Trial court has jurisdiction to hear breach of contract and tort claims for trench expansion

City of New Braunfels, Texas v. Carowest Land, Ltd 03-11-00699-CV (Tex. App. – Austin, April 30, 2014).

This is an interlocutory appeal from the denial of a plea to the jurisdiction arising out of a dispute where the City’s public works project to help control flooding by diverting flow to the Guadalupe River crossed property owned by Carowest, Ltd.  This dispute has waged for many years and resulted in a 50 page opinion. So the summary is a little long – sorry. The analysis is very detailed. One thing to keep in mind when reading this very long opinion is the difference between waiver of immunity from suit (which keeps it in court for a merit determination) and waiver of immunity from liability (which is a defense to a merit determination against the entity). Here, we are talking about waivers from suit.

The City created a large drainage channel to divert run-off waters into the Guadalupe River which bisected Carowest’s 240-acre tract in a manner that severed approximately forty acres from the rest.  Carowest originally dedicated a portion of its tract to the City for this project. Carowest asserts (and the City disputed) it requested the City reroute the drainage channel to run instead along an outer boundary. The City refused and Carowest attempted to rescind the conveyance. A history of disputes arose including notices to condemn for sewer plan expansion, refusual to hand over land and dirt from excavation,  open meetings violations, and others. The parties entered into a letter settlement to try and resolve the dispute. However, both sides later asserted material breaches by the other. One breach claim was that under the agreement, Carowest would be liable to the contractor for any delay damages he may cause. Carowest sued the City and the City filed counterclaims. The City filed two pleas to the jurisdiction (one voluntarily dismissed and the second the subject of this appeal) and Carowest filed for a temporary restraining order. The trial court denied both and the City appealed.

The court first analyzed Carowest’s inverse condemnation claims for the dirt and fill he claims entitlement. In a ping-pong explanation, the court noted that Carowest did not own the tract (since he dedicated it) the fill was taken out of, normally, that could preclude a takings claim.  However, the court noted the documents on file indicate Carowest may have, via deed and contract, a reversionary interest in fill through an option clause. The court then pinged again by asserting there is a difference between when the City acts as a sovereign and when it acts as a contract party. Carowest pled at most an ordinary breach of contract claim which does not rise to a takings.  The court next addressed Carowest’s equal protection and substantive due process claims. For the same reasons the takings claims fails, so must the federal constitutional claims since they are predicated on the same facts and “subsumed” into the takings claims.

As to Carowest’s common-law monetary claims for contract and tort, the City’s actions were governmental not proprietary, so it maintained immunity. The court then noted the Texas Supreme Court has rejected a general waiver by conduct theory and such a theory would only apply as to whether immunity existed in the first place. Carowest’s only colorable argument is that the City filed counter-claims and thereby waived its immunity from suit. The fact immunity is waived only as to the offset of the City’s counterclaims is a merit argument, not a restriction on the initial jurisdiction of the court. And since the City must establish it complied with its obligations under the contract in order to bring a breach claim for failing to indemnify for delay damages, Carowest’s breach claims are germane and connected with the counter-claim waiver as are the associated attorney’s fees. The tort claims arise (which basically boil down to allegations the City induced Carowest into certain actions then changing its mind) are also germane to the counter-claims. The court noted that even if the City did not waive immunity from suit by filing counter-claims, Carowest’s contracts are subject to the waiver contained in subchapter I of Chapter 271 of the Texas Local Government Code.

The court next addressed the three declaratory judgment claims; Open Meetings Act violations, declaration of the validity City’s contract with contractor to build the trench, and the validity of contractor’s delay claims against the City (which implicate City’s indemnification counter-claim). Carowest alleged the City Council improperly convened in executive session, over which the trial court has subject matter jurisdiction. The validity of the trench contract was challenged under Chapter 252 (competitive bidding) and the City did not completely negate the fact Carowest was not a tax paying “resident” (drawing an odd analysis of the difference between a property owner and a true resident).   As a result, the trial court had jurisdiction. Finally, the delay claim are tied to the waiver under Subchapter I of Chapter 271, so jurisdiction exists. The delay claim is not moot because even though the contractor released the claim in a settlement, the City assumes the release is valid, so a justiciable controversy still exists.

If you would like to read this opinion click here. Panel: Justice Puryear, Justice Pemberton and Justice Henson.  Opinion by Justice Pemberton. The attorneys listed for the City are Mr. J. Frank Onion III, Ms. Valeria Acevedo, Mr. Adolfo Ruiz, Mr. Michael B. Smithers, Mr. William M. McKamie, and Mr. Donald J. Jemela.   The attorneys listed for Carowest are Mr. Mark R. Murphy, Mr. Ryan G. Anderson, and Mr. Jason M. Davis.