13th Court of Appeals holds cities cannot be held statutorily liable for attorney’s fee for breach of contract

City of McAllen v Casso, no. 13-11-00749-CV, (Tex. Civ. App. – Corpus Christy, March 28, 2013)

This case has good and bad holdings for cities. Casso was a municipal judge who suffered from Lupos.  Prior to her resignation due to her health, Casso informed the City she believed her condition was aggravated due to her working conditions. The City entered into a settlement agreement for a lump sum payment, full contribution to her retirement under TMRS, and agreement to pay her health insurance premiums from 1999 to 2002 in exchange for a full release.  The City complied and in 2002 sent Casso a COBRA letter.  Casso asserted her settlement agreement treated her as a “retiree” and she should be included in the City’s health plan (as long as she pays the premiums) until she reaches the age of 65 (which occurs in 2018). Mainly her position was due to the fact she could not qualify for any other health insurance due to her Lupas condition.  A jury awarded $440,000 in damages and $150,000 in attorney’s fees as well as specific performance. The City appealed.

The Bad: The 13th Court of Appeals first held that due to the “law of the case” determined on an interlocutory appeal, the City was exercising a proprietary function by providing health insurance and was not entitled to sovereign immunity.  It had to be treated as any other employer. The court went through a detailed analysis and determined sufficient evidence existed to support the jury’s damage award as the contract, being ambiguous, could have contemplated retiree status.  So, City Attorneys should be cautious when drafting such contracts to include end dates, COBRA issues, and designated status under health insurance plans.

The Good: The Court reversed the attorney’s fee award. The Court held that §5.904 of the Texas Local Government Code, which states: “A municipality may not be considered a corporation under a state statute governing corporations unless the statute extends its application to a municipality by express use of the term ‘municipal corporation,’ ‘municipality,’ ‘city,’ ‘town,’ or ‘village’” effectively amends TEX. CIV. PRAC. & REM. CODE ANN. § 38.001 so that it no longer authorizes the award of attorney’s fees against a municipality for a breach of contract (presumably for contracts which do not qualify under chapter 271).  The Court also reversed the award of specific performance noting the damages award included future damages so specific performance violated the one-satisfaction rule. Finally, the Court   revised the pre-judgment interest noting it improperly calculated interest by including future damages as part of the interest award.

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