San Antonio Court of Appeals holds river authority can be compelled to attend contract arbitration

San Antonio River Authority v. Austin Bridge & Road, L.P. and Hayward Baker Inc. 04-16-00535-CV ( Tex.App— San Antonio, August 9, 2017)

This is an interesting case where the issue of sovereign immunity impacts whether an entity is a “party’ to a contract and bound by an arbitration clause.

The Bexar-Medina-Atascosa Counties Water Control and Improvement District No. 1 (“BMA”) sought state funding to repair the Medina Lake Dam.  As part of the funding provided by the Legislature, the San Antonio River Authority (“River Authority)” and several other water district entities/authorities entered into a cooperative interlocal agreement to assist with the repair project. This arrangement was dictated by H.B. 1741, which designated the River Authority as the project manager and contract administrator for the project. After bidding was complete, Austin Bridge became the contractor. The bid agreement provided the River Authority would be responsible for paying Austin Bridge in accordance with a project management schedule. The Agreement contained an arbitration clause. Austin Bridge subcontracted with Hayward Baker to perform cement portions of the repair work. Costs ran over and the River Authority declined to pay for some additional work and costs incurred by Hayward Baker. The subcontractor initiated arbitration proceedings against Austin Bridge for the lack of payment. Thereafter, Austin Bridge initiated arbitration proceedings against the River Authority for breach of contract. The River Authority responded with a motion to dismiss noting its immunity from suit was not waived under Tex. Loc. Gov’t Code Ann. § 271.152 (West 2016) because its involvement did not include entering into a contract, it was simply designated as the project manager. If it is not a party to the contract, it is not bound by the arbitration procedures. It also asserted the immunity issue could only be decided by a court of law, not an arbitrator. After cross-motions for summary judgment, the trial court ruled in favor of Austin Bridge and Hayward Baker.  The River Authority appealed.

The San Antonio Court of Appeals first held the determination of whether a valid arbitration agreement exists is a legal question subject to de novo review. One of the universally accepted principles of law is that an individual must be a party to a contract in order to be bound by it. After analyzing the situation the court held the question of immunity was properly addressed by the trial court. Courts must have jurisdiction in order to stay arbitration and if immunity is not waived, the trial court has no power to compel arbitration. Turning to whether the River Authority retains immunity, the court noted all parties argued around §271.152 as to waiver. In this case, the River Authority, along with BMA and other governmental entities, entered into an interlocal agreement in order to work together and plan, fund, and implement the Medina Lake Dam Project.  The River Authority’s Agreement with Austin Bridge allowed River Authority to fulfill its duties and responsibilities under both House Bill 1741 and the interlocal agreement. Therefore, the Agreement qualified as “services to a local governmental entity” under the plain meaning of section 271.152’s limitations. However, Chapter 271 does not waive immunity from suit on a claim for damages not recoverable under § 271.153. Section 271.153(b) precludes recovery of consequential damages, “except as expressly allowed under Subsection (a)(1).” The court agreed with Austin Bridge that the damages they sought are amounts due and owed under the Agreement.  Whether they are correct that those amounts are required to be paid under the Agreement is a question for the arbitrator and such is not a question that pertains to a waiver of immunity. The River Authority next argued §2009.005(c) of the Texas Government Code prohibits it from entering into any form of binding arbitration. The Governmental Dispute Resolution Act (“the Act”), which includes Chapter 2009 of the Government Code,  was enacted to encourage the peaceable resolution of lawsuits involving governmental bodies in a fair and expeditious manner. The purpose of §2009.005 is to ensure the Act is not interpreted as a waiver of sovereign immunity or as having any effect on the waiver of sovereign immunity under other laws.  It is not a prohibition on arbitration by state agencies. As a result, the River Authority must be compelled to participate in arbitration.

If you would like to read this opinion click here. The panel includes Justices Angelini, Barnard and Chapa. Justice Barnard delivered the opinion of the court. Attorney listed for San Antonio River Authority is David W. Ross. Attorneys listed for Austin Bridge & Road, L.P. are Matthew Waterman and Gregory Alan Harwell. Attorneys listed for Hayward Baker Inc. are Thomas W. Fee and Timothy R. George.

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