underlying agreement with CenterPoint involved the provision of illumination for
City roads and streets for purposes of ensuring the general welfare of the public.”4
But as the Supreme Court of Texas stated in Wasson II, the question for immunity
purposes is “whether the contract at issue was proprietary or governmental.” Id. at
*4. This case is not about the City’s contract with CenterPoint; it is about the City’s
contract with Tri-Stem.

Under the test articulated and applied in Wasson II, we conclude that the City
performed a proprietary function in entering into its contract with Tri-Stem. Because

4
Emphasis added.

14
governmental immunity does not apply to claims arising from a proprietary contract,
the trial court did not err in implicitly denying the City’s assertion of governmental
immunity.

Given our disposition of this argument, we do not address the parties’
contentions about waiver of immunity under the Local Government Contract Claims
Act.

IV. DENIAL OF TRI-STEM’S MOTION FOR A CONTINUANCE

In its second issue, Tri-Stem argues that the trial court erred in denying its
motion to continue the summary-judgment hearing so that it could conduct further
discovery. A party requiring discovery to justify its opposition to a summary-
judgment motion may file a motion, supported by affidavit, for a continuance. TEX.
R. CIV. P. 166a(g); TEX. R. CIV. P. 251; TEX. R. CIV. P. 252. We review the denial
of a motion for a continuance under the abuse-of-discretion standard. Joe v. Two
Thirty Nine Joint Venture, 145 S.W.3d 150, 161 (Tex. 2004). In determining
whether the trial court abused its discretion in denying a request for a continuance
to conduct further discovery, we consider (a) the length of time the case has been on
file, (b) the materiality of the discovery sought, and (c) the movant’s diligence in
obtaining the discovery. Brewer & Pritchard, P.C. v. Johnson, 167 S.W.3d 460,
468 (Tex. App.—Houston [14th Dist.] 2005, pet. denied).

The case was filed on November 2, 2016, and the City moved for summary
judgment on May 26, 2017—six weeks after the trial court signed the parties’ agreed
docket control order, two weeks after Tri-Stem’s counsel noticed the deposition of
the City’s designated representative, and three days after the City served its
objections and responses to Tri-Stem’s interrogatories, requests for production, and
requests for admission. When the City filed its summary-judgment motion, eleven
months remained in the discovery period.
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 Tri-Stem promptly moved for a continuance to obtain discovery concerning,
among other things, “[p]erformance under the contract between the City and [Tri-
Stem] including how much cash, if any, the City received from Center[P]oint.” In a
supplemental motion for a continuance, Tri-Stem also stated that it needed discovery
“to authenticate or ‘prove up’ numerous documents, including . . . notes or
memoranda of city council business” and business records of the City and of
CenterPoint. Tri-Stem pointed out that it had not yet taken a single deposition,
because when Tri-Stem noticed the deposition of the City’s designated
representative, the City had moved to quash it. In its motion to quash, the City stated
that Tri-Stem sought to depose the person or persons most knowledgeable on twenty-
two topics and objected that “Houston cannot and will not investigate, identify and
present a parade of witnesses in less than one month’s time, more than a year before
trial” (emphasis added). Because the City filed its objections and its motion to quash
within three business days after the deposition was noticed, the deposition was
automatically stayed. See TEX. R. CIV. P. 199.4. When the City moved for summary
judgment, the motion to quash had not yet been heard.

At the same time that it moved for a continuance, Tri-Stem also moved to
compel discovery. Among other things, Tri-Stem sought to compel an answer to its
request for production for “[d]ocuments related to the payment to the City of
approximately $1.5 million to begin the construction of hike and bike trails as part
of the deal with CenterPoint.” The City responded to the request only with
objections.

Three days after Tri-Stem filed its motion to compel discovery and its
supplemental motion for a continuance, the City moved for a protective order to stay
discovery. All of the motions were set for hearing at the same time.

16
 In the meantime, Tri-Stem filed a response to the summary-judgment motion.
The day before the hearing, the City filed objections to all of Tri-Stem’s summary-
judgment evidence. The trial court denied Tri-Stem’s motion for continuance,
sustained the City’s objections to Tri-Stem’s summary-judgment evidence, and
granted the City’s motion for summary judgment.

