




02-12-032-CV.REH





















COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
 



 
 
 
NO. 02-12-00032-CV
 
 



Mustang
  Special Utility District
 
 
v.
 
 
Providence
  Village


§
 
§
 
§
 
§


From the 393rd District
  Court
 
of
  Denton County (2011-60876-393)
 
December
  21, 2012
 
Opinion
  by Justice Meier



 
JUDGMENT ON REHEARING
 
          After
considering Appellee Providence Village’s motion for rehearing and motion for
en banc reconsideration of our opinion issued September 27, 2012, we deny
both motions, withdraw our opinion and judgment dated September 27, 2012,
and substitute the following.
          This
court has again considered the record on appeal in this case and holds that there
was error in the trial court’s orders.  It is ordered that the orders of the
trial court are reversed and the case is remanded for further proceedings
consistent with this opinion.
          It is further ordered that Appellant
Mustang Special Utility District shall pay all costs of this appeal, for which
let execution issue.
 
SECOND DISTRICT COURT
OF APPEALS 
 
 
 
By_________________________________
   Justice Bill Meier
 
 
 
 














COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
 



 
 
NO. 02-12-00032-CV
 
 



Mustang Special Utility District


 


APPELLANT




 
V.
 




Providence Village


 


APPELLEE



 
 
----------
FROM THE 393rd
District Court OF Denton COUNTY
----------
OPINION
ON REHEARING
----------
          Appellee
Providence Village filed a motion for rehearing and a motion for en banc
reconsideration of our opinion issued September 27, 2012.  We deny both
motions, withdraw our opinion and judgment dated September 27, 2012, and
substitute the following.
I.  Introduction
          Appellant
Mustang Special Utility District appeals the trial court’s orders denying Mustang’s
jurisdictional challenges to the claims alleged against it by Providence
Village.  We will reverse and remand the cause to the trial court.
II.  Background
          Mustang
was formed in 1966 as a water supply corporation for northeast Denton County.  In
1985, Mustang obtained a Certificate of Convenience and Necessity (CCN) to
provide water service in northeast Denton County.  The legislature created the
Upper Trinity Regional Water District in 1989 in part to provide wholesale
treated water services to cities and water distribution utilities in the Denton
County area.
          Located
in northeast Denton County, Providence Village was developed as a
master-planned community in 2000.  Upper Trinity and Mustang proposed to extend
a treated-water transmission line and to develop and construct a regional
wastewater system in the area, but several financial obstacles stood in the way.
 The Denton County Commissioners Court consequently created fresh water supply
districts, including Denton County Fresh Water Supply District No. 9 (the
District), to facilitate the financing of the proposed water line and
wastewater system.  The District’s service area, located within the area
covered by Mustang’s CCN, includes Providence Village.
          In
August 2001, the District entered into a participating customer contract with
Upper Trinity whereby Upper Trinity agreed to provide fresh water services to
the District and the District agreed to install a wastewater collection system.
 The District agreed that it “is wholly within the water service area of
[Mustang]”; that it “may own its internal water distribution system, and shall
contract with [Mustang] to operate said distribution facilities for retail
service within [the District’s] boundaries”; and that it will “respect the
service area of [Mustang] for which it has been granted a CCN, providing herein
for coordination with [Mustang], with its service area and with services
provided by [Mustang] to the balance of its service area.”
          In
February 2002, Mustang and the District entered into contracts relating to
water and sewer service within the District’s service area.  The District
agreed to use water “transported . . . to the District by
Mustang through . . . facilities built or to be built by
[Upper Trinity] and maintained by Mustang,” to build water distribution and
wastewater collection facilities, and to apply for water and sewer CCNs within
the District’s service area.  Mustang agreed to perform a schedule of services
in relation to operating the water and sewer service systems.  The agreements
also gave Mustang the option to purchase the District’s systems under certain
circumstances and provided that the District “will transfer” its CCNs for water
and sewer service to Mustang in the event Mustang exercises its option.
          In
May 2002, Mustang was converted to a special utility district, and in August
2002, the District obtained CCNs to provide water and sewer service to its
service area.  Mustang later obtained a sewer CCN.
          In
2005, Mustang and the District entered into a “Merged, Amended, and Restated”
agreement for water and sanitary sewer services pursuant to which the District
agreed, among other things, to convey its sanitary sewer collection facilities
to Mustang on October 1, 2011, and to lease its water distribution and
storage facilities to Mustang the same day.  Mustang and the District amended
the 2005 agreement in October 2007 so that the District would convey (instead
of lease) its water distribution facilities to Mustang on October 1, 2011.
          In
contemplation of the scheduled October 2011 conveyances, Mustang and the
District filed an “Application for Sale, Transfer, or Merger of a Retail Public
Utility” in February 2011, requesting approval from the Texas Commission on
Environmental Quality (TCEQ) for the sale and transfer of the District’s CCNs
and facilities to Mustang.  Providence Village, which had voted to incorporate
in 2010, filed a protest with the TCEQ.
          Providence
Village sued both Mustang and the District in June 2011.  It provided the
following context underlying the basis of its suit:
          This dispute turns on the rights of citizens to
organize themselves into a city, elect officials, and then have those elected
officials determine what best meets their current needs.  Years ago, two
unrelated entities executed a contract mandating the transfer of water and
sewer services enjoyed by the people of Providence Village to [Mustang] on
October 1, 2011.  According to the contract, this transfer must take place
whether [Providence Village] or [the District]—acting through their elected
officials—believes that such a transfer is in the best interests of their
constituents.  If the transfer is accomplished, neither the local district nor
the Town will have control over their water and sewer services, even though
much of the infrastructure was financed with bonds still being repaid by these
citizens’ taxes.
In
addition to injunctive relief, Providence Village sought a declaration that the
2005 agreement (as amended by the 2007 agreement) is void for violating the
reserved powers doctrine and that the District is not contractually obligated
to transfer its CCNs to Mustang or to “achieve parity” with Mustang’s rates.[1]
 Over the course of the litigation, Mustang filed a motion to dismiss, a motion
for summary judgment, and a second plea arguing that governmental immunity
barred Providence Village’s claims against Mustang.  The trial court denied
each of Mustang’s jurisdictional challenges, and this accelerated,
interlocutory appeal followed.[2]  See Tex. Civ.
Prac. & Rem. Code Ann. § 51.014(a)(8) (West Supp. 2012).
III. 
Declaratory Judgment
Action Contesting
Validity of 2005 Agreement
 
