Texas Supreme Court ends split in circuits and holds proprietary-governmental dichotomy exists in breach of contract cases

WASSON INTERESTS, LTD. v. CITY OF JACKSONVILLE, 14-0645 (Tex. April 1, 2016)

This is a proprietary-governmental dichotomy in contracts case where the Texas Supreme Court ruled the dichotomy does exist within the context of breach of contract disputes.

In the 1990s, the Wassons assumed an existing 99-year lease of lakefront property owned by the City of Jacksonville. The lease specifies, among other things, that the property is to be used for residential purposes only. After living on the property for several years, the Wassons moved and conveyed their interest in the lease to Wasson Interests, Ltd. (“WIL”). WIL then began renting the property for terms of less than one week, which the City asserted violated the terms of the lease. After the City and WIL entered into a settlement lease (restricting rentals to families for more than 30 days) the dispute was abated. However, in 2011, the City asserted WIL violated the lease and sent an eviction letter. WIL sued for breach of contract, seeking injunctive and declaratory relief. The City moved for summary judgment on governmental immunity grounds which the trial court granted. Following the San Antonio Court of Appeals opinion in Wheelabrator, the Tyler court rejected WIL’s argument the lease contract was a proprietary function not entitled to immunity protection. WIL appealed.

The Court began by going back to the time Texas first joined the union and recognized sovereign immunity as a concept. It tracked immunity through the years and the changing policy reasons for it. It recognized a city is not a freestanding sovereign with its own inherent immunity, but only acts which are governmental in nature are immune. It likened the proprietary element to that of ultra vires acts, which are acts not authorized for governmental purposes or under the law. Additionally, the Court utilized a two-step process for determining immunity’s attachment: 1) the judiciary determines the applicability of immunity and delineates its boundaries, and if immunity applies then 2) the judiciary defers to the legislature to waive that immunity.  In other words, sovereign immunity is a creature of common law and the courts defined when it applies.  Once the courts defined where immunity applies, then the legislature decides if it is waived. The courts previously determined immunity applies to governmental functions only and proprietary functions are not entitled to immunity. A city’s immunity can extend as far as the state’s immunity but no further. The state cannot perform proprietary functions, but a city can. By definition, proprietary functions are not those performed for the benefit of the people.  This divergence exists regardless of whether one is talking about a tort or contract. Chapter 271 of the Local Government Code (waiving immunity for municipalities in certain contexts) does not abrogate the common-law dichotomy. It merely waives immunity for certain contracts where immunity already exists. However, the trial court never considered whether the lease was proprietary or not. Therefore, the case is remanded to make that consideration.

If you would like to read this opinion, click here. Justice Brown delivered the opinion of the Court. The docket page with attorney listings is found here.