City waived immunity in breach of contract case for solid waste disposal services

City of Rio Grande City, Texas, and Joel Villarreal, Herman R. Garza III, Arcadio J. Salinas III, Rey Ramirez, and Dave Jones in their Official Capacities v. BFI Waste Services of Texas, LP d/b/a Allied Waste Services of Rio Grande Valley,04-15-00729-CV (Tex. App – San Antonio, September 21,2016)

This is an appeal from the denial of a plea to the jurisdiction regarding a breach of contract claim arising from a solid waste disposal contract. The court affirmed in part and reversed in part.

In 2011, Allied entered into a contract with the City to be the exclusive provider of solid waste disposal services within the City’s limits through September 2018. In April 2015, the City notified Allied that it had failed to perform its obligations under the contract and also improperly billed the City for services Allied did not perform. According to the City, when Allied failed to cure the breach it terminated the contract. Allied contracted with Grande to take over solid waste disposal. Allied sued the City and Grande. Allied obtained a temporary restraining order prohibiting the City and its agents from taking actions inconsistent with Allied’s contract rights. The City counterclaimed, then removed the case to federal court. While the case was removed the City passed a resolution terminating the contract in an attempt to correct an alleged Texas Open Meetings Act problem. The federal court then remanded the case, sanctioned the City for improper removal, then the state trial court signed a second TRO.  The City filed a plea which the trial court denied.  The City filed this appeal as to the plea and TRO.

The court first held that Grande is not entitled to derivative governmental immunity. In Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117, 124 (Tex. 2015) the Texas Supreme Court noted governmental immunity was designed to guard against “unforeseen expenditures” associated with the government defending lawsuits and paying judgments “that could hamper government functions” by diverting funds from their allocated purposes. Immunizing a private contractor does not further this purpose. Further, the allegations against Grande interfering with an existing contract occurred prior to it obtaining the contract with the City, so immunity still would not apply for acts within that time period. Next the court held the allegations against the officials, in their official capacity, were sufficient to trigger an ultra vires claim.

As to the City, in order for the trial court to have jurisdiction over a contract claim asserted against a local governmental entity, the plaintiff must establish “a demand for certain kinds of damages” as limited by §271.153 of the Texas Local Government Code.  Allied requested the “balance due and owed” under the contract, which is recoverable under §271.153. Allied also requested additional damages, including actual and consequential damages, as well as pre- and post- judgment interest, costs of court, reasonable and necessary attorneys’ fees, injunctive relief, and declaratory judgment. Some of these additional damages are not recoverable under §271.153. Allied responds that the City waived immunity from breach of contract damages by filing counterclaims. That argument only applies to an offset for claims which are germane or connected with the counterclaims. Allied’s breach of contract claim and the City’s breach of contract counterclaim arise from the same facts and controversy.  As a result, the trial court has jurisdiction over the controversy. To the extent Allied requests declaratory judgment relief, Allied’s claims do not fall within the narrow waiver of immunity since the validity of an ordinance is not being challenged. Next the court held the claims brought under the Texas Open Meetings Act were not moot even after the City moved to correct any alleged mistake in the notice at a subsequent meeting. Allied also alleged the City’s actions were in violation of the contracts clause and Fourteenth Amendment of the United States Constitution. To prevent interference with its constitutional rights, Allied seeks only injunctive relief.  Since the constitutional claim is only seeking injunctive relief and not monetary damages, it is not barred by immunity. [Comment: This seems contrary to the line of cases noting a party cannot disguise a claim for monetary damages in a contract through equitable claims.] The court found Allied alleged a due process violation based on a constitutional contract claim.  However, Allied’s claim the City abused the removal process is not the same facts and controversy as the City’s counterclaims and does not fall under the Texas Tort Claims Act. Therefore, the declaratory judgment and abuse of process claims should have been dismissed, but all other claims can properly go forward.

If you would like to read this opinion click here. The Panel includes Justice Angelini, Justice Barnard, and Justice Pulliam. Justice Pulliam delivered the opinion of the court.  Attorneys listed for the City are Jacqueline LeFevre Salinas, Antonio Martinez and Brandy Wingate Voss. Attorneys listed for Allied are Gilberto Hinojosa and John David Franz.