                                    In The

                             Court of Appeals
                  Ninth District of Texas at Beaumont
                           _________________
                            NO. 09-13-00509-CV
                           _________________

   THE CITY OF CONROE, TEXAS AND J.R. MOORE JR., IN HIS
 CAPACITY AS THE MONTGOMERY COUNTY TAX ASSESSOR AND
                  COLLECTOR, Appellant

                                      V.

                       TPPROPERTY LLC, Appellee
________________________________________________________________________

                  On Appeal from the 284th District Court
                       Montgomery County, Texas
                     Trial Cause No. 12-05-05458 CV
________________________________________________________________________

                                  OPINION

     Appellant, the City of Conroe (“City”) appeals the denial of its plea to the

jurisdiction. See Tex. Civ. Prac. & Rem. Code Ann. §§ 51.014(a)(8), 101.001(3)

(West Supp. 2014). The City contends the trial court erred when it denied the

City’s plea because (1) TPProperty LLC (“TPProperty”) failed to exhaust its

exclusive administrative remedies under the Texas Tax Code concerning the

disputed Tax Abatement Agreement and (2) TPProperty failed to establish a
                                       1
waiver of the City’s immunity to suit regarding the Tax Abatement Agreement and

the Tourism Promotion Services Agreement.

                              I. Standard of Review

      Subject-matter jurisdiction is essential for a court to have the authority to

resolve a case, and trial courts lack such jurisdiction over a governmental unit that

is immune from suit. Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217,

224 (Tex. 2004); Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443

(Tex. 1993). A party may challenge a court’s subject matter jurisdiction by filing a

plea to the jurisdiction. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.

2000). We review a trial court’s ruling on a challenge to its subject matter

jurisdiction de novo because jurisdiction is a question of law. Miranda, 133

S.W.3d at 228. In conducting this de novo review, we do not examine the

underlying merit of the plaintiff’s case, but consider only the plaintiff’s pleadings

and the evidence pertinent to the jurisdictional inquiry. County of Cameron v.

Brown, 80 S.W.3d 549, 555 (Tex. 2002). The plaintiff has the burden to allege

facts that affirmatively establish the trial court’s subject matter jurisdiction. Tex.

Ass’n of Bus., 852 S.W.2d at 446. In determining whether the plaintiff has met this

burden, we construe the pleadings liberally in favor of conferring jurisdiction. Tex.



                                          2
Dep’t of Transp. v. Ramirez, 74 S.W.3d 864, 867 (Tex. 2002); Tex. Ass’n of Bus.,

852 S.W.2d at 446.

                                 II. Background

      This dispute centers around the La Torretta Lake Resort & Spa (the

“Hotel”)1 located in the Lake Conroe Area. In April 2007, the Hotel was not in

operation. French Quarter VIII, LLC, (“French Quarter”) desired to purchase the

Hotel, renovate it, and restart operations. Before agreeing to purchase the Hotel,

French Quarter entered into two agreements with the City: (1) a Tax Abatement

Agreement, which provided for the temporary abatement of certain ad valorem

property taxes on improvements to the Hotel that French Quarter promised to

construct (“Abatement Agreement”); and (2) a Tourism Promotion Services

Agreement, which provided for French Quarter to manage the expenditure of a

portion of the City’s hotel occupancy taxes collected from the guests of the Hotel,

for marketing and promoting tourism in the Lake Conroe area (“HOT

Agreement”). In April 2007, French Quarter entered into these two agreements

with the City and purchased the Hotel.

      By December 2011, French Quarter completed all of the required

improvements to the Hotel contemplated in the Abatement Agreement but
      1
        La Torretta Lake Resort & Spa was formerly known as the Del Lago
Resort Hotel and Conference Center.
                                    3
defaulted on the loan from its lender, which resulted in a foreclosure and

TPProperty’s acquisition of the Hotel at the foreclosure sale. Subsequent to the

foreclosure sale, French Quarter executed a transfer to TPProperty of all of its

rights associated with the Hotel, if any, including, but not limited to, the subject

agreements. TPProperty asserts that it continued to fulfill the obligations under the

agreements in the same manner as French Quarter had operated prior to the

foreclosure and is entitled to the benefits of such agreements.

      On February 14, 2012, the City sent notice of default letters to TPProperty,

claiming that both the Abatement Agreement and the HOT Agreement were in

default and contending, at least in part, that the Hotel failed to properly report

certain information to the City and failed to provide sufficiently detailed budgets.

In response to the notice, TPProperty amended its HOT Budget to expand

significantly on the details, including items in the budget that it contends the City

had never before requested or required of French Quarter. On April 12, 2012,

Conroe’s City Council adopted a resolution declaring the Abatement Agreement in

default and refusing to approve the revised budget that TPProperty submitted to

satisfy the terms of the HOT Agreement. On May 7, 2012, Conroe’s City Council

entered a resolution terminating the HOT Agreement.



                                          4
      Thereafter, TPProperty filed suit against the City and the Montgomery

County Tax Assessor and Collector 2 seeking damages based on the City’s alleged

breach of the Abatement Agreement and the HOT Agreement, seeking a court

order to compel specific performance of both agreements, and for declaratory relief

regarding the parties’ rights, status, and legal relationship under both agreements.

TPProperty also sued the Montgomery Central Appraisal District (“MCAD”) for

its alleged refusal to process TPProperty’s tax abatement application or otherwise

grant TPProperty the tax abatements under the Abatement Agreement. TPProperty

also sought declaratory relief against MCAD asking the court to declare that

MCAD is not entitled to refuse to process TPProperty’s tax abatement

applications.3

      The City filed its answer alleging various defenses and affirmative defenses.

The City subsequently filed counterclaims against TPProperty for the collection of

ad valorem property taxes and hotel occupancy taxes, together with statutory

penalties, interest, and attorney’s fees. The City further sought a temporary

injunction to enjoin TPProperty from expending any hotel occupancy taxes that it

had collected since October 1, 2011. MCAD filed a general denial.
      2
       The Montgomery County Tax Assessor and Collector serves as the City’s
Tax Assessor and Collector through a contractual agreement.
      3
          MCAD is not a party to this appeal.
                                          5
      Sometime later, the City filed a plea to the jurisdiction asserting: (1) the trial

court lacked subject matter jurisdiction over TPProperty’s claims related to the

Abatement Agreement because TPProperty failed to exhaust its administrative

remedies under the Tax Code; and (2) the trial court lacked subject matter

jurisdiction over both the Abatement Agreement claims and the HOT Agreement

claims because TPProperty’s pleadings do not establish a waiver of the City’s

governmental immunity to suit. After a hearing, the trial court denied the City’s

plea to the jurisdiction, and the City timely appealed.

                           III. Governmental Immunity

      Sovereign immunity protects the State, as well as its agencies and officials,

from lawsuits for damages and from liability. Ben Bolt-Palito Blanco Consol.

Indep. Sch. Dist. v. Tex. Political Subdivs. Prop./Cas. Joint Self-Ins. Fund, 212

S.W.3d 320, 323-24 (Tex. 2006). Governmental immunity provides similar

protection to political subdivisions of the State, including counties, cities, and

school districts. See Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 694 n.3

(Tex. 2003). Like sovereign immunity, governmental immunity includes immunity

from suit, which deprives a court of subject matter jurisdiction, and immunity from

liability, which protects entities from judgments. City of Dallas v. Albert, 354

S.W.3d 368, 373 (Tex. 2011). “Immunity from suit bars a suit against the State

                                          6
unless the Legislature expressly consents to the suit.” Tex. Natural Res.

Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 853 (Tex. 2002). “If the

Legislature has not expressly waived immunity from suit, the State retains such

immunity even if its liability is not disputed.” Id. “Immunity from liability protects

the State from money judgments even if the Legislature has expressly given

consent to sue.” Id. Immunity from liability is an affirmative defense, not a

jurisdictional bar. City of Houston v. Williams, 353 S.W.3d 128, 134 (Tex. 2011).

