City found liable in $4.7 million dollar breach of an economic development agreement

City of Lancaster v. White Rock Commercial, LLC, 05-17-00583-CV (Tex. App. – Dallas, Aug. 20, 2018).

The Dallas Court of Appeals reversed-in-part and affirmed-in-part a $4.7 million-dollar verdict against the City of Lancaster arising out of an alleged breach of an economic development agreement. [Comment: warning, this is a 30-page opinion].

White Rock is a real estate developer. In 2007, the City was willing to provide economic incentives to promote a certain development. White Rock entered into two contracts: (i) an “Incentive Agreement” with the Lancaster EDC and (ii) a Chapter 380 Economic Agreement with the City. White Rock agreed to design and construct infrastructural improvements for a 1.4 million square-foot industrial park. Each contract had a different method of payments and the parties disagree as to whether the 380 Agreement was to supplement the Incentive Agreement or provide additional funding beyond the Incentive Agreement.  In the City’s view, the 380 Agreement’s purpose was to reimburse White Rock’s expected costs that were in excess of the $1.8 million to be paid under the Incentive Agreement as the EDC had a limited budget. White Rock counters that the Incentive Agreement provided additional incentives above 380 Agreement. White Rock sued the City in June 2014, alleging that it breached the 380 Agreement.  It filed a motion for partial summary judgment which established liability, disposed of the City’s defenses, an ordered the only remaining issue was damage amounts. The City subsequently filed a plea to the jurisdiction, claiming that it was immune from White Rock’s breach of contract suit and that the 380 Agreement created a debt prohibited by the Texas Constitution.  The trial court denied the plea. A bench trial was held on damages and the trial court awarded $4,726,217.53.  The City appealed.

The court started out analyzing whether the 380 Agreement, which was focused on infrastructure, was entered into as a governmental function or a proprietary function of the City. Because “the functions expressly covered by the 380 Agreement are expressly identified in section 101.0215 [of TTCA] as governmental functions, we do not apply the Wasson II [4-part] test.”  Instead, the court relied on the legislative language holding the infrastructure focus of the agreement means the contract was entered into for a governmental purpose. The contract was therefore, subject to analysis of the contractual waiver provisions of immunity under Chapter 271 of the Texas Local Government Code. Whether a contract has all the essential terms to be an enforceable agreement is a question of law. Material terms are determined on a case-by-case basis. The City asserted White Rock was already legally required to construct and dedicate the infrastructure, so the City’s assistance in financing the legal obligation was not a benefit, good, or service to the City. The court held that while the contract expressly stated it was expected to benefit the City and is expected to net $12.4 million in benefits, “this benefit to the City is too attenuated for a waiver.” However, the circumstances of this case demonstrate that White Rock’s Agreement to construct the infrastructural improvements was itself a direct benefit to the City. The City’s agreement to pay White Rock for such construction is further evidence of a contract for services.  Immunity is therefore waived under §271.152.  Further, the 380 Agreement was not an unconstitutional debt. Next the court analyzed the language and stated the sections of the 380 Agreement cited by the City were conditions subsequent, which are affirmative defenses, not conditions precedent, which are jurisdictional. The court then analyzed the various points of error and concluded the evidence supported the judgment against the City. However, the evidence does not support a claim by White Rock for insurance costs and the trial court errored in the pre-judgment and post-judgment interest calculations.  Otherwise, the judgment is affirmed.

If you would like to read this opinion click here. Panel consists of Justice Bridges, Justice Brown and Justice Boatright.  Memorandum Opinion by Justice Boatright.  The attorneys listed for the City are M. Shelby Pearcy and Robert Eugene Hager.  The attorneys listed for White Rock are Victor D. Vital, Benjamin Pendroff and William R. Stewart.