No waiver of immunity under Prompt Pay Act, even for contracts for goods or services under Chapter 271

City of Midland v. M.T.D. Environmental, L.L.P., 11-13-00117-CV (Tex. App. – Eastland, April 17, 2014).

This is a governmental immunity in a breach of contract case where the Eastland Court of Appeals held that simply because immunity from suit is waived under Chapter 271 of Local Government Code, does not mean immunity from suit is waived under the Prompt Pay Act for claims of attorney’s fees and interest. [Note: the Legislature amended Chapter 271 in 2011 to prospectively allow interest, so this case’s holding should be viewed as applying to contracts entered into prior to the amendment.]

The City and M.T.D. entered into a contract to grind yard waste (tree limbs and other yard waste) and the City would pay M.T.D. by the ton.  The City believed M.T.D. dramatically overcharged it and refused to pay an invoice, over which M.T.D. sued. The City filed a plea to the jurisdiction noting a lack of subject matter jurisdiction for attorney’s fees and interest under the Prompt Pay Act. The trial court denied the plea and the City brought this interlocutory appeal. The parties did not contest jurisdiction for the underlying breach of contract claim.

This case involves the interplay between a waiver of immunity from suit and liability under Chapter 271 of the Texas Local Government Code (waiver for claims involving goods or services provided to an entity) and a waiver of immunity from liability under §2251.043 of the Texas Government Code (Prompt Pay Act). The City contends the Prompt Pay Act may waiver immunity from liability, but it fails to waive immunity from suit. M.T.D. asserts that once immunity from suit is waived under Chapter 271, the issue is simply whether it is entitled to fees under the Prompt Pay Act and not whether the Act has to waive immunity on its own.  The court first held the Prompt Pay Act does not, by itself, waive immunity from suit.  When analyzing the history of Chapter 271 the court noted the waiver provision was changed in 2009 to allow attorney’s fees and again in 2011 to allow for recovery of interest. These changes are prospective only, thereby indicating an intent to retain immunity for contracts entered into prior to 2009 and 2011. As a result the City retains immunity from suit and it reversed the denial as to the Prompt Pay Act claims.

If you would like to read this opinion click here. Panel: Chief Justice Wright and Justice McCall. Opinion by Chief Justice Wright. The attorneys listed for the City are David W. Lauritzen, Keith Stretcher, City Attorney, and Brian Matthew Catalano.  The attorney listed for M.T.D. is Jerry D. Caddel.