Therefore, we concern ourselves solely with the issue of governmental immunity

from suit in this appeal.

      A city is a political subdivision protected by governmental immunity.

Taylor, 106 S.W.3d at 694 n.3; City of LaPorte v. Barfield, 898 S.W.2d 288, 291

(Tex. 1995), superseded by statute on other grounds, as recognized in Travis Cent.

Appraisal Dist. v. Norman, 342 S.W.3d 54, 54-55 (Tex. 2011)). Governmental

immunity protects political subdivisions when they are performing governmental

functions like those involved here.4 See Williams, 353 S.W.3d at 134. Accordingly,

      4
        “Governmental functions” are those functions that a unit carries out as an
arm of the State for the purpose of serving the general public. City of Houston v.
Sw. Concrete Constr., Inc., 835 S.W.2d 728, 730 (Tex. App.—Houston [14th
Dist.] 1992, writ denied). By contrast, proprietary functions are functions that a
municipality may perform “for the benefit of private enterprise or the residents of
the municipality rather than for the benefit of the general public.” Id. The courts
use the proprietary-governmental dichotomy to determine a municipality’s
                                        7
governmental immunity deprives the trial court of subject-matter jurisdiction for

TPProperty’s lawsuit against the City unless immunity has been waived or

TPProperty’s claims do not implicate immunity from suit in the first instance.

Miranda, 133 S.W.3d at 224; Wichita Falls State Hosp., 106 S.W.3d at 694 n. 3.




immunity from suit for tortious conduct, but the Texas Supreme Court has not held
this same distinction determines whether immunity from suit is waived for breach
of contract claims. Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006).
There is a split in authority among some appellate courts regarding whether the
proprietary-governmental dichotomy applies in contract claims following the
enactment of chapter 271. See City of Georgetown v. Lower Colo. River Auth., 413
S.W.3d 803, 811 (Tex. App.—Austin 2013, pet. dism’d) (holding that there was no
principled reason why the dichotomy should apply to tort claims but not contract
claims under the common law); City of San Antonio ex rel. City Pub. Serv. Bd. v.
Wheelabrator Air Pollution Control, Inc., 381 S.W.3d 597, 603-05 (Tex. App.—
San Antonio 2012, pet. denied) (holding that the proprietary-governmental
dichotomy is not applicable to claims sounding in contract).
       Here, TPProperty complains of the City’s actions regarding the HOT
Agreement, which concerns the collection of hotel occupancy taxes, and the
Abatement Agreement, which concerns the collection of ad valorem taxes. For
purposes of tort liability, the Legislature has statutorily included “tax collection”
among a municipality’s governmental functions. Tex. Civ. Prac. & Rem. Code
Ann. § 101.0215(26) (West Supp. 2014). The classification between a proprietary
and governmental function is no different under the common law. See Tooke, 197
S.W.3d at 343-44; see also City of San Angelo v. Deutsch, 91 S.W.2d 308, 309
(Tex. 1936) (“The collection of taxes is undoubtedly a governmental function.”).
Because TPProperty’s claims involve the City’s collection of taxes, a
governmental function, we need not decide whether the dichotomy applies because
even assuming it did, the City has governmental immunity.

                                         8
                    IV. Waiver of Governmental Immunity

      The City argues that the trial court erred in denying its plea to the

jurisdiction regarding the Abatement Agreement and the HOT Agreement claims

because TPProperty has failed to establish a waiver of the City’s immunity from

suit. TPProperty asserts that immunity has been waived in three ways. First,

TPProperty argues that section 271.152 of the Local Government Code waived the

City’s immunity. Second, TPProperty argues that the City waived immunity by

“asserting counterclaims against TPProperty that are ‘connected with’ and

‘germane to’ TPProperty’s claims[.]” Third, TPProperty argues that the City

waived immunity by its conduct.

A. Waiver of Immunity under Local Government Code Chapter 271

      TPProperty argues that Local Government Code Chapter 271 waives the

City’s immunity under both the Abatement Agreement and the HOT Agreement.

When a governmental unit enters into a contract, it makes itself potentially liable

on the contract, and therefore, waives its immunity from liability; however, the

governmental unit retains its immunity from suit on the contract unless that

immunity has been specifically waived. Gen. Servs. Comm’n v. Little-Tex

Insulation Co., 39 S.W.3d 591, 594-97 (Tex. 2001). The party suing the

governmental unit must affirmatively demonstrate the court’s jurisdiction by

                                        9
alleging a valid waiver of immunity. Dallas Area Rapid Transit v. Whitley, 104

S.W.3d 540, 542 (Tex. 2003). The plaintiff bears the burden of establishing that

the government consented to suit, “which may be alleged either by reference to a

statute or to express legislative permission.” Tex. Dep’t of Transp. v. Jones, 8

S.W.3d 636, 638 (Tex. 1999). TPProperty alleges the City “waived immunity from

suit and liability, as this case involves contracts for goods and services that are

proprietary in nature and governmental immunity is waived under Texas Local

Government Code Chapter 271 for suits on such contracts.”

      Section 271.152 of the Local Government Code waives immunity from suit

for certain breach of contract claims. See Tex. Loc. Gov’t Code Ann. § 271.152

(West 2005). The statute provides:

      A local governmental entity that is authorized by statute or the
      constitution to enter into a contract and that enters into a contract
      subject to this subchapter waives sovereign immunity to suit for the
      purpose of adjudicating a claim for breach of the contract, subject to
      the terms and conditions of this subchapter.

Id. The plain language of the statute “allows for enforcement of contracts against

local governmental entities by waiving their immunity from suit.” Ben Bolt, 212

S.W.3d at 327. There is no dispute that the City is a local governmental entity

under the statute. The principal dispute between the parties in this issue is whether

the agreements include an agreement for TPProperty to provide goods or services

                                         10
to the City, making the contracts subject to the terms and conditions of the quoted

subchapter.

      The statute defines a “‘[c]ontract subject to this subchapter’” as “a written

contract stating the essential terms of the agreement for providing goods or

services to the local governmental entity that is properly executed on behalf of the

local governmental entity[.]” Tex. Loc. Gov’t Code Ann. § 271.151(2)(A) (West

Supp. 2014).5 Courts must look beyond the title of a written contract to determine

whether it satisfies this requirement. Lubbock Cnty. Water Control & Improvement

Dist. v. Church & Akin, L.L.C., 442 S.W.3d 297, 301 (Tex. 2014). In Church &

Akin, the Supreme Court explained that,

      a written contract that triggers chapter 271’s waiver of immunity is
      one that states the essential terms of an agreement to provide goods or
      services to the local governmental entity, regardless of the document’s
      title and even if the provision of goods and services is not the primary
      purpose of the contract.

Id. at 302. The agreements at issue here are written contracts that state their

essential terms. See Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d

831, 846 (Tex. 2000) (noting that a contract is legally binding “if its terms are

sufficiently definite to enable a court to understand the parties’ obligations”).



      5
         We cite to the current version of the statute because the amendments do not
affect the disposition of this appeal.
                                          11
      Statutory construction is a question of law, which we review de novo. Tex.

Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 635 (Tex.

2010). In our determination of whether the agreements fall under the scope of

section 271.152, we look at the Legislature’s intent and construe the statute’s

words according to their plain meaning unless a different meaning is supplied by

the legislative definition or is apparent from the context. See id. Chapter 271 does

not define the term “services.” See Tex. Loc. Gov’t Code Ann. § 271.001-.908

(West 2005 & West. Supp. 2014); see also Kirby Lake Dev., Ltd. v. Clear Lake

City Water Auth., 320 S.W.3d 829, 839 (Tex. 2010). The Texas Legislature

enacted section 271.152 “to loosen the immunity bar so ‘that all local

governmental entities that have been given or are given the statutory authority to

enter into contracts shall not be immune from suits arising from those contracts.’”