          In
its first issue, Mustang argues that the trial court erred by denying its
jurisdictional challenges to the declaratory judgment action alleged against it
by Providence Village.  Specifically, Mustang contends that governmental
immunity bars Providence Village’s claim because any attempt by Providence
Village to invalidate the 2005 agreement between Mustang and the District impermissibly
seeks to control state action.  According to Mustang, “declaratory judgment
actions seeking to ‘invalidate’ a contract are suits tantamount to controlling
state action when alleged against the state and cannot be maintained absent
legislative intent to waive immunity.”
          Providence
Village acknowledges that a declaratory judgment action that seeks to establish
a contract’s validity, to enforce performance under a contract, or to impose
contractual liability is barred by governmental immunity because such a suit
attempts to compel and control state action.  But it argues that it does not seek
to accomplish any of those actions by its declaratory judgment action, and it does
not contend that Mustang and the District had no right or authority to contract
(an ultra vires claim).  Instead, Providence Village “seeks only a
judicial declaration as to the validity of the contract under the Reserved
Powers Doctrine.”  According to Providence Village, “if [declaratory judgment
actions] to determine the validity of a statute or ordinance and suits to
construe a contract or statute . . . are permissible, then
there is no principled reason why a suit such as this one, which contests
the validity of a contract under the same section, would not be
permissible.”  [Emphasis added.]
A.      Standard
of Review
          A
plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat
a cause of action without regard to whether the claims asserted have merit.  Bland
ISD v. Blue, 34 S.W.3d 547, 554 (Tex. 2000).  If a court lacks subject
matter jurisdiction in a particular case, then it lacks authority to decide
that case.  Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440,
443–44 (Tex. 1993) (reasoning that subject matter jurisdiction is essential to
the authority of a court to decide a case).  The plaintiff has the burden to
plead facts affirmatively showing that the trial court has jurisdiction.  Id.
at 446.  Whether the trial court has subject matter jurisdiction is a question
of law that we review de novo.  Tex. Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 226 (Tex. 2004); Tex. Natural Res. Conservation
Comm’n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002).
B.      Governmental
Immunity
Governmental immunity involves
two issues:  whether the State has consented to suit and whether the
State has accepted liability.  Harris Cnty. Hosp. Dist. v. Tomball Reg’l
Hosp., 283 S.W.3d 838, 842 (Tex. 2009).  Immunity from suit is
jurisdictional and bars suit unless the State expressly waives immunity or
consents to the suit.  Id.; Tex. Dep’t of Transp. v. Jones, 8
S.W.3d 636, 638 (Tex. 1999).  Here, it is undisputed that Mustang is a
political subdivision of the State of Texas.  Therefore, it enjoys governmental
immunity from suit, unless its immunity has been waived.  See Ben
Bolt-Palito Blanco Consol. ISD v. Tex. Political Subdiv./Cas. Joint Self-Ins.
Fund, 212 S.W.3d 320, 324 (Tex. 2006).
C.      Governmental
Immunity Bars Providence Village’s Declaratory Judgment Action
The purpose of the Uniform Declaratory Judgments Act (UDJA)
is to establish existing “rights, status, and other legal relations whether or
not further relief is or could be claimed.”  Tex. Civ. Prac. & Rem. Code
Ann. § 37.003(a) (West 2008).  Section 37.004(a) specifically provides as
follows:
A person interested under a deed, will, written
contract, or other writings constituting a contract or whose rights, status, or
other legal relations are affected by a statute, municipal ordinance, contract,
or franchise may have determined any question of construction or validity
arising under the instrument, statute, ordinance, contract, or franchise and
obtain a declaration of rights, status, or other legal relations thereunder.
Id. § 37.004(a)
(West 2008).  The UDJA is not a grant of jurisdiction; it is a procedural
device for deciding cases already within a court’s jurisdiction.  Chenault
v. Phillips, 914 S.W.2d 140, 141 (Tex. 1996).  Consequently, immunity will
bar an otherwise proper UDJA claim that has the effect of establishing a right
to relief against the State for which the legislature has not waived immunity. 