On this record, we conclude that the trial court abused its discretion in failing
to grant Tri-Stem’s motion for a continuance. The case had been on file for less than
seven months, and the discovery Tri-Stem sought concerning alleged cash payments
from CenterPoint to the City as part of the settlement of the Streetlight Litigation, or
“otherwise related to” the settlement, was material. Tri-Stem exercised diligence in
seeking the discovery, and had in fact propounded it, but received no substantive
reply. Tri-Stem also had attempted to depose the City’s authorized representative
and had moved to compel discovery responses, but the trial court granted the
summary-judgment motion without expressly ruling on those matters.

Tri-Stem’s harm from the denial of the motion for continuance is shown in
the trial court’s order sustaining all of the City’s objections to Tri-Stem’s summary-
judgment evidence. Tri-Stem’s evidence included a recommendation from the
City’s legal department that the city council adopt an ordinance approving an
amended agreement for Beck Redden’s legal services. The recommendation states,
“By dismissing the [Streetlight Litigation], the City has, in fact, secured agreements
on the hike and bike trails and LED conversion . . . . Additionally CenterPoint is
contributing $1,500,000 for the creation of the initial hike and bike trails . . . .” The
recommendation concludes that Beck Redden provided valuable services to the City
“in connection with both the streetlight litigation and other, related matters as
referenced above” and “recogniz[es] the value to the City of dismissing the
streetlight litigation in order to gain other agreements from CenterPoint.”

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 The City objected that the recommendation constituted parol evidence that is
inadmissible to determine the meaning of the City’s contract with Tri-Stem. But the
recommendation was offered to show that the Audit, Trail, and LED Agreements—
which were executed on the same day by the same CenterPoint employee—are
related to the Streetlight Litigation. Thus, the trial court abused its discretion in
sustaining that objection. The City also argued that the recommendation was not
relevant, but this objection also could not reasonably be sustained. The City insists
that the Trail and LED Agreements are unrelated to the settlement of the Streetlight
Litigation and that the City did not pay Tri-Stem 20% of any cash recovery related
to the settlement because CenterPoint paid the City nothing. But the
recommendation is some evidence that all three agreements are related to the
settlement of the Streetlight Litigation and that CenterPoint agreed to pay the City
$1.5 million related to the settlement. It also is some evidence of a collateral or
subsequent agreement for CenterPoint to pay the City $1.5 million, from which Tri-
Stem received nothing. Finally, the City objected that the recommendation is
hearsay, and Tri-Stem did not argue in the trial court that the document falls within
any exception to the hearsay rule. Tri-Stem was denied the opportunity, however,
to depose a representative of the City about the recommendation, about payments to
the City by CenterPoint, and about the relationship between the Trail and LED
Agreements to the settlement of the Streetlight Litigation. Thus, Tri-Stem had no
opportunity to substitute sworn testimony for the unauthenticated recommendation.

Because the trial court denied Tri-Stem’s request for a continuance and
granted summary judgment to the City before Tri-Stem had sufficient opportunity
to obtain material discovery, and in spite of Tri-Stem’s diligence in seeking it, the
trial court abused its discretion.

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 We sustain this issue. Because reversal and remand is required to allow Tri-
Stem to conduct further discovery, Tri-Stem’s remaining issues and arguments are
moot.

V. CONCLUSION

In entering into its contract with Tri-Stem, the City engaged in a proprietary
function. Thus, the trial court did not err in implicitly denying the portion of the
City’s summary-judgment motion in which it asserted governmental immunity. We
conclude, however, that the trial court abused its discretion in denying Tri-Stem’s
motion for a continuance to obtain necessary discovery responses and deposition
testimony. Therefore, without addressing the remainder of Tri-Stem’s appellate
challenges, we reverse the trial court’s grant of summary-judgment on the merits,
and we remand the cause to the trial court for further proceedings consistent with
this opinion.

/s/ Tracy Christopher
Justice

Panel consists of Justices Boyce, Christopher, and Busby.

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