Ben Bolt, 212 S.W.3d at 327 (quoting House Comm. on Civil Practices, Bill

Analysis, Tex. H.B. 2039, 79th Leg., R.S. (2005)). In Kirby Lake, the Supreme

Court observed that the term “services” “is broad enough to encompass a wide

array of activities.” 320 S.W.3d at 839. Texas courts have held that the term

“services” includes “‘any act performed for the benefit of another[.]’” See Van

Zandt v. Fort Worth Press, 359 S.W.2d 893, 895 (Tex. 1962) (quoting Creameries

of Am., Inc. v. Indus. Comm’n, 98 Utah 571, 102 P.2d 300, 304 (1940)). However,

                                        12
the term does not extend to contracts that benefit a local governmental entity only

indirectly, or in some attenuated manner. Berkman v. City of Keene, 311 S.W.3d

523, 527 (Tex. App.—Waco 2009, pet. denied) (op. on reh’g). The “services” must

be provided to the local contracting governmental entity. See Kirby Lake, 320

S.W.3d at 838-39; see also N. Cent. Tex. Council of Gov’ts v. MRSW Mgmt., LLC,

405 S.W.3d 364, 371 (Tex. App.—Austin 2013, pet. denied). The First Court of

Appeals in East Houston Estate Apartments, L.L.C. v. City of Houston further

explained the limitations on the word “services” in the statute:

      If every contract that confers some attenuated benefit on a
      governmental entity constitutes a contract for a “service,” the
      limitation of contracts covered by section 271.152 to “contract for
      goods or services provided to the entity” loses all meaning. Nothing in
      the statute [or] in its legislative history supports such an interpretation.
      Had the legislature intended to waive immunity from liability for
      every contract participated in by the State, it could have done so. We
      must interpret the limitation as having some meaning.

294 S.W.3d 723, 736 (Tex. App.—Houston [1st Dist.] 2009, no pet.). A number of

appellate courts have evaluated whether a specific contract included a provision for

a service to the governmental entity thereby prompting section 271.152’s waiver of

immunity.

      In Dallas Area Rapid Transit (“DART”) and Hoppenstein Properties, Inc.,

the courts found that the contracts included an agreement for services to the

governmental entity and that section 271.152’s waiver of immunity from suit was
                                       13
applicable. Dallas Area Rapid Transit v. Monroe Shop Partners, Ltd., 293 S.W.3d

839, 841 (Tex. App.—Dallas 2009, pet. denied); Hoppenstein Props., Inc. v.

McLennan Cnty. Appraisal Dist., 341 S.W.3d 16 (Tex. App.—Waco 2010, pet.

denied) (op. on reh’g). In DART, the contract at issue established that DART

would sell, and Monroe would purchase and develop certain historically significant

property near a rail station. 293 S.W.3d at 840. DART terminated the contract

when Monroe allegedly failed to obtain the financing required by the contract. Id.

Monroe sued DART for breach of contract, but DART filed a plea to the

jurisdiction based on governmental immunity. Id. Monroe contended that DART’s

immunity was waived under section 271.152. Id. DART argued that section

271.152 was not applicable because the contract at issue was for the sale of real

estate and not one for goods or services. Id. at 841. The Dallas Court of Appeals

disagreed and found that the contract included promises by Monroe to provide

certain pre-closing and post-closing development services to DART. Id. DART

argued that the development services in the contract were not for its benefit but for

the benefit of the State of Texas as it was the State and not DART that had

restricted the use of the historic property. Id. The Dallas Court of Appeals

disagreed and concluded that DART and the State were not mutually exclusive in

this context. Id. The court explained that the contract required Monroe to accept an

                                         14
assignment of DART’s responsibilities and restrictions in dealing with the

historical nature of the property; get approval from DART on all construction

documents related to the renovations; agree that all construction documents would

belong to DART; obtain approval from DART on the construction company used

by Monroe for the renovations; and perform a list of the specific construction work

attached to the contract. Id. The court concluded that because of the agreement for

these services, the contract was subject to the waiver of immunity under section

271.152. Id.

      In Hoppenstein, the appraisal district and Hoppenstein entered into a lease

agreement, which included a construction addendum that required Hoppenstein to

complete certain renovations to the premises before the appraisal district would

move in and occupy the renovated premises. 341 S.W.3d at 18-19. Hoppenstein

was renovating the property specifically for the appraisal district’s use. Id. When

the appraisal district abandoned the premises before the end of the lease,

Hoppenstein sued the appraisal district for breach of the lease. Id. at 18. The

appraisal district claimed partial immunity from suit. Id. at 19. Hoppenstein argued

that the appraisal district waived immunity pursuant to section 271.152. Id. The

lease obligated Hoppenstein to renovate the premises according to a floor plan

agreed to by the appraisal district and in a manner that proved satisfactory to the

                                        15
appraisal district. Id. at 20. The court concluded that Hoppenstein contracted to

renovate the premises for the appraisal district, a service that falls within the

meaning of section 271.152. Id.

      In a recent opinion of the Texas Supreme Court concerning this issue, the

Court found that the agreement at issue, a lease, did not invoke section 271.152’s

waiver of immunity. See Church & Akin, 442 S.W.3d at 308-09. In Church &

Akin, the Court considered whether the parties’ lease agreement, which provided

that the leased premises were to be used only as a marina, constituted a contract for

“goods and services” under chapter 271. Id. at 303. The water district leased the

premises to Church & Akin. Id. at 299. The lease provided that the premises were

“‘to be used only as a Lake marina, restaurant, gasoline and sundry sales and as a

recreational facility,’” unless the water district consented to a different use. Id. The

water district ultimately decided to terminate the lease, and Church & Akin filed

suit for breach of contract alleging that the water district had no right to terminate

the lease early. Id. The water district argued it was entitled to immunity from suit

because the parties’ agreement was a lease of real property, not an agreement to

provide goods and services. Id. at 301. Church & Akin argued that the lease

included agreements to provide services; specifically, the lease required Church &

Akin to “‘(1) operate the marina; (2) issue and redeem catering tickets; and (3)

                                          16
return a percentage of its profits from sundry sales’” to the water district. Id. at

302.

       The Court held that the lease did not require Church & Akin to operate a

marina, but rather, required that if Church & Akin chose to use the property, the

only allowable use was that of a marina without having received written consent

for another use. Id. at 303. According to the Court, under the language of the lease,

Church & Akin could have elected not to use the premises for any purpose. Id. The

Court held that chapter 271 did not waive the water district’s immunity from suit

because “although the lease generally prohibited the lessee from using the property

for any purpose other than operation of a marina, the lessee did not agree to

provide marina-operation services or any other goods or services to the

governmental entity.” Id. at 299. The Court explained:

       When a party has no right under a contract to receive services, the
       mere fact that it may receive services as a result of the contract is
       insufficient to invoke chapter 271’s waiver of immunity. At best, such
       services are only an “indirect” and “attenuated” benefit under the
       contract.

Id. at 303. The Court explained that even if the lease could be read to include an

agreement that Church & Akin would use the property as a marina, any marina

services that Church & Akin provided were to the constituents of the marina, not

the water district. Id. at 303-04. The Court also explained that the section 271.152

                                         17
waiver “will typically apply only to contracts in which the governmental entity

agrees to pay the claimant for the goods or services that the claimant agrees to

provide to the governmental entity.” Id. at 304. The Court found that the contract at

issue created a leasehold interest and did not contain an agreement for the water

district to pay Church & Akin any amount. Id. at 305. Thus, the absence of any

provision in the contract where the water district agreed to pay Church & Akin for

services was found to be further support that the agreement did not provide

services to the governmental entity, as contemplated by the statute. Id. The Court

concluded that the lease did not require Church & Akin to provide marina-

operation services and at best, the operation of the marina only indirectly benefited

the water district. Id.

