Possible discount in rent for possible service in lease agreement enough to waive immunity says 13th Court of Appeals

PARTNERS DEWATERING INTERNATIONAL, L.C. v. CITY OF RIO HONDO 13-13-00340-CV (Tex. App. – Corpus Christi, June 11, 2015)

This is an interlocutory appeal from the granting of a plea to the jurisdiction in a contract case which the 13th Court of Appeals reversed and remanded.

Partners Dewatering International (“PDI”) and the City entered into a lease agreement for a liquid waste de-watering facility which was to be located at the city’s waste water treatment plant. In 2013 the City voted to terminate the agreement. PDI sued the City. PDI asserted the contract was for goods and services and therefore governmental immunity was waived under Tex. Loc. Gov’t Code §271.152.  The City filed a plea to the jurisdiction asserting the contract was an operating lease agreement and no special services were part of the contract. The trial court granted the plea and PDI appealed.

The court first analyzed what a “service” means under §271.152.  PDI asserted it provided services involving the processing and disposal of sludge, the sampling, monitoring, and reporting of effluent, and the controlling of odor. The court first held the “activated sewer sludge” was not a service as it benefited PDI and only indirectly benefited the City. The same went for the effluent sampling and odor control. Further the providing of improvements, including road and building modifications, were for the benefit of PDI in operating its business, not the City. However, PDI was also to collect, haul, and dispose of all sludge that was generate by the City’s waste facility. This was something the City would have had to do if PDI was not located on site and contracted to perform.  It benefited the City directly, however, the City was not required to pay PDI for the acts.  PDI was solely responsible for the costs. Analyzing the lease agreement, the court determined it was possible (based on the placement of where the paragraph was in the agreement) the monthly rent could have included a partial discount to offset for this service. As a result, it’s a service for which immunity is waived.  [Comment: the crux of the analysis turns on whether PDI benefited primarily for its own business use or whether it was something the City benefited from which was not essential to PDIs operations.  However, I think the “discount” of rent as compensation for services based only on the paragraph’s location in the agreement is a stretch].

If you would like to read this opinion click here.  Panel: Chief Justice Valdez, Justice Rodriguez and Justice Garza. Memorandum Opinion by Justice Rodriguez. The attorneys listed for the City are Alan T. Ozuna, Eddie A. Lucio III, Ricardo J. Navarro and Robert L. Drinkard. The attorneys listed for PDI are Soledad M. Valenciano and James Kenneth Spivey.