Tex. Parks & Wildlife Dep’t v. Sawyer Trust, 354 S.W.3d 384, 388
(Tex. 2011).
          The
law is clear that the UDJA waives governmental immunity (1) for claims
challenging the validity of an ordinance or statute and (2) for ultra
vires claims against state officials who allegedly act without legal or
statutory authority or who fail to perform a purely ministerial act.  See
City of El Paso v. Heinrich, 284 S.W.3d 366, 372–73 & n.6 (Tex.
2009); IT-Davy, 74 S.W.3d at 855.  Here, Providence Village’s request
for a declaration that the 2005 agreement is void for violating the reserved
powers doctrine does not challenge the validity of an ordinance or statute, and
Providence Village expressly disavows any attempt to allege an ultra vires
claim.  Thus, Mustang’s governmental immunity is not waived under these
authorities.
          In
addition to clarifying when the UDJA waives governmental immunity, the supreme
court has explained that governmental immunity bars a request for
declaratory relief against a governmental entity (1) that constitutes a
suit to recover money damages or (2) that seeks to establish a contract’s
validity, to enforce performance under a contract, or to impose contractual
liabilities—actions that effectively control state action.  See IT-Davy,
74 S.W.3d at 855–56; W.D. Haden Co. v. Dodgen, 158 Tex. 74, 78–79, 308
S.W.2d 838, 840–41 (1958).  While there is no contention that Providence
Village’s claim under the UDJA is a disguised attempt to recover money damages,
Providence Village does confirm that it seeks a declaration “as to the
validity” of the 2005 contract under the reserved powers doctrine.  We must
therefore decide whether Providence Village’s request for a validity
determination of the 2005 agreement falls within the scope of the authorities
holding that a request for declaratory relief that seeks “to establish a
contract’s validity” is barred by governmental immunity.  See IT-Davy,
74 S.W.3d at 855–56; W.D. Haden, 158 Tex. at 78–79, 308 S.W.2d at
840–41.
          W.D.
Haden is instructive.  There, W.D. Haden had a permit issued by the Texas Game
and Fish Commission to take mudshell from Galveston Bay at a monthly cost of
seven cents per cubic yard of mudshell removed.  W.D. Haden, 158 Tex. at
76, 308 S.W.2d at 838–39.  After the Commission adopted a resolution increasing
the price from seven cents to ten cents per cubic yard of mudshell removed,
W.D. Haden sued the members and the executive secretary of the Commission.  Id. 
In addition to injunctive relief, W.D. Haden sought declaratory relief that it
had a binding contract with the State to pay only seven cents per cubic yard
for mudshell and that it was entitled to pay that amount through the term of
the agreement.  Id. at 76, 308 S.W.2d at 839.  Concluding that the suit
was barred by immunity, the supreme court illuminated the distinction between a
suit against a state official complaining of the official’s unauthorized actions,
which is not a suit against the State and, therefore, not barred by immunity,
and a suit against a state official to compel performance of or to enforce
rights arising out of a contract with a state agency made on behalf of the
State in its sovereign capacity, which is a suit against the State and,
therefore, is barred by immunity.  Id. at 78, 308 S.W.2d at 840.  The
supreme court cited with approval the following language from another case:
          There is a clear distinction between a suit
against an officer for a wrong committed by him in the name of the state, and
suits brought against an officer to prevent the exercise by the state through
such officer of some act of sovereignty, or suits against an officer or agent
of the state to enforce specific performance of a contract made for the state,
or to enjoin the breach of such contract, or to recover damages for such
breach, or to cancel or nullify a contract made for the benefit of the state.
Id. at
80, 308 S.W.2d at 841 (emphasis added).  The supreme court concluded,
[The Commission’s] selection of the manner of making
sales as well as its decision as to whether the manner it has followed
constitutes a valid contract is the selection and decision of the State; and however
incorrect the latter decision may be, a suit to test it by seeking enforcement
of contract rights is necessarily a suit against the State which cannot be
maintained without legislative permission.
Id. at
82, 308 S.W.2d at 842.  Thus, just as a suit to establish the validity
of a contract entered into by the state is barred by immunity, the supreme