       The Court further analyzed whether a catering ticket provision in the lease

invoked the statutory waiver for providing services to the governmental entity. Id.

at 305-07. Church & Akin argued that the catering tickets would benefit the water

district as well as Church & Akin because the issuance of the tickets would

potentially increase the amount of marina sales and thus increase the amount that

Church & Akin would pay to the water district as rent. Id. at 306-07. The Court

concluded, “even to the extent the tickets may have increased marina sales, any

indirect benefit to the [w]ater [d]istrict from Church & Akins[’] increased profits

                                         18
could not, alone, convert Church & Akin’s efforts to promote its own business into

services to the [w]ater [d]istrict.”(emphasis in original) Id.

      Last, the Court examined whether the inclusion of profit-based rent (an

agreement to pay rent in the amount of 5% of its gross revenue for sales of

products other than gasoline) created a contract for services to the water district. Id.

at 308. The Court held the agreement did not require that Church & Akin have any

sales proceeds. Id. The Court concluded that the lease did not constitute an

agreement to generate sales revenue, operate a marina, or provide any other

services to the water district. Id. The Court then dismissed Church & Akin’s breach

of contract claims for lack of jurisdiction. Id. at 308-09.

      This Court recently decided South East Texas Regional Planning

Commission v. Byrdson Services, LLC, in which we held that the trial court should

have granted the planning commission’s plea to the jurisdiction. 454 S.W.3d 581,

583 (Tex. App.—Beaumont Jan. 22, 2015, pet. filed). In that case, Byrdson entered

into various contracts with individual homeowners and the planning commission.

Id. at 583, 587. Under the contracts, Byrdson agreed to perform repair work on

homes that had been damaged by Hurricane Ike using money from a limited public

fund. Id. at 588. The planning commission was obligated to oversee the projects

and disburse funds for the repairs in accordance with the contract terms. Id.

                                          19
Byrdson brought suit based on the planning commission’s alleged failure to pay

Byrdson for services it had provided to homeowners and for the commission’s

cancellation of Byrdson’s contracts. Id. at 591. Byrdson alleged the planning

commission had waived immunity for breach of the contract claims under section

271.152. Id. at 584.

      This Court concluded that Byrdson was obligated under the contracts to

provide repair work to the homeowners that signed the contracts and not to the

planning commission. Id. at 588. The court rejected Byrdson’s claim that the

planning commission had waived its immunity because the contracts required

Byrdson to indemnify the planning commission from any potential third-party

claims and to warrant its work. Id. at 588-90. The court explained that any benefits

the planning commission might enjoy from these provisions were contingent and

indirect. Id. at 590. Because Byrdson’s lawsuit was not based on claims under a

contract to provide goods and services to a local governmental entity, the trial

court should have dismissed the suit based on governmental immunity. Id. at 591.

       A number of appellate courts have also evaluated other types of contracts as

providing at most an indirect, attenuated benefit to the State, and thus, not

sufficient to invoke section 271.152’s waiver of immunity. See, e.g., City of

Canton v. Zanbaka, USA, LLC, No. 12-12-00006-CV, 2013 WL 3377436, at *1, *3

                                        20
(Tex. App.—Tyler July 3, 2013, pet. denied) (mem. op. on reh’g); Berkman, 311

S.W.3d at 527-28; E. Houston Estate, 294 S.W.3d at 736.

      In East Houston Estate, the city entered into a loan agreement with East

Houston Estate to assist in the rehabilitation of an apartment complex. 294 S.W.3d

at 726. Funding for East Houston Estate’s loan was provided through the federal

government. Id. The city agreed to disburse the federal funds to East Houston

Estate subject to certain terms and conditions in the loan agreement. Id. at 726,

735. After numerous construction delays, East Houston Estate filed for bankruptcy

and the property was sold at foreclosure. Id. at 728. East Houston Estate sued the

city claiming the city had breached its contract by failing to release all the funds

allotted by the loan agreement. Id. The city filed a plea to the jurisdiction arguing

that the loan agreement covered a community development activity, which is

statutorily defined as a governmental function, and thus, the city was immune from

suit for claims arising from the activity. Id. East Houston Estate argued that the

city’s immunity was waived under section 271.152. Id. at 729. East Houston Estate

contended that its agreement with the city provided for East Houston Estate to

provide the service of rehabilitating the apartment complex and providing low-

income housing for city residents in exchange for the city’s agreement to release to

East Houston Estate all funds allocated by the loan agreement. Id. at 734. The First

                                         21
Court of Appeals found that section 271.152 did not apply to the loan agreement.

Id. at 735-36. The court explained:

      It is clear that, while the City would benefit in a general way from
      having East Houston’s apartment units refurbished and from the
      availability of more housing for low-income families, nothing in the
      contract obligated East Houston to provide any municipal service
      directly to the City. The central purpose of the agreement between the
      City and East Houston was to facilitate a loan of money from the
      City’s portion of federal funds and from private funds to a private
      entity for the purpose of renovating East Houston’s empty apartment
      building. The City was thus a conduit of federal funds and a facilitator
      of the project, but no services were provided directly to the City. This
      is clearly not the type of “service” envisioned by section 271.152.

Id. at 736. The court concluded that any benefit to the city would be an indirect,

attenuated benefit. Id.

      In Berkman, the city entered into a contract to provide water and sewer

services to a landowner for thirty-five years if the property was used on a

continuous basis as a home for children who were wards of the State or, for twenty

years if the property ceased to be used for that purpose. 311 S.W.3d at 524-25. The

landowner argued that the agreement contained two services to the city—use of the

property as a home for children who were wards of the State, and the filing of an

annexation petition for the property. Id. at 527. The Waco Court of Appeals

concluded that the city had no independent obligation to provide for the welfare of

children who were wards of the State, thus the landowner’s commitment to use the

                                        22
property as such was a service to the State, not the city. Id. According to the court,

if the landowner met the needs of parentless children in the city, then the city was

the recipient of only an indirect benefit. Id. Likewise, the expansion of the city’s

tax base resulting from the annexation petition was only an indirect benefit to the

city. Id. Because the court found that the benefits to the city under the contract

were, at best, indirect or attenuated, it concluded that the contract was not an

agreement subject to section 271.152’s waiver of immunity provision. Id. at 527-

28.

      In Zanbaka, Canton Economic Development Corporation entered into an

agreement with Zanbaka to fund a sewer line and lift station to its travel plaza.

2013 WL 3377436, at *1. The city delayed construction of the line and station after

Zanbaka fulfilled certain requirements under the agreement. Id. Zanbaka filed suit

for a declaratory judgment asserting it had entered into a contract subject to section

271.152. Id. Zanbaka argued that it provided goods and services to the city under

the agreement when it allowed the city to annex its real property, when it created

new jobs, and when it installed a fire hydrant on the property. Id. at *3. The city

filed a plea to the jurisdiction arguing it was immune from suit. Id. at *1. The

appellate court explained that despite the stated purpose of the agreement—to

provide economic opportunities to the Canton area—the tangible objective of the

                                         23
parties’ agreement was to provide funding for the line and station. Id. at *3. The

appellate court held that any benefits that flowed to the city from the construction

of the line and station were thus indirect and attenuated, and that section 271.152

did not apply to such benefits. Id.

      Here, TPProperty contends both agreements include provisions to provide

“goods and services” to the City of Conroe. While TPProperty contends generally

that the agreements include provisions for providing both “goods and services” to

the City, TPProperty’s arguments actually focus on the alleged provision of

services and TPProperty does not appear to argue that the agreements include a

provision for TPProperty to provide goods to the City. Considering the authorities

discussed above, we now evaluate the Abatement Agreement and the HOT

Agreement to determine if either agreement provides for services to the City.

