The Texas Supreme Court upheld a court of appeals decision that governmental immunity does not protect a city against a breach-of-contract claim if it was acting in its proprietary capacity when it entered into the contract.
In City of League City v Jimmy Changas, the Mexican eatery sued alleging that League City had breached its agreement by refusing to pay some $5 million in promised reimbursements for a completed restaurant complex
But the defendant, League City, alleged that Jimmy Changas failed to timely submit documentation establishing it had invested $5 million and created at least eighty full-time jobs. League City also filed a plea to the jurisdiction, arguing that governmental immunity bars the claim and that no statute waives that immunity.
Governmental immunity, also known as sovereign immunity exempts local, state, and federal government entities from liability while proprietary capacity involves the rights of a property owner.
“We do not doubt that Texas citizens other than League City residents could receive some benefit from a new Jimmy Changas restaurant within the City’s entertainment district, the Agreement itself confirms that the City entered into it 'primarily for the benefit of those within the corporate limits of the municipality,'” wrote Justice Jeffrey S. Boyd in the June 9 opinion. “This factor weighs in favor of a proprietary function.”
In a concurring opinion, Justice Evan Young stated that he supports the court’s decision in favor of the restaurant plaintiff because the Tort Claims Act does not apply to breach of contract claims.
“[The legislature] intended not to displace the common law with respect to contract claims against municipalities,” Young wrote on June 9. “The legislature could have made the Tort Claims Act list fully applicable in any or every context, but instead unambiguously limited it. I would respect that limitation until the legislature says otherwise.”
However, Justice Blacklock filed a dissenting opinion arguing that a Chapter 380 tax-incentive grant program is a governmental rather than a proprietary function.
“The courts have thus far demonstrated ourselves incapable of devising coherent standards in this area,” Blacklock wrote on June 9. “Given the judiciary’s difficulty, the people of Texas wisely empowered their Legislature to distinguish for all purposes between “governmental” and “proprietary” functions and thus to determine when municipalities may be sued for breach of contract. Perhaps the Legislature will exercise this authority and thereby bring welcome clarity to the law.”