court indicated that a suit to invalidate a contract made for the
benefit of the state is barred by governmental immunity.  Id. at 78–80,
308 S.W.2d at 840–42.
          In
its motion for rehearing, Providence Village contests W.D. Haden’s
reasoning, arguing that unlike a suit to validate a contract made for
the benefit of the state, a suit to invalidate a contract made for the
benefit of the state is not barred by immunity because while the former
constitutes an attempt to control state action, the latter does not.  We
disagree.  The distinction between a suit to validate a contract and a suit to
invalidate a contract lies not in the control of state action, but in the type
of state action that the suits seek to control.  While a suit to validate a
contract attempts to compel performance of contractual obligations, a suit to
invalidate a contract ultimately seeks to compel non-performance of
once-binding contractual obligations.  Both suits thus attempt to control state
action, albeit different forms of state action.  See Creedmoor-Maha Water
Supply Corp. v. Tex. Comm’n on Envtl. Quality, 307 S.W.3d 505, 514 (Tex.
App.—Austin 2010, no pet.) (describing a suit that seeks to control state
action as one that “seeks to restrain the State or its officials in the
exercise of discretionary statutory or constitutional authority”).
          Providence
Village additionally argues in its motion for rehearing that our reliance on W.D.
Haden is misplaced because the part of the opinion reasoning that a suit to
invalidate a contract made for the benefit of the state is barred by
governmental immunity is dicta.  As we have previously explained, it is well
established that as an intermediate appellate court, we are bound by the pronouncements
of the supreme court; it is not our function to abrogate or modify established
precedent.  See Scoresby v. Santillan, 287 S.W.3d 319, 324 (Tex.
App.—Fort Worth 2009), aff’d, 346 S.W.3d 546 (Tex. 2011).  Consequently,
we decline Providence Village’s implied invitation to consider ourselves bound
by only part of W.D. Haden.  Until we are given further direction by the
supreme court, we refuse to depart from W.D. Haden’s unambiguous
pronouncement that a suit to invalidate a contract made for the benefit
of the State is barred by governmental immunity.
          Moreover,
a similar construction of W.D. Haden’s reasoning has been applied by several
other appellate courts.  In Texas Logos, L.P. v. Texas Department of Transportation,
TxDOT had awarded a logo sign contract to Media Choice to operate a road sign
program that had previously been implemented by Texas Logos.  241 S.W.3d 105,
109 (Tex. App.—Austin 2007, no pet.).  Texas Logos sued TxDOT and sought a
declaration under the UDJA that the contract entered into between Media Choice
and TxDOT was void because TxDOT had violated several procurement statutes
during the bidding process.  Id.  On appeal, TxDOT argued that Texas
Logos’s suit was barred by sovereign immunity “because they ultimately seek to
invalidate the logo sign contract, a remedy that would ‘control state
action.’”  Id. at 119.  The appellate court agreed.  Id.  It
mentioned the rule that a suit seeking to establish a contract’s validity, to
enforce performance under a contract, or to impose contractual liabilities is a
suit against the state and—citing W.D. Haden—reasoned that the “Texas
Supreme Court has historically regarded these immunity principles as also
barring suits to cancel or nullify a contract made for the benefit of the
state.”  Id. at 119–20 (emphasis added).  Thus, Texas Logos’s UDJA
claim, which “explicitly attack[ed] an existing contract with the state,” was
barred by immunity.  Id. at 121; see Tex. S. Univ. v. State St. Bank &
Trust Co., 212 S.W.3d 893, 908–09 (Tex. App.—Houston [1st Dist.] 2007, pet.
denied) (holding that requests for declarations concerning invalidity of
agreement “fall squarely within the . . . category of
declaratory-judgment claims identified in IT-Davy [claims to establish a
contract’s validity] and thus fall outside the trial court’s subject-matter
jurisdiction”); see generally Lower Colo. River Auth. v. Riley, No.
10-10-00092-CV, 2011 WL 6956136, at *6 (Tex. App.—Waco Dec. 28, 2011, no
pet.) (mem. op., not designated for publication) (reasoning that request
for declaratory relief that attempted to nullify the assignment of an interest
in an easement implicated governmental immunity because it sought to control
political subdivision’s actions).
          One
other aspect of the Texas Logos opinion is noteworthy.  As additional
support for its holding that the suit to invalidate the TxDOT agreement was
barred by immunity, the court observed that “[s]uits to nullify a contract made
for the benefit of the state would likewise implicate sovereign immunity
principles as currently articulated by the Texas Supreme Court,” stating,
The contemporary rationale or justification for sovereign
or governmental immunity is to protect state resources from the costs of paying
judgments and defending against them so they can instead be used in accordance
with the policy and budgetary directives of the legislature or local
governments.  Contracts are a well-established means through which the state or
local governments effectuate their policy directives regarding governmental
functions.  Furthermore, contracts may provide financial benefits for
governmental entities, and thus, will have implications for budgetary and
appropriations processes.  Such is the case with the logo sign contract, which,
as TxDOT observes, guarantees it several million in minimum payments during the
contract term.  By interfering with these policy and budgetary decisions
regarding the use of state resources, a suit to invalidate the logo sign
contract implicates sovereign immunity.
Tex.
Logos, L.P., 241 S.W.3d at 120 (citations omitted).
          Providence
Village asks us in its motion for rehearing to reconcile our holding in this
case with our opinion in City of Crowley v. Ray, No. 02-09-00290-CV,
2010 WL 1006278, at *3–7 (Tex. App.—Fort Worth Mar. 18, 2010, no pet.)
(mem. op.). City of Crowley is inapposite because none of the
declarations sought in that case attempted to invalidate a contract made for
the benefit of the State.  See id. at *1 (listing requested
declarations).
          The
facts of this case fall squarely within the purview of W.D. Haden’s
reasoning and Texas Logos’s holding.  Therefore, we are both compelled
by the supreme court’s reasoning and convinced by the appellate court’s holding
to conclude that Providence Village’s UDJA claim against Mustang to invalidate the
2005 agreement with the District is barred by governmental immunity.  Providence
Village’s suit pursuing a declaration that the 2005 agreement is invalid seeks
to control or compel state action, and the “contemporary rationale or
justification” supporting governmental immunity—protecting state resources from
the costs associated with litigation so that they can be allocated as directed
by the legislature or local government, including by executing contractual
agreements for the benefit of the state—applies equally to this case.  See W.D.
Haden, 158 Tex. at 79–80, 308 S.W.2d at 841.
          Accordingly,
we hold that the trial court erred by denying Mustang’s challenges to
Providence Village’s UDJA claim on the basis of governmental immunity.  We
sustain Mustang’s first issue.  We need not address Mustang’s second and third
issues.  See Tex. R. App. P. 47.1.
IV.  Conclusion
          Having
sustained Mustang’s dispositive first issue, we reverse the trial court’s
orders denying Mustang’s jurisdictional challenges to Providence Village’s UDJA
claim and render judgment dismissing that claim for lack of subject matter
jurisdiction.  Providence Village argues in its motion for rehearing that it is
prepared to file an amended petition alleging various constitutional claims
against Mustang.  Therefore, we remand this cause to the trial court to allow
Providence Village an opportunity to plead those claims.  See Tex.
A&M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 839 (Tex. 2007) (reasoning
that litigant deserves opportunity to amend pleadings if defects can be cured).
 
 
BILL MEIER
JUSTICE
 
PANEL: 
LIVINGSTON,
C.J.; MCCOY and MEIER, JJ.
 
DELIVERED:  December 21, 2012




[1]The
supreme court recently described the reserved powers doctrine as follows:
 
Certain powers are conferred on government entities
“for public purposes, and can neither be delegated nor bartered away.” 
Government entities cannot “cede . . . away [such powers]
through contracts with others so as to disable them from the performance of
their public duties.”
Kirby Lake Dev., Ltd. v.
Clear Lake City Water Auth., 320 S.W.3d 829, 843 (Tex. 2010) (citations
omitted).


[2]The parties entered into a
rule 11 agreement whereby the District agreed not to transfer the sewer
collection and water distribution and storage facilities to Mustang until the
trial court enters a judgment or order disposing of Providence Village’s
claims.