1. The Abatement Agreement

      According to TPProperty, the Abatement Agreement provides for services to

the City in that French Quarter agreed to undertake the service of substantially

renovating the Hotel and providing Conroe with a functional convention center.

TPProperty argues that the Abatement Agreement explicitly required French

Quarter to use the property as a hotel and convention center and to maintain all

improvements to the property during the agreement’s term. TPProperty contends

                                        24
the agreement states that French Quarter is only entitled to the abatement of taxes

if it completes the improvements. In further support of its contention, TPProperty

asserts that the agreement requires French Quarter to provide reports to the City

during the term of the agreement and, upon request from the City, requires French

Quarter to provide documents necessary to verify the owner’s compliance with the

terms of the agreement.

      Unlike the DART case discussed above, the Abatement Agreement does not

provide a direct benefit to the City of Conroe. The transit authority in that case

received a benefit by Monroe’s assumption of the responsibilities and restrictions

to maintain the historic nature of the property; here, we find no such direct benefit

to the City. Unlike Hoppenstein, there is no evidence that the City had plans to

lease or rent space at the Hotel. The renovations contemplated in the Hoppenstein

agreement were for the appraisal district’s direct use, whereas the renovations in

this case are not for the City’s use, but instead, are for the Hotel’s use and benefit.

In both DART and Hoppenstein, the agreement at issue contained provisions that

allowed the governmental entity to direct, control, or approve the renovations

because the respective city had a specific interest in the renovations taking place—

in DART, the preservation of historical property; in Hoppenstein, that the

renovations would meet the transit office’s specific needs. The City of Conroe has

                                          25
no such interest. The Abatement Agreement is more akin to those agreements

where the courts have found any benefits received by the governmental entity were

only indirect and attenuated.

      The Abatement Agreement contains a use provision, which provides that

French Quarter “shall use the Property for the purpose stated[.]” While the

Abatement Agreement does not specifically state the property’s purpose, it does

indicate that the property presently functions as a resort hotel and conference

center. The Abatement Agreement also contains a provision that allows the City to

declare a default in the event that the number of persons employed at the hotel

should fall below a certain number. Assuming this language is enough to establish

that the Abatement Agreement required French Quarter to operate the facility at a

certain capacity as a resort hotel and conference center, we conclude that any

service provided in operating the Hotel would not be a service provided to the City.

Additionally, we note that the Abatement Agreement does not contain an

agreement for the City to pay French Quarter any amount for the specific service

of operating or maintaining the Hotel. We conclude this type of service is not the

type of service contemplated to invoke section 271.152’s waiver of immunity. See

Church & Akin, 442 S.W.3d at 303-05.



                                        26
       TPProperty argues further that the “service” provided to the City under the

agreement is the renovation and maintenance of the Hotel. The Abatement

Agreement provides that, “[t]he Owner contemplates making improvements . . . to

the Property[.]” The Abatement Agreement identifies those improvements as

including: repair, remodeling, and renovation of the Hotel. It also contains a

provision that requires the owner to maintain these improvements throughout the

abatement period. Under the agreement, once the improvements are completed in

accordance with the terms of the agreement, French Quarter is entitled to the

abatement of all taxes on the portion of the property’s certified full market

appraised value that exceeds the property’s base year value.

       In East Houston Estate, the court found that while the city would benefit in a

general way from having an old apartment complex renovated and from the

addition of more low-income housing, the benefits did not stem from the type of

services envisioned by the statute because they were indirect and attenuated

benefits. 294 S.W.3d at 736. Here, the City of Conroe may benefit from having an

abandoned hotel renovated and operational, but that benefit is not derived from a

service undertaken on behalf of the City. French Quarter undertook to renovate,

maintain, and operate the Hotel for the same reasons most businesses are created—

for profit.

                                         27
      Likewise, where the court found that the city in Berkman did not have an

independent obligation to provide for the welfare of children, the City of Conroe

does not have an independent obligation to improve the local economy. To the

extent that the Abatement Agreement improved the City’s economy, such would

only be an indirect benefit to the City.

      Finally, we acknowledge that the City’s Tax Abatement Policy “is designed

to stimulate continued economic growth in the City of Conroe” by providing

financial benefits to businesses. However, the tangible objective of the Abatement

Agreement was to free up French Quarter’s funds through abatement of its

property taxes and thus help it to shoulder the financial burden of the renovation

project. While the City clearly anticipated that the Hotel’s renovations might help

stimulate the City’s local economy, that type of benefit is more akin to the benefits

observed in Church & Akin, East Houston Estate, Berkman, and Zanbaka—that is,

the benefits, if any, are indirect or attenuated. See Church & Akin, 442 S.W.3d at

303-05; Zanbaka, 2013 WL 3377436, at *3; Berkman, 311 S.W.3d at 527-28; E.

Houston Estate Apartments, 294 S.W.3d at 736.

      We conclude that the Abatement Agreement is not a contract to provide

goods or services directly to the City of Conroe and thus, the City did not waive its

immunity from suit under section 271.152 by entering into such an agreement. See

                                           28
Tex. Loc. Gov’t Code Ann. § 271.152. To that extent, the trial court erred in

denying the City’s plea to the jurisdiction.

2. The HOT Agreement

      TPProperty contends the HOT Agreement was also part of French Quarter’s

agreement to renovate the Hotel and provide the City with an operational

convention center. TPProperty argues the HOT Agreement involves a provision of

services for the same reasons it asserts to support its contention that the Abatement

Agreement involved a provision of services. We need not address those arguments

again, as they are no more persuasive in relation to the HOT Agreement than they

were for the Abatement Agreement. However, TPProperty does specifically argue

that under the HOT Agreement, French Quarter agreed to promote tourism on

behalf of the City. TPProperty argues this service directly benefits the City and

thus, subjects the agreement to section 271.152’s waiver of immunity.

      In the HOT Agreement, the City agreed to “dedicate and provide to French

Quarter an amount equal to five-sevenths (5/7) of the HOT [r]evenues in

consideration of the Services to be performed by French Quarter described in

Article 3[.]” French Quarter agreed to use the HOT revenues “to promote tourism

and the convention and hotel industry in the Lake Conroe area in the vicinity of the

Land, including the promotion of the Center, and other tourist facilities located

                                          29
thereon, on behalf of the City[.]” The HOT Agreement listed the “Services” French

Quarter agreed to perform as including the “preparation and distribution of

advertising and promotional materials;” “solicitations and promotional programs;”

and “operational costs, including supplies, salaries, office rental, travel expenses,

and other administrative costs.” The HOT Agreement states, “French Quarter may

satisfactorily perform the Services if its activities are construed to solely relate to

the activities of facilities located on the Land.”6

      The City contends that French Quarter’s retention and expenditure of HOT

revenues to market the Hotel is not a service provided to the City because French

Quarter, not the City, receives the main benefit of the HOT Agreement. The City

contends that, at most, it might derive a general economic boost if the Hotel’s

business improves from marketing resulting from the HOT Agreement, but that

benefit is indirect and secondary to the main purpose of the Agreement, which is

the promotion of the Hotel.




      6
        The HOT Agreement also contains various provisions requiring French
Quarter to maintain the HOT revenues in a separate account, prepare annual
budgets regarding the HOT revenues, make periodic reports to the City regarding
expenditures, and to maintain complete books and records regarding any
expenditures.


                                           30
       In evaluating the HOT Agreement, we find that although French Quarter is

given the authority to use the HOT revenues, it is not required or obligated to use

the revenues at all. Similar to the lease in Church & Akin, under the terms of the

HOT Agreement, French Quarter could have elected not to use the HOT revenues

for any purpose. The HOT Agreement contains a provision that states, “[u]nspent

HOT revenues may be carried over by French Quarter to subsequent budget years.”

