Tax abatement agreement does not waive immunity under Chapter 271 of Local Government Code, but filing counterclaim did says Beaumont Court of Appeals

The City of Conroe, et al v. TPProperty LLC 09-13-00509-CV (Tex. App. – Beaumont, June 25, 2015).

This is a breach of contract case involving a type of HOT agreement and tax abatement in which the Beaumont Court of Appeals modified the denial of the City’s plea to the jurisdiction. Warning, this is a 51 page opinion but the analysis is detailed and helpful.

The City and predecessor to TPProperty entered into a tax abatement agreement and agreement to use hotel occupancy tax (“HOT”) funds for specific guest services to promote tourism. After TPProperty purchased the assets, including the contracts, the City asserted it was in breach.  TPProperty sued the City for breach in response and the tax assessor to force specific performance of the tax abatement and HOT agreement. The City filed a plea to the jurisdiction which was denied.

The court first addresses (mainly in a footnote explaining a split in the courts of appeals on whether proprietary-governmental dichotomy exists in contracts) that tax collection is a governmental function. The court then analyzed whether the contracts were subject to a waiver of governmental immunity under Chapter 271 of the Texas Local Government Code. [Comment: It is a good analysis of the “services provided to a governmental entity” language and anyone with this subject matter as an issue should take a look.]  The court ultimately held that the abatement agreement did not provide a direct benefit to the City so was not a “service.”  The abatement in order to allow renovations and the use as a hotel was for  TPProperty’s benefit. It did not require the City to pay TPProperty any money or compensation for operating the hotel.  While the city would benefit in a general way from having an old apartment complex renovated the benefits did not stem from the type of services envisioned by the statute.  Likewise, the HOT agreement does not contain any “services.”  While TPProperty has authority to use HOT funds, it is not required to use them at all. No waiver of immunity exists under Chapter 271.  The City also did not waive immunity by conduct.  However, the City filed a counterclaim regarding ad valorem taxes which TPProperty asserts waives immunity from suit. The court held the counterclaims were related and germane to TPProperty so the City waived its immunity from suit with respect to TPProperty’s contract claims, so far as those claims act as offsets to the City’s counterclaims.  Additionally, at the time the counter-claim was filed, the tax appraisal district could not have granted relief to TPProperty under the Tax Code, so TPProperty was not required to exhaust its administrative remedies prior to filing suit. Finally, the declaratory judgment relief sought are within the court’s jurisdiction to the extent the City waived immunity under the counterclaims. However, the court was careful to note the denial of the plea was proper only to the limited extent that any allowable claims of TPProperty may properly offset any recovery by the City on its counterclaims.

If you want to read this opinion click here. Panel: Chief Justice McKeithen, Justice Kreger and Justice Horton.  Opinion by Justice Kreger. The attorneys listed for the City are John J. Hightower, Eric C. Farrar and M. Kaye Brouse.  The attorney listed for TPProperty is John Russell Hardin.