Texas Supreme Court holds economic development 380 agreement was proprietary in nature
City of League City v. Jimmy Changas, Inc., 21-0307, ___ S.W.3d ___, 2023 WL ___, (Tex. June 9, 2023)
This case involves the governmental/proprietary dichotomy in a breach-of-contract context. The Texas Supreme Court held the Chapter 380 agreement at issue was more proprietary than governmental.
League City and Jimmy Changas entered into an agreement under Chapter 380 of the Texas Local Government Code incentivizing Changas to build a restaurant and create jobs in League City. In exchange the City agreed to reimburse certain fees and expenses, including capital improvement fees for water/wastewater, and permit fees. After Jimmy Changas completed the project, League City refused to provide the reimbursements, contending Changas failed to document and/or establish the criteria required in the agreement. Changas filed suit, to which the City filed a plea to the jurisdiction. The trial court denied the plea and the court of appeals affirmed.
Municipal corporations often function in a governmental capacity on the State’s behalf but at other times function as “a private corporation.” In analyzing whether an action is governmental or proprietary, the trial court should first look to the definitions under Tex. Civ. Prac. & Rem. Code 101.0215 (regardless of whether the claims are based in tort). The Tort Claims Act’s classifications merely serve as “guidance in the contract-claims context—rather than binding lists to be interpreted narrowly.” If a particular activity is not included courts should look to the general definitions under both the common law and other statutes. For contracts, courts should consider (1) whether the city’s act of entering into the contract was mandatory or discretionary, (2) whether the contract was intended to benefit the general public or the city’s residents, (3) whether the city was acting on the State’s behalf or its own behalf when it entered the contract, and (4) whether the city’s act of entering into the contract was sufficiently related to a governmental function to render the act governmental even if it would otherwise have been proprietary. While “community development” and “urban renewal” activities can be governmental, not all types of localized actions can qualify under those statutory categories. The Agreement was “to stimulate business and commercial activity.” As a result, it must be viewed under the four-part test. The City was not required to enter into the agreement, so it was a discretionary choice. The primary purpose of the Agreement provides a benefit within the city limits, not beyond. The Court recognized local economic development activities can improve the State’s overall economy. However, the terms and requirements of this Agreement do not indicate in any way that the City entered into it to benefit anyone other than the city residents. Finally, the Court noted that local economic development and job creation are undoubtedly “public purposes,” and projects to promote such purposes “have a governmental flair”. However, they are not so unique or definitive that only a governmental entity can perform them. As a result, this specific agreement is proprietary and it was proper to deny the City’s plea.
Justice Blacklock filed a dissenting opinion, in which Justice Bland joined as to Part III. Justice Blacklock dislikes the Wasson factors (as does Justice Young in concurrence). Justice Blacklock focused on the financial binding effect of the contract and on the taxpayers, noting such is more legislative and governmental in nature. Finally, Justice Blacklock asserts the Chapter 380 agreement is a tax-incentive program statutorily authorized to create grant programs that award tax incentives. Such is only governmental.
If you would like to read this opinion click here. Opinion by Justice Boyd.