The agreement does not include a provision dictating the amount of HOT revenues,

if any, French Quarter is required to spend each year, and it does not restrict the

amount of HOT revenues French Quarter is allowed to carry over year to year.

French Quarter only agreed to collect the funds 7 and that if it chose to use those

funds, it agreed to use them “to promote tourism and the convention and hotel

industry in the Lake Conroe area in the vicinity of the Land, including the

      7
         Even without the HOT Agreement, French Quarter was required to collect
hotel occupancy taxes. See CONROE, TEX., CODE OF ORDINANCES, art. II, § 62-36
(2007), available at https://www.municode.com/library/tx/conroe/codes/code_of_
ordinances?nodeId=PTIICOOR_CH62TA_ARTIIHOOCTA_S62-36CO (“Every
person owning, operating, managing or controlling any motel or hotel within the
city shall collect the tax imposed in section 62-32 for the city.”). French Quarter
was also required to “file a report with the director of finance, showing the
consideration paid for all room occupancies in the preceding month, the amount of
the tax collected on such occupancies, a copy of the corresponding hotel tax report
for the State of Texas and any other information as the director of finance may
reasonably      require.”    Id.  at    art.   II,   §    62-37,     available   at
https://www.municode.com/library/tx/conroe/codes/code_of_ordinances?nodeId=P
TIICOOR_CH62TA_ARTIIHOOCTA_S62-37RE.
                                         31
promotion of the Center, and other tourist facilities located thereon, on behalf of

the City[.]” There is no language in the HOT Agreement that requires French

Quarter to spend the HOT revenues; French Quarter was simply restricted from

spending the revenues on anything other than the promotion of tourism as

indicated in the agreement. We also acknowledge that while both parties may have

contemplated that French Quarter would actually spend the revenues, the language

in the HOT Agreement did not require it to do so and, in fact, included a provision

that allowed it to roll over unspent funds from year to year. The City had no right

under the HOT Agreement to receive the tourism promotion services of French

Quarter nor did the City agree to pay French Quarter for such services. Such

agreement simply allows the Hotel to expend a portion of the HOT revenues

collected from its patrons directly for advertisement instead of turning them over to

the City and to provide an accounting of such expenditures to the City. At best, the

agreement only provides an indirect benefit to the City. Therefore, section

271.152’s waiver of immunity does not apply. See Church & Akin, 442 S.W.3d at

303.

       We conclude that the HOT Agreement is not a contract to provide goods or

services directly to the City of Conroe and thus, the City did not waive its



                                         32
immunity from suit under section 271.152. See Tex. Loc. Gov’t Code Ann. §§

271.151(2)(A), 271.152.

B. Waiver by Asserting Affirmative Defense or Counterclaim

      TPProperty also argues that the City waived its immunity by engaging in the

litigation process. According to TPProperty, because the City has asserted

counterclaims against TPProperty seeking recovery of ad valorem taxes abated

under the Abatement Agreement and HOT revenues under the HOT Agreement,

TPProperty’s claims for breach of contract under the very same agreements are

“‘germane to, connected with, and properly defensive’” to the City’s claims. Thus,

TPProperty argues that the City has waived immunity from suit by asserting its

counterclaims against TPProperty.

      In Reata, the Court held that “when an affirmative claim for relief is filed by

a governmental entity, . . . immunity from suit no longer completely exists for the

governmental entity.” Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 376

(Tex. 2006). The Court explained:

      [I]f the governmental entity interjects itself into or chooses to engage
      in litigation to assert affirmative claims for monetary damages, the
      entity will presumably have made a decision to expend resources to
      pay litigation costs. If the opposing party’s claims can operate only as
      an offset to reduce the government’s recovery, no tax resources will
      be called upon to pay a judgment, and the fiscal planning of the
      governmental entity should not be disrupted.

                                        33
Id. at 375. The Court reasoned, “it would be fundamentally unfair to allow a

governmental entity to assert affirmative claims against a party while claiming it

had immunity as to the party’s claims against it.” Id. at 375-76. In City of Irving v.

Inform Constr., Inc., the Court held that a city “does not have immunity from suit

for claims germane to, connected with, and properly defensive to its counterclaim

to the extent [the opposing party’s] claims act as an offset against the [c]ity’s

recovery.” 201 S.W.3d 693, 694 (Tex. 2006). The Court also explained that these

rules apply even if the city’s counterclaim is compulsory. Id.

      Here, the City filed a counterclaim in conjunction with its answer to the

lawsuit. Sometime thereafter, the City filed its Plea to the Jurisdiction. The City

contends that by its counterclaim, it has not sought monetary relief under the

Abatement Agreement, but that its claims seeking to foreclose on the tax liens for

delinquent taxes are made contingent on and subject to the resolution of the tax

exemption issues and are not counterclaims. The City argues that it has not asked

the trial court to make a determination as to whether TPProperty was entitled to an

exemption or to enforce any remedies under the Abatement Agreement.

      With regard to the ad valorem taxes, the City filed a counterclaim alleging

that it is entitled to recapture and collect the abated ad valorem taxes on the

property for tax years 2009 through 2011 under the Texas Tax Code and under the

                                         34
Abatement Agreement. The City asked for a judgment foreclosing the City’s

property tax liens against the property, securing the total amount of all delinquent

property taxes, penalties and interest, and an order of sale requiring the foreclosed

property to be sold.

      The City further argues that its counterclaim regarding the hotel occupancy

taxes does not request the type of monetary relief necessary to waive governmental

immunity. The City filed a counterclaim seeking a judgment to require TPProperty

to pay:

      a) the full amount of the hotel occupancy taxes that it collected from
      its customers during the months of October 2011 [through] July 2012,
      less the amount of any payments previously made to the City; b) an
      additional sum equal to 15% of the total amount of the HOT owed at
      the time of payment; c) the cost of an audit of the HOT revenues
      received during the period in question; d) the City’s reasonable
      attorney’s fees; and e) the City’s costs of court.

The City also alleges that it is entitled to judgment for any additional hotel

occupancy taxes, penalties, and attorney’s fees that accrue during the pendency of

the litigation. According to the City, such claims for relief seek only to enforce its

statutory authority to impose and collect taxes.

      Applying Reata, we must decide if TPProperty’s claims for common law

breach of contract damages are sufficiently related to the City’s counterclaims; that

is, whether TPProperty’s breach of contract claims are “germane to, connected

                                         35
with, and properly defensive to” the City’s monetary claims, so as to fall within the

trial court’s limited jurisdiction to adjudicate such claims to the extent of offsetting

any recovery by the City. See Reata, 197 S.W.3d at 376-77. The Texas Supreme

Court has likened the term “germane to” with the term “relevant to.” See Albert,

354 S.W.3d at 375 (citing BLACK’S LAW DICTIONARY 756 (9th ed. 2009)); see also

Sweeny Cmty. Hosp. v. Mendez, 226 S.W.3d 584, 592 (Tex. App.—Houston [1st

Dist.] 2007, no pet.) (observing that the term “germane” generally means “‘closely

akin,’” “‘being at once relevant and appropriate,’” “‘closely or significantly

related,’”   “‘relevant,’”   and    “‘pertinent[]’”   (citing   MERRIAM-WEBSTER’S

COLLEGIATE DICTIONARY 525 (11th ed. 2003) and RANDOM HOUSE WEBSTER’S

UNABRIDGED DICTIONARY 800 (2d ed. 2001))). “In common usage, the term

‘connected’ means ‘united, joined or linked’ and ‘joined together in sequence;

linked coherently’ and ‘having parts or elements logically linked together.’”

