State statute authorizes self-waiver of immunity from suit in financial agreements says 14th Court of Appeals

National Public Finance Guarantee Corporation and MBIA Insurance Corporation v. Harris County-Houston Sports Authority and Harris County Sports and Convention Corporation, 01-13-00401-CV (Tex. App. – Houston [14th Dist.], April 15, 2014).

This suit is one I’m not sure can be categorized in one sentence but I’ll give it a try. Essentially, an insurance company sued to force a venue authority to raise taxes in order to cover minimum bond repayment obligations and the court held it contractually waived its own immunity.

Harris County and the City of Houston created the venue district under Tex. Loc. Gov’t Code. §335.021 (“Sports Authority”) which issued a series of bonds pursuant to a written Indenture of Trust. The Convention Corporation is a local government entity created to serve as the landlord of Reliant Stadium which was a subject for bond issuance. The funding agreement notes the bonds are to be paid by hotel occupancy taxes and taxes on admissions and parking; however, the taxes shall not exceed $2 per ticket and $1 per car. National insures the bonds. The Sports Authority also entered into Reimbursement and Indemnity Agreements which provided National would guarantee regularly scheduled principal and interest payments on the bonds. In exchange, the Sports Authority agreed to indemnify National against any failure by it to perform or comply with the covenants or conditions of the Reimbursement Agreements. On several occasions the revenues were insufficient for the minimum payments on the bonds and the Sports Authority made claims with National to cover the shortfalls. National claimed these impermissibly reduced the reserve fund and because state statute authorized ban admission tax up to 10% of ticket price and parking tax up to $3 per vehicle, the Sports Authority was required by the Indenture to raise admission and parking taxes to legislative maximums. The Sports Authority refused to raise these taxes on the grounds they were capped at $2 per ticket and $1 per car, and even if not capped, such a tax increase required voter approval. National sued the Sports Authority, claiming that it had breached the Indenture by refusing to impose admissions and parking taxes at the legislative maximum. The trial court granted the pleas to the jurisdiction filed by the Sports Authority and Convention Corporation based on governmental immunity and National appealed.

The 14th District Court of Appeals first held that the Legislature added section 1371.059(c) to the Texas Government Code, which provides that “[a]n issuer in the proceedings to authorize obligations or a credit agreement, or in a credit agreement, may agree to waive sovereign immunity from suit or liability for the purpose of adjudicating a claim to enforce the credit agreement or obligation or for damages for breach of the credit agreement or obligation.” After analyzing the statutory language and amendments after Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) held the Sports Authority waived its immunity under the Reimbursement Agreement.  [Comment: Normally, a governmental entity cannot contractually waive its immunity from suit; however for financial instruments, there is an express statutory authorization for such a contractual waiver. ] As a result, the plea should not have been granted as to the Sports Authority.[Comment: contractual waiver or not, I’m not sure its permissible, separation-of-powers wise, to seek a declaration to force a legislative prerogative; i.e. mandatory raising of taxes].

National contends that as it was a third-party beneficiary, the Convention Corporation waived its immunity under its funding and lease agreements with the Sports Authority under subchapter I of Chapter 271 of the Local Government Code (dealing with waiver of immunity in contracts).  However, without analyzing whether the contracts were for goods or services (triggering the waiver under subchapter I), the court noted subchapter I only allows suit for breach of contract.  National did not assert a breach of contract claim against Convention Corporation and based on the alleged facts, could not. As a result, the trial court properly granted the plea as to Convention Corporation.

If you would like to read this opinion click here. Justice Higley, Justice Massengale, and Justice Huddle.  Opinion by Justice Huddle. The attorneys listed for National are N. Scott Fletcher, Ronald C. Lewis, Elizabeth Myers, Michael L. Rice.  The attorneys listed for the Harris County-Houston Sports Authority are Kelly Sandill, Gene L. Locke, and Scott A. Brister. The attorneys listed for the Harris County  Sports and Convention Corp. are Odean L. Volker, Stephen Burton Crain , and Kent Geoffrey Geoffrey Rutter.