SE Texas Record

Saturday, December 14, 2019

Appellate court concludes city of Beaumont waived immunity in breach of contract case

By Elizabeth Alt | Jan 8, 2018

General court 02

BEAUMONT – An appellate court has upheld a lower court's decision denying the city of Beaumont's plea to the jurisdiction in a breach of contract case.

On Dec. 21, 2017, the 9th District Appellate Court at Beaumont affirmed the Jefferson County Court's decision to deny the city’s plea to the jurisdiction, stating that the factoring company has a right to collect the debt, and “the city waived its sovereign immunity.” Chief Justice Steve McKeithen delivered the court opinion, with Justice Charles Kreger and Justice Leann Johnson concurring.

Factoring company Interflow Factors Corp. sued the city of Beaumont, along with the owner of PCLC Landscape Management Valory Barnett, over breach of contract allegations. Barnett allegedly hired Interflow to deal with her invoices and collect payments, including collecting payments on any accounts receivable owed by the city.

Factoring companies such as Interflow purchase invoices at a discount for their services in collecting a company’s outstanding invoices. 

Interflow stated that it provided the required notice of assignment to the city, informing it of Interflow’s right to collect payment on any invoices that the city owed to Barnett, and that the city made more than 30 electronic payments to Interflow for work performed by Barnett, the opinion states.

However, Barnett allegedly requested the city to write several checks directly to her, totaling more than $11,000, and then deposited them, refusing to turn over the payments to Interflow. Interflow sued Barnett citing breach of contract and monetary loss. 

Interflow also sued the city, claiming that the city was not immune to a lawsuit since it contracted with Barnett, and Interflow as assignee. Interflow also stated that the city should have fulfilled its obligation to check out the factoring status before paying Barnett, and that they were liable for those invoices now, regardless if they already paid Barnett.

The trial court granted an order to the city’s plea of jurisdiction, but after Interflow filed a motion for reconsideration, denied the city’s plea, and the city appealed. The 9th District Court of Appeals at Beaumont affirmed the trial court order, finding that legislature “intended to enact a relatively broad waiver” with the statute of immunity.

The city, claiming sovereign immunity, stated that Interflow had merely provided a loan service to Barnett, not to the city, and only had a contract with Barnett, not the city. The city claimed that it had fulfilled its obligations by paying Barnett, and it would be unjust enrichment if the court ruled that they had to pay Interflow as well.

“Nothing in the statute limits who can sue on the contract, nor does the statute indicate that the Legislature intended to exclude assignees from its reach,” McKeithan stated in the court opinion, noting court precedent that on lawsuits brought by assignees of entities that entered into contracts that fall under local code, legislature waived sovereign. “We conclude that the city waived its sovereign immunity …We overrule the city’s sole appellate issue and affirm the trial court’s judgment.”

Interflow is represented by Bill Richey of Griffin and Matthews. The city of Beaumont is represented by First Assistant City Attorney Sharae Reed and City Attorney Tyrone Cooper.

Court of Appeals Ninth District of Texas at Beaumont, case number 09-17-00284-CV

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Court of Appeals - 9th District of Texas at BeaumontCity of Beaumont