Sweeny, 226 S.W.3d at 592 (quoting MERRIAM-WEBSTER’S COLLEGIATE

DICTIONARY 525 (11th ed. 2003) and RANDOM HOUSE WEBSTER’S UNABRIDGED

DICTIONARY 800 (2d ed. 2001)). A number of courts of appeals have also

suggested that a claim that would be a compulsory counterclaim to the

governmental entity’s claim would also qualify as one that is germane to,

connected with, and properly defensive to it. See, e.g., City of New Braunfels v.

                                          36
Carowest Land, Ltd., 432 S.W.3d 501, 526-27 (Tex. App—Austin 2014, no pet.);

City of San Antonio v. KGME, Inc., 340 S.W.3d 870, 877 (Tex. App.—San

Antonio 2011, no pet.); Tex. Dep’t of Transp. v. Crockett, 257 S.W.3d 412, 416

(Tex. App.—Corpus Christi 2008, pet. denied); Sweeny, 226 S.W.3d at 592-93;

City of Dallas v. Redbird Dev. Corp., 143 S.W.3d 375, 383 (Tex. App.—Dallas

2004, no pet.). A counterclaim is compulsory “if it arises out of the transaction or

occurrence that is the subject matter of the opposing party’s claim[.]” Tex. R. Civ.

P. 97(a).

      TPProperty alleges that the City breached the Abatement Agreement it

entered into with French Quarter. The City alleges that French Quarter breached

the Abatement Agreement when it ceased to employ any “‘persons that actually

office at the property’ and when it allowed TPProperty to take title and possession

of the subject tracts of real property without seeking or obtaining the consent of the

City.” For the City to succeed on its counterclaim seeking to recapture and collect

the abated ad valorem taxes from 2009 through 2011, it must prove, among other

elements, that French Quarter or any allowable assignee, if any, breached the

Abatement Agreement. For TPProperty to succeed, it must prove exactly the

opposite—that the City breached the Abatement Agreement.



                                         37
      TPProperty alleges that the City breached the HOT Agreement it entered

into with French Quarter when it refused to approve the HOT Budget, tried to limit

TPProperty’s rights to spend the HOT revenues, attempted to terminate the HOT

Agreement, demanded additional budgets and reports, and assessed a fifteen

percent penalty. The City counterclaimed that TPProperty and its predecessor,

French Quarter, have refused to pay hotel occupancy taxes to the City. The City

sought judgment against TPProperty for the unpaid taxes, and statutory penalties,

attorney’s fees, and court costs. TPProperty has alleged that the City is wrongfully

attempting to collect these taxes in breach of the HOT Agreement. To succeed on

its claim, the City will have to show, among other things, that it is no longer bound

by the HOT Agreement. For TPProperty to succeed, contrary findings are

required—that the City is bound by the HOT Agreement and did not perform its

obligations accordingly.

      Here, the City’s claims and TPProperty’s claims arise from the same

transactions—the continued viability of the agreements, the alleged breach of such

agreements, and the fulfillment or non-fulfillment of obligations by the parties, if

any, under those contracts. Both parties request affirmative relief stemming from

the other party’s purported breach of the same contracts, and each party’s claims

rely on the trial court’s resolution of similar disputed facts. Therefore, we hold

                                         38
TPProperty’s claims for common law breach of contract damages are germane to,

connected with, and properly defensive to a portion of the City’s counterclaims.

Thus, we conclude the City waived its immunity from suit with respect to

TPProperty’s contract claims, so far as those claims act as offsets to the City’s

counterclaims. See Reata, 197 S.W.3d at 376-77. As illustrated by the Texas

Supreme Court, this limited jurisdiction allowable under Reata may prove to be an

insurmountable obstacle for recovery of any damages in a breach of contract suit.

See Albert, 354 S.W.3d at 376.

C. Waiver of Immunity by Conduct

      Finally, TPProperty contends that the City waived immunity as it received

the benefit of its bargain under the agreements. TPProperty cites one case in

support of its position. See Tex. S. Univ. v. State St. Bank & Trust Co., 212 S.W.3d

893, 908 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). In State Street Bank,

the court held that the university was not immune from suit due to the

“‘extraordinary factual circumstances’” found in that case. Id. at 907-08. The

university entered into a contract wherein it agreed to pay approximately $13

million for equipment and services. Id. at 908. After the university received the

equipment and services, it refused to pay, claiming that the contracts were invalid.

Id. The court agreed with the following argument made on appeal:

                                        39
      [T]he injustice is even worse, because this case also includes an
      additional fact that appears in none of the prior cases: The government
      officials lured Viron into the Master Lease with false promises that
      the contract would be valid and enforceable, then disclaimed any
      obligation on the contract by taking the position that the contract was
      not valid after all.

Id. at 908. Considering the facts in that case, the court held that sovereign

immunity did not shield the university from a breach of contract claim. Id. We find

nothing in the facts of this case that rise to the same level as those extraordinary

facts presented in State Street Bank. Moreover, the Texas Supreme Court has

expressly refused to recognize a waiver of immunity by conduct in a breach of

contract suit against a governmental entity. See Sharyland Water Supply Corp. v.

City of Alton, 354 S.W.3d 407, 414 (Tex. 2011). We, therefore, overrule

TPProperty’s contention that the City waived immunity by conduct.

                       V. Claims for Specific Performance

      TPProperty’s pleadings identify its request for specific performance as a

separate cause of action. However, in its brief, TPProperty concedes that it seeks

specific performance only as a remedy for the City’s breach of the HOT

Agreement and the Abatement Agreement, if any. Because of TPProperty’s

concession, we do not need to address its request for specific performance as a

separate cause of action.


                                        40
                   VI. Exhaustion of Administrative Remedies

      The City argues that TPProperty’s claims regarding the Abatement

Agreement amount to a complaint about the City’s denial of a tax exemption. The

City contends that the only legal significance of TPProperty’s claims under the

Abatement Agreement is whether TPProperty is entitled to retain the tax

exemption promised in the agreement. Because the Tax Code provides the

exclusive remedies for the resolution of disputes over the denial of a tax

exemption, the City argues that TPProperty was required to exhaust its

administrative remedies prior to seeking relief in the trial court. The City contends

that TPProperty’s failure to exhaust its administrative remedies deprives the court

of jurisdiction to decide the matter.

      The statutory administrative review requirements of the Tax Code are

mandatory and jurisdictional. See, e.g., Cameron Appraisal Dist. v. Rourk, 194

S.W.3d 501, 502 (Tex. 2006) (per curiam); Matagorda Cnty. Appraisal Dist. v.

Coastal Liquids Partners, L.P., 165 S.W.3d 329, 331 (Tex. 2005). The legislative

policy behind the exhaustion of administrative remedies doctrine is to allow the

agency involved to “resolve disputed issues of fact and policy” and “to assure that

the appropriate body adjudicates the dispute[.]” Essenburg v. Dallas Cnty., 988

S.W.2d 188, 189 (Tex. 1998). The policy also seeks “to encourage parties to

                                         41
resolve their dispute without resorting to litigation when an administrative

procedure is provided for that purpose.” Vela v. Waco Indep. Sch. Dist., 69 S.W.3d

695, 702 (Tex. App.—Waco 2002, pet. withdrawn). There are exceptions to this

doctrine: (1) where an injunction is sought and irreparable harm would result; (2)

where the administrative agency cannot grant the requested relief; (3) when the

issue presented is purely a question of law; (4) where certain constitutional issues

are involved; and (5) where an administrative agency purports to act outside its

statutory powers. Gibson v. Waco Indep. Sch. Dist., 971 S.W.2d 199, 201-02 (Tex.

App.—Waco 1998), vacated on other grounds, 22 S.W.3d 849 (Tex. 2000).

A. The Tax Code

1. Taxing Unit’s Authority to Exempt Property

      Article VIII, section 1-g of the Texas Constitution permits the Legislature by

general law to authorize “cities, towns, and other taxing units to grant exemptions

or other relief from ad valorem taxes on property located in a reinvestment zone

for the purpose of encouraging development or redevelopment and improvement of

the property.” Tex. Const. art. VIII, § 1-g(a). Chapter 312 of the Tax Code was

enacted as enabling legislation for this constitutional provision. See Act of Aug.

