Texas Supreme Court holds public utility is a proprietary function for contract purposes and no immunity is applicable

WHEELABRATOR AIR POLLUTION CONTROL, INC. v. CITY OF SAN ANTONIO 15-0029 (Tex. April 15, 2016)

This Texas Supreme Court case is another proprietary/governmental dichotomy case regarding contracts where the Court held the public utility contract at issue was a proprietary function not protected by immunity.

For those following the split in the circuits and the multiple opinions in the Wheelabrator dispute, this is the Texas Supreme Court’s opinion designed to put to rest several interpretations and varying courts of appeals’ opinions on the subject of proprietary/governmental aspects in contracts. This case follows on the heels of Wasson Interests, Ltd. v. City of Jacksonville, No. 14-0645, 2016 WL 1267697 (Tex. Apr. 1, 2016) (summary found here) where the court held the proprietary/governmental dichotomy does exist in contract cases.

Wheelabrator Air Pollution Control, Casey Industrial, Inc., and CPS Energy (the City of San Antonio’s electrical utility board), entered into a contract for the design and construction of part of a coal-fired power station owned and operated by CPS Energy. Wheelabrator completed all portions of its work but CPS Energy notified Wheelabrator that it was withholding the retainage because of a dispute between Casey Industrial and CPS Energy. Wheelabrator filed suit against CPS Energy alleging breach of contract. After going up and down the appellate chain, with several opinions on the subject, the appellate courts ultimately decided the trial courts had jurisdiction for the claims. CPS Energy then filed a plea to the jurisdiction arguing there is no waiver of immunity for attorney’s fees. Wheelabrator argued CPS Energy was performing a proprietary function under the contract. The trial court granted CPS Energy’s plea to the jurisdiction and dismissed with prejudice Casey Industrial’s and Wheelabrator’s claims for attorney’s fees. Whellabrator sought interlocutory review and the case ended up with the Texas Supreme Court.

The Court started out by stating “[t]his contract-claims case requires us to determine whether a claim for attorney’s fees for breach of a contract to install pollution control equipment at a power plant is proprietary or governmental in nature.” The Court noted its own precedent has held that a municipality’s operation of its own public utility is a proprietary function. San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 264 (Tex. 1976). Furthermore, the Texas Tort Claims Act (TTCA), which the Court has previously deferred to when classifying functions in contract disputes, lists operation of a public utility as a proprietary function. See Tex. Civ. Prac. &  Rem. Coce §101.0215(b)(1).   CPS Energy is a municipally-owned electric and gas utility. It executed the Agreement under which Wheelabrator would provide goods and services for the design and construction of pollution control equipment for a coal-fired power station that CPS Energy owns and operates. Both the common-law precedent and the TTCA have classified a municipality’s operation and maintenance of a public utility as a proprietary function. Under these facts, the Court concluded that CPS Energy is not shielded by governmental immunity. Here, the attorney’s fees claim stems directly from Wheelabrator’s breach-of-contract action.  As a result, no immunity is triggered.

If you would like to read this opinion click here. Justice Green delivered the opinion of the Court.  The docket page of the case is found here with all attorney information.