NO. 12-16-00128-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
THE CITY OF TYLER, § APPEAL FROM THE
APPELLANT
V. § COUNTY COURT AT LAW NO. 3
CARL OWENS, JR., ET AL,
APPELLEES § SMITH COUNTY, TEXAS
MEMORANDUM OPINION ON REMAND
The Texas Supreme Court remanded this case to us to determine whether the City of Tyler
acted in its governmental or proprietary capacity when it leased property on Lake Tyler to Carl
Owens, Jr., Connie Owens, Michael Terry, and Sandi Terry (the Lessees) in light of Wasson
Interests, Ltd. v. City of Jacksonville, 559 S.W.3d 142 (Tex. 2018) (“Wasson II”). 1 Because we
conclude that the City leased the property in its proprietary capacity, we affirm the trial court’s
order overruling the City’s plea to the jurisdiction and remand for further proceedings consistent
with this opinion.
BACKGROUND
In 1946, the City constructed Lake Tyler. The City owns the land underneath the lake and
the land surrounding the lake. The City subdivided portions of the land surrounding the lake for
the construction of lake homes, buildings, and boat stalls. In 1953, the City leased the three
contiguous lots that are the subject of this suit—Lots 18, 19, and 20 of the Peninsula Subdivision—
to Dr. Howard Bryant. After a series of transfers and lease amendments, the Owenses, Kourt and
Jamie Chatelain, and the Terrys became the current lessees of Lots 18, 19, and 20, respectively.
The leaseholds do not extend into the lakebed.
1
See Owens v. City of Tyler, 564 S.W.3d 850, 851 (Tex. 2018) (per curiam).
However, the City generally allows the lessees to construct piers and boat houses. The
Tyler Code of Ordinances, which is incorporated into the leases, requires that the lessee submit
the proposed construction plan according to specific guidelines, pay a fee, and consent to an on-
site physical inspection. If satisfied with the construction plan, the Water Production and Water
Quality Manager for the Tyler Water Utilities Division (Manager) will issue a building permit.
The Chatelains’ lot is a pie-shaped lot in a cove with limited lake frontage. The Chatelains
had an old pier and boathouse in place when they acquired the lease for Lot 19, but they removed
them. On September 24, 2015, the Chatelains requested that the City approve their proposed plans
for a new pier and boathouse and issue a construction permit.
On October 12, 2015, the Terrys, the lessees of Lot 20 whose leasehold shared the cove
with the Chatelains, submitted a request for the City to authorize construction of a four-foot wide
pier that would extend 160 feet into the cove. This pier would have essentially prevented the
Chatelains’ access to the lake. On October 23, 2015, the City denied the Terrys’ request.
On October 22, 2015, the City sent a letter to the Owenses informing them of the
Chatelains’ request to approve a new pier and boathouse. The letter stated that the proposed
boathouse would encroach on the Owenses’ frontage, but “[u]nfortunately, due to the layout of the
shoreline and of the other boathouses in this area, there is no other location for the [Chatelains’]
proposed boathouse that will still provide access to the lake to the [Chatelains’] neighbor to the
east on [the Terrys’] Lot 20.” Carl Owens called the Manager and asked for a meeting. At the
meeting, Owens expressed his discontent with the Chatelains’ proposed pier and boathouse
location. Owens believed that the new boathouse would adversely affect his view of the lake and
the value of his property.
Consequently, in an attempt to maximize the interested parties’ access to the lake, the
Manager reoriented the location of the Chatelains’ boathouse on their proposed construction plan
and asked that the Chatelains resubmit their request. Thereafter, the Owenses’ attorney sent a
letter to the Chatelains demanding that they refrain from constructing the boathouse, alleging that
the boathouse would encroach upon the Owenses’ lot line extending from their property into the
lake, and that the City never allowed a neighboring property owner to construct a boathouse across
this extended property line. The Chatelains resubmitted their request in accordance with the
Manager’s suggestions. On February 10, 2017, the City issued a construction permit to the
Chatelains.
2
Subsequently, the Owenses filed suit against the City and the Chatelains, and the Terrys
intervened. They each adopted the others’ pleadings. They brought several claims, seeking to
enjoin the Chatelains’ construction of their boathouse, along with actual and exemplary damages,
a declaratory judgment, injunctive relief, and attorney’s fees. The trial court granted an ex parte
temporary restraining order against the City and the Chatelains, temporarily halting the Chatelains’
construction of their pier and boathouse.
The City filed a plea to the jurisdiction, asserting that it had governmental immunity and it
should be dismissed from the suit for lack of subject matter jurisdiction. The trial court thereafter
held a hearing on the Lessees’ application for temporary injunction and the City’s plea to the
jurisdiction. 2 The trial court denied the temporary injunction and the City’s plea to the
jurisdiction. 3 The City filed this interlocutory appeal challenging the trial court’s denial of its plea
to the jurisdiction. 4
PLEA TO THE JURISDICTION
In its first issue, the City contends that Wasson II does not apply to this case. In its second
issue, the City argues that even if Wasson II applies to this case, the Lessees failed to plead and
prove that the City engaged in proprietary actions in entering their leases. The City also argues in
its second issue that it acted in its governmental capacity. Because these issues are related, we
address them together.
Standard of Review
Governmental immunity from suit defeats a trial court’s subject matter
jurisdiction. See Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 225–26 (Tex.
2004). Governmental immunity may be properly raised in a plea to the jurisdiction. Id. at 226.
We review a trial court’s ruling on a plea to the jurisdiction de novo. Sampson v. Univ. of Tex. at
Austin, 500 S.W.3d 380, 384 (Tex. 2016).
When a plea to the jurisdiction challenges the existence of jurisdictional facts and the trial
court holds an evidentiary hearing, the reviewing court considers relevant evidence submitted by
2
Prior to the hearing, the Lessees joined two city employees as defendants, who also filed a plea to the
jurisdiction. The trial court declined to rule on the immunity of those employees, and they are not parties to this appeal.
3
The trial judge also recused himself and transferred the case to the Smith County Court at Law Number 3.
4
No party to this suit appealed the trial court’s denial of the temporary injunction.
3
the parties when necessary to resolve the jurisdictional issues raised. See Miranda, 133 S.W.3d
at 226. We take as true all evidence favorable to the nonmovant, indulge every reasonable
inference, and resolve any doubts in the nonmovant’s favor. Suarez v. City of Tex. City, 465
S.W.3d 623, 633 (Tex. 2015). If the evidence creates a fact question regarding jurisdiction, the
plea must be denied pending resolution of the fact issue by the fact finder. Id. If the evidence fails
to raise a question of fact, however, the plea to the jurisdiction must be granted as a matter of
law. Id.
Applicable Law
“Municipal corporations exercise their broad powers through two different roles;
proprietary and governmental.” Wasson II, 559 S.W.3d at 146 (quoting Gates v. City of Dallas,
704 S.W.2d 737, 738 (Tex. 1986)). 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 ANN. §
101.0215(a) (West 2019). 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).
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 Interests, Ltd. v. City of Jacksonville, 489 S.W.3d 427, 430 (Tex.
2016) (Wasson I). “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.
This governmental/proprietary dichotomy applies in the contract-claims context just as it
does in the tort-claims context. See Wasson I, 489 S.W.3d at 439. To determine whether a
municipality is shielded with governmental immunity in a breach of contract claim against it, 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. Wasson II, 559 S.W.3d
at 149. Stated differently, the focus belongs on the nature of the contract, not the nature of the
breach. Id. If a municipality contracts in its proprietary capacity but later breaches that contract
for governmental reasons, immunity does not apply. Id.
4
Although we apply 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 ANN. § 101.0215. Even
though these statutory definitions and designations apply expressly to tort claims, they also “aid
our inquiry” when applying the dichotomy in the contract-claims context. Wasson II, 559 S.W.3d
at 147–48. We thus consider both the statutory provisions and the common law in determining
whether a city’s contractual conduct is governmental or proprietary. Id.
In determining whether the City contracted in its governmental or proprietary capacity, 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. Id. at 150.
With regard to the second factor, the Texas Supreme Court explained 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. at 151. Concerning the fourth factor, the
Court elaborated that “[t]he fact that a city’s proprietary action ‘touches upon’ a governmental
function is insufficient to render the proprietary action governmental.” Id. at 153. “Instead, a
city’s proprietary action may be treated as governmental only if it is essential to the city’s
governmental actions.” Id. In some cases, some factors may point to one result while others point
to the opposite result. Id. at 154. In such cases, we consider immunity’s nature and purpose and
the derivative nature of a city’s access to that protection. Id.
Applicability of Wasson II
Despite the Texas Supreme Court’s instruction to us to reconsider our prior opinion in light
of Wasson II, the City contends that Wasson II does not apply to this case. The City instead
argues that we must identify the operative facts that form the basis of the Lessees’ claims and
5
determine whether those operative facts arose from a proprietary action by the City. The City
contends that the case arose from a governmental function, specifically its management of Lake
Tyler’s recreational use by issuing a building permit for a resident to construct a boathouse on a
City-owned lakebed in the City-owned reservoir.
The City justifies this analysis by distinguishing the facts in Wasson from the facts in this
case, reasoning that the claims there were directly connected to, or arose out of, Jacksonville’s
lease with the tenant and concerned the leased premises and activities governed by the lease. See
id. at 145-46. For example, the City points out that in Wasson the suit was based on Wasson’s
alleged violation of its lease with Jacksonville that required it to refrain from conducting
commercial activity on the leased premises, Jacksonville sent eviction notices for the lease
violations, and Wasson filed suit for improper eviction and termination of the lease. See id.
In contrast, the City points to the trial court’s unchallenged fact findings here that (1) the
lake and the land under the lake are not part of the leaseholds, (2) the lessees have no right to a
boathouse, access to the lake, or a view of the lake, and (3) those matters lie within the City’s sole
discretion and do not result in a government “taking.” The City’s argument continues that these
factual findings show that this suit has no connection to the City’s contracting conduct in leasing
lake lots to the lessees. The City argues essentially that this suit is unrelated to the leases and
relates only to its governmental action in issuing the permit to the Chatelains. See TEX. CIV. PRAC.
& REM. CODE ANN. § 101.0215(a) (stating that a municipality is liable for damages arising from
its governmental functions in accordance with the TTCA’s provisions and statutory scheme).
Accordingly, the City concludes, Wasson II does not apply to the Lessees’ claims. We disagree.
The City’s arguments require us to focus on its actions that gave rise to suit, which the
Texas Supreme Court held is the incorrect analysis. See id. at 149. Instead, in a breach of contract
suit against a municipality, we are required to focus on the nature of the contract when it was made,
not the City’s actions that formed the basis of the lawsuit, i.e., the breach. See id.
The Lessees filed breach of contract claims alleging that the City breached their leases
when it issued the permit to the Chatelains. In response, the City filed a plea to the jurisdiction
alleging that it had governmental immunity from those claims. Although the trial court found that
the lakebed upon which the piers and boathouses are built is not part of the parties’ leaseholds, the
claims brought by the Lessees against the City exist only because of their landlord-tenant
contractual relationship. Without this relationship, the Lessees would not have filed suit against
6
the City for breach of their leases when it issued the permit to the Chatelains. Therefore, the
governmental/proprietary dichotomy described in Wasson I, along with the analytical framework
announced in Wasson II, apply to this suit. See id. The City’s first issue is overruled.
Sufficiency of the Lessees’ Pleadings and Proof
The City alleges as part of their second issue that the Lessees failed to meet their burden to
plead and prove facts that affirmatively establish jurisdiction. We disagree. In relevant part, Carl
Jr. and Connie Owens alleged in their pleadings that the City breached their leases when it acted
in contravention of an established custom, practice, and usage, along with violations of its
ordinances and the Lake Tyler rules and regulations incorporated into their lease. Specifically,
they aver that the City breached the lease when it issued a permit to the Chatelains to construct
their boathouse in an area of the lake over which the Owenses had exclusive control and
possession. Michael and Sandi Terry similarly alleged in their petition that the leases incorporate
various rules, regulations, and ordinances that govern the leaseholders’ right to access the lake,
make recreational use of the lake, and to construct piers and boathouses. They also allege that one
of the rules and regulations that is part of the contract is an agreement that boat houses and piers
are not to be located so as to cross the property lines of an adjacent leaseholder’s lot as if that line
extended into the lake. Furthermore, they also allege that the Chatelains’ boathouse would
constitute a navigational hazard in contravention of the City’s rules and regulations pertaining to
Lake Tyler. The Lessees each adopted the other’s pleadings. The Lessees asserted in their
petitions that the City acted in its proprietary capacity, albeit specifically in their negligence claim
sections that they have now abandoned. But when reviewing the plea to the jurisdiction, we
construe the pleadings liberally in favor of the plaintiffs and look to the pleader’s intent.
See Miranda, 133 S.W.3d at 226.
In accordance with the allegations in their pleadings, at the hearing, the City’s Utilities and
Public Works Managing Director testified that the City had a general policy and custom of locating
boathouses and piers between the lot lines of an individual lease as if the lease lot lines extended
into the lake, but there were some variances. Various other tenants, at least one of which was a
local realtor that specialized in Lake Tyler lakefront transactions, testified and confirmed that this
was the City’s longstanding practice. Although there were the aforementioned variances, the
Director also testified that the Terrys approached him and complained that the City issued a
boathouse construction permit to the tenant at Lot 21 next to them that would cut off their access
7
to the lake and encroached on their leasehold. The Director testified that he approached Lot 21’s
tenant and asked them to move their boathouse to accommodate the Terrys. Lot 21’s tenant agreed,
provided that the City would pay to remove the pilings that had already been placed pursuant to
the permit. The City agreed and paid $16,000.00 to relocate the pilings for Lot 21’s tenants.
The Lessees’ pleadings concerning the breach of contract action, along with the City’s plea
to the jurisdiction, raised the jurisdiction issue by way of the dichotomy’s application to
governmental immunity, the resolution of which determines whether the trial court has
jurisdiction. The evidence developed at the hearing provides us with facts that assist in our
determination of whether the contract is governmental or proprietary in nature. Here, we hold the
Lessees sufficiently pleaded the relevant facts to support jurisdiction, and the trial court had
sufficient evidence to conclude that the Lessees met their burden to establish jurisdiction.
Accordingly, this portion of the City’s second issue is overruled.
Lakefront Leases to Private Parties are Proprietary Functions
Next, we apply the Wasson II framework to determine whether the lakefront property
leases were made in the City’s governmental or proprietary capacity. But first, the City contends
that its conduct falls within one of the legislatively enumerated governmental functions, namely
“recreational facilities, including but not limited to swimming pools, beaches, and marinas.” TEX.
CIV. PRAC. & REM. CODE ANN. § 101.0215(a)(23). We disagree. This function does not include
the lease of lakefront property to private parties, who then construct private homes, piers, and
boathouses. See id. As further support, the City points to the recreational-use statute, which
defines “recreation” to mean activities such as hunting, fishing, swimming, boating, camping,
picnicking, hiking, nature study, including bird-watching, waterskiing and other water sports, and
“any other activity associated with enjoying nature or the outdoors.” Id. § 75.001 (West 2017).
The recreational-use statute was enacted to encourage landowners, both governmental entities and
private parties, to open their land to the public for recreational use by limiting their potential
liability for injury. See City of Waco v. Kirwan, 298 S.W.3d 618, 626 (Tex. 2009). This statute
serves a different purpose from determining whether a city’s action is governmental or proprietary
for immunity purposes, and we conclude its definitions are inapplicable to our inquiry here.
Here, as in Wasson II, because the Tort Claims Act does not enumerate leasing property
as a governmental or a proprietary function, we must apply the general definitions and the above
described four-factor test. First, the City’s decision to lease its lakefront property to the Lessees
8
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
ANN. § 51.015(a) (West 2008) (emphasis added). A city can control its contractual liabilities by
refusing to enter into the contract. Wasson II, 559 S.W.3d at 150. Here, as in Wasson II, the City
had no obligation to lease the lakefront lots to private parties. See id. at 151. “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.” Id. Instead, it chose to generate revenue by granting
long-term leases to private parties. Id. We thus conclude that the City exercised its discretion
when it executed the leases.
Second, as in Wasson II, 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. As the Lessees
point out, the City leased the lots to Dr. Bryant in 1953 for $3,000.00, which was not an
insignificant amount of money at that time. As existing leases were assigned and new leases came
into effect over the years, the City raised the annual rent. We also note that the City collects rent
on approximately 400 lake lots at Lake Tyler. In any event, the very nature of the private lease
agreements necessarily excludes the general public from benefitting from the premises.
Consequently, the City entered into the leases primarily to benefit its own residents, not the general
public. See id., at 151–52.
With respect to the third factor, 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 id. at 152 (quoting Wasson I, 489 S.W.3d 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)).
As to the fourth factor, leasing the lakefront property was not “essential” to the City’s
governmental operation or maintenance of the lake that served as the City’s reservoir. See id. at
153. Here, all four relevant factors establish that the City was performing a proprietary function
when it leased its lakefront property to the Lessees. The discretionary decision to lease lake lots
9
to private parties that primarily benefits those parties is proprietary. It might be argued that the
City breached the contract for a governmental reason—issuing a permit—which is often a
governmental function. But as the Supreme Court explained, “[i]f a municipality contracts in its
proprietary capacity but later breaches that contract for governmental reasons, immunity does not
apply.” Id. at 149. As a result, governmental immunity does not protect the City against the
Lessees’ suit for breach of the lease agreements. See id. at 154. Given our disposition of this
argument, we do not address the parties’ contentions about waiver of immunity under the Local
Government Contract Claims Act. See TEX. R. APP. P. 47.1; Tri-Stem, Ltd. v. City of Houston,
566 S.W.3d 789, 798 (Tex. App.—Houston [14th Dist.] 2018, pet. filed). Accordingly, the City’s
second issue is overruled.
Declaratory Judgments
Because of our disposition on remand, we must also address some of our holdings in our
prior opinion. See City of Tyler v. Owens, 564 S.W.3d 38 (Tex. App.—Tyler 2017), judgm’t
vacated, 564 S.W.3d 850 (Tex. 2018). We held in our prior opinion that the City had governmental
immunity, which barred the Lessees’ declaratory judgment claims. Id. However, we have held
on remand that the City acted in its proprietary capacity in leasing the lake lots. When a city acts
in its proprietary capacity, it is subject to the same duties and liabilities as those incurred by private
persons and corporations. Gates, 704 S.W.2d at 739. Therefore, the Lessees’ declaratory
judgment claims are not barred by governmental immunity. See City of Georgetown v. Lower
Colorado River Auth., 413 S.W.3d 803, 806, 814 (Tex. App.—Austin 2013, pet. dism’d) (holding
that because City acted in proprietary capacity, it had no governmental immunity from electricity
supplier’s declaratory judgment action seeking determination of parties’ rights and obligations
under the agreement).
Injunctive Relief
Similarly, we held in our prior opinion that the City’s governmental immunity barred the
Lessees’ claims for injunctive relief. See Owens, 564 S.W.3d at 48. As with the Lessees’ claims
for declaratory relief, since the City acted in its proprietary capacity, injunctive relief is a possible
remedy. See Wasson II 559 S.W.3d at 146, 154 (holding suit for declaratory and injunctive relief
may proceed against City because it acted in proprietary capacity when leasing lakefront property);
see also Gates, 704 S.W.2d at 739 (citing Cone v. City of Lubbock, 431 S.W.2d 639 (Tex. Civ.
10
App.—Amarillo 1968, writ ref’d n.r.e.) (holding city liable for damages for improper issuance
of injunctive relief where litigation involved proprietary activity)).
Findings of Fact and Conclusions of Law
In our prior opinion, the City challenged the trial court’s findings of fact and conclusions
of law. See Owens, 564 S.W.3d at 48-49. We held that we did not need to address that issue
because those findings were related to the temporary injunction portion of the trial court’s hearings
and the merits of the underlying claims. Id. The City acknowledged that this issue is outside the
authorized scope of this interlocutory appeal. Id. We need not disturb our disposition of this issue.
Tort Claims
Finally, we held in our prior opinion that the Lessees abandoned any tort claims against the
City. Id. at 48. As with the City’s issue regarding the trial court’s findings of fact and conclusions
of law, we need not vary from our holding in the prior opinion.
DISPOSITION
Having overruled the City’s two issues, we affirm the order denying the City’s plea to the
jurisdiction and remand the case to the trial court for further proceedings consistent with this
opinion.
BRIAN HOYLE
Justice
Opinion delivered July 10, 2019.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(PUBLISH)
11
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
JULY 10, 2019
NO. 12-16-00128-CV
THE CITY OF TYLER,
Appellant
V.
CARL OWENS, JR., ET AL,
Appellee
Appeal from the County Court at Law No. 3
of Smith County, Texas (Tr.Ct.No. 65,094-A)
THIS CAUSE came to be heard on the appellate record and briefs filed
herein, and the same being considered, because it is the opinion of this court that there was no
error in the order of the court below.
It is ORDERED, ADJUDGED and DECREED by this Court that the trial
court’s order overruling the City of Tyler’s plea to the jurisdiction is affirmed; the cause is
remanded to the trial court for further proceedings consistent with this opinion; all costs of this
appeal are hereby adjudged against the Appellant, THE CITY OF TYLER; and that this decision
be certified to the court below for observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.