10, 1981, 67th Leg., 1st C.S., ch. 5, § 9, 1981 Tex. Gen. Laws 53, 57 (making the

Act effective on the constitutional amendment’s adoption date). Chapter 312

                                        42
permits a taxing unit to enter into tax abatement agreements with owners of real

property located in a reinvestment zone if the governing body of the municipality

or county “has established guidelines and criteria governing tax abatement

agreements by the taxing unit and a resolution stating that the taxing unit elects to

become eligible to participate in tax abatement.” Tex. Tax Code Ann. § 312.002(a)

(West 2015).

      The tax exemption created by a tax abatement agreement is subject to the

Tax Code provisions that generally apply to property tax exemptions. See Fina Oil

& Chem. Co. v. Port Neches I.S.D., 861 S.W.2d 3, 6-7 (Tex. App.—Beaumont

1993, writ denied) (holding Tax Code section 11.43(h) notice provision applied to

cancellation of partial exemption created by abatement agreement). Chapter 11 of

the Tax Code provides that the owner of real property subject to a chapter 312 tax

abatement agreement is entitled to a tax exemption as provided by the agreement.

See Tex. Tax Code Ann. § 11.28 (West 2015). Section 11.42(a) generally provides

that “eligibility for and amount of an exemption authorized by this chapter for any

tax year are determined by a claimant’s qualifications on January 1.” Id. §

11.42(a).8 “A person who does not qualify for an exemption on January 1 of any

year may not receive the exemption that year.” Id. Section 22.02 of the Tax Code
      8
         We cite to the current version of the statute, as later amendments do not
affect the disposition of this appeal.
                                        43
provides that “[i]f an exemption applicable to a property on January 1 terminates

during the tax year, the person who owns or acquires the property on the date

applicability of the exemption terminates shall render the property for taxation

within 30 days after the date of termination.” Id. § 22.02(a).

2. Chief Appraiser Determines Right to Exemptions

      To obtain the exemption, the person claiming the exemption must file an

application with the chief appraiser of the appraisal district. Id. § 11.43(a). The

chief appraiser is statutorily charged in the first instance with determining whether

property is tax exempt. See id. § 11.45(a). The chief appraiser determines a

property owner’s right to an exemption based on the claimant’s qualifications as of

January 1. See id. §§ 11.42(a), 11.45(a). The chief appraiser’s initial determination

of whether a specific property is exempt from taxation is a fact question. See id. §

11.45(a); Tex. Tpk. Co. v. Dallas Cnty., 271 S.W.2d 400, 402 (Tex. 1954). The

taxpayer may protest a denial of the application by the appraiser. See Tex. Tax

Code Ann. §§ 11.45(a), (c), 41.41(a). The protest is determined by the appraisal

review board. See id. §§ 41.41(a), 41.47(a). A taxpayer may appeal an order of the

appraisal review board on such a determination. See id. § 42.01(a)(1)(A).




                                         44
3. Tax Code Provides Exclusive Procedure to Contest Denial of Exemption

      The Tax Code provides administrative procedures for property owners to

contest ad valorem taxes. See Tex. Tax Code Ann. §§ 41.41-.47 (West 2015);

Rourk, 194 S.W.3d at 502. The Code vests appraisal review boards with the

authority to hear and determine protests filed by property owners. Tex. Tax Code

Ann. §§ 41.41, 41.47. Under the statute, a property owner is entitled to protest,

before the appraisal review board, a “denial to the property owner in whole or in

part of a partial exemption[.]” Id. § 41.41(a)(4). The administrative proceedings

constitute the exclusive procedure to challenge ad valorem taxes, and most

defenses are barred if not raised in the agency. See id. § 42.09; Rourk, 194 S.W.3d

502. Thus, “‘a taxpayer’s failure to pursue an appraisal review board proceeding

deprives the courts of jurisdiction to decide most matters relating to ad valorem

taxes.’” Rourk, 194 S.W.3d at 502 (quoting Matagorda Cnty., 165 S.W.3d at 331).

B. TPProperty is Required to Exhaust its Administrative Remedies

      TPProperty argues that it was not required to exhaust administrative

remedies under chapters 41 and 42 of the Tax Code because those chapters relate

to administrative decisions by the chief appraiser, appraisal district, and appraisal

review board. According to TPProperty, because the City, not an administrative

agency, terminated the Abatement Agreement, there was not a decision that

                                         45
required administrative review. TPProperty characterizes this case as a contract

dispute over whether the City properly terminated the Abatement Agreement, not a

tax dispute relating to an action by an administrative agency. In its live pleading,

TPProperty complains of the City’s “attempt to ‘recapture’ tax revenues from

TPProperty that were abated under the Abatement Agreement during the time

French Quarter owned the Hotel.” TPProperty further complains that the City has

“directed the Tax Assessor to recapture those taxes from TPProperty[.]”

TPProperty seeks specific performance of the Abatement Agreement. TPProperty

complains that the City has improperly attempted to levy penalties, fines, and liens

against the Hotel. TPProperty seeks a declaration as part of its suit that it had no

obligation to pay back taxes, that neither the City nor the tax assessor was entitled

to recapture back taxes from TPProperty, to place tax liens on the Hotel related to

the Abatement Agreement or assess any penalties or interest on TPProperty related

to the Abatement Agreement, and that the City is only entitled to collect taxes as

provided in the Abatement Agreement.

C. TPProperty Has Not Exhausted Its Administrative Remedies

      TPProperty does not dispute the fact that it did not seek administrative relief

prior to filing suit in the trial court. However, in its appellate brief, TPProperty

contends that it has “complied with the administrative process to date[.]”

                                         46
According to the record, the chief appraiser made a determination that the tax

exemption for the Hotel for the years 2009 through 2013 should be disallowed

because the City adopted a resolution finding the Abatement Agreement to be in

default. TPProperty filed a protest of the chief appraiser’s decision. Both parties

acknowledge that the chief appraiser has not rendered a decision on TPProperty’s

protest. Therefore, it is undisputed that the administrative review process is

incomplete.

      The record shows that TPProperty brought this suit in May 2012, after the

City passed a resolution declaring the Abatement Agreement in default and

terminated. Despite the date of such resolution, the appraisal district did not send

notice of cancellation of the tax exemption until June 2013. As we noted, the Tax

Code provides that the chief appraiser determines a property owner’s right to an

exemption based on the claimant’s qualifications as of January 1. See §§ 11.42(a),

11.45(a). The City filed its original counterclaim in June 2012, and did not file its

plea to the jurisdiction until September, 2013. Therefore, at the time TPProperty

filed its lawsuit and the City filed its answer and counterclaim, the appraisal

district had not assessed any further taxes or otherwise cancelled any tax

exemption of the subject property. Therefore, it is clear that at the time the trial

court acquired jurisdiction of this suit, the appraisal district could not have granted

                                          47
the requested relief. Thus, we find an exception to the general rule requiring

exhaustion of administrative remedies applies to the unique facts of this case. See

Gibson, 971 S.W.2d 199, 201-02; Mag-T, L.P. v. Travis Cent. Appraisal Dist., 161

S.W.3d 617, 625 (Tex. App.-Austin 2005, pet. denied) (enumerating exceptions

that excuse a party from exhausting administrative remedies). Once a

governmental entity has asserted an affirmative claim for monetary relief, whether

by filing suit or by counterclaim, the trial court acquires jurisdiction over the

entity’s claims and certain offsetting, defensive claims asserted against the entity.

Albert, 354 S.W.3d at 375. “That is not because the entity effected a change in its

immunity by filing a claim, but because the judiciary has abrogated the entity’s

common law immunity from suit as to certