Texas Supreme Court holds “good faith” efforts clause to seek future Board approval in contract is unenforceable. Also, damages would be consequential so Board retains immunity
Dallas/Fort Worth International Airport Board v Vizant Technologies, 18-0059, (Tex. May 17, 2019).
This is a governmental immunity defense in a breach of contract case where the Texas Supreme Court held Chapter 271 of the Texas Local Government Code did not waive immunity for the specific relief required under the contract.
The Dallas/Fort Worth International Airport Board (“Board”) retained Vizant Technologies (“Visant”) by contract to provide recommendations on how the airport could reduce payment-processing costs. The contract contained provisions where the Board would pay Vizant a percentage of savings and/or refunds based on its advice. The contract stated the cap on payments shall not exceed $50,000. The Court commented in a footnote the appearance this was done to avoid competitive bidding limits or authorizations by delegation to staff without Board approval. However, the contract also contained a provision that in the event Vizant’s fee exceeds this cap the Board “will make a good faith effort to receive board authorization to increase the compensation,” and “if approved,” the parties would amend the contract to reflect the higher amount. The Board’s staff paid the $50,000 and ultimately asked the Board to approve an increase to $330,000, but the Board denied that request. Vizant sued. Vizant asserts its fees should have exceeded $300,000, but the airport failed to use a good faith effort to obtain Board approval. The Board filed a plea to the jurisdiction which was denied, but the court of appeals reversed and dismissed. Vizant filed its petition for review.
The Court first held the Board was acting in a governmental not proprietary capacity. the legislature has unambiguously declared that the “maintenance, operation, [and] regulation” of an airport and the “exercise of any other power granted” for that purpose, whether exercised “severally or jointly” by local governments, “are public and governmental functions, exercised for a public purpose, and matters of public necessity.” As a result, the Board is immune absent a waiver.
Contract waivers are primarily found in Chapter 271 of the Texas Local Government Code. While it has a waiver of immunity, it has limiting language as to the types of damages allowed and contractual approvals which apply. The “good faith” effort language becomes pivotal for this analysis. A contractual duty to act in good faith does not create a new obligation or independent cause of action; instead, it merely governs the conduct by which the party must fulfill the contractual obligation to which it applies. Under the written terms of the contract, read literally, the Board promised to make a good-faith effort to obtain its own authorization for the higher payments. The parties agreed the Board’s staff negotiated based on delegated authority and executed the contract on the Board’s behalf, with the Board’s authority but without the Board’s express approval. Under these circumstances, the Court held it was reasonable to construe the clause as a promise by the Board’s staff to make a good-faith effort to obtain the Board’s authorization for any higher payment. The staff had no authority to contractually obligate the Board to pay anything more than $50,000. To the extent the staff agreed to make a good-faith effort, that promise is not enforceable against the Board—and even if it were, the remedy could never be to require the Board to pay more than it authorized to staff to negotiate. To the extent the Board made any form of agreement, the Board merely promised to make an effort to agree to the higher payment, but to do so in good faith. “In this sense, its promise was the equivalent of a promise to negotiate towards a future bargain in good faith.” Agreements to negotiate toward a future contract are not legally enforceable. However, even if such were enforceable, the listed measure of damages constitutes consequential damages incurred as a result of the defendant’s failure to act in good faith, not as a result of the defendant’s failure to perform under the anticipated contract. And since §271.153 expressly excludes this type of consequential damages, the Board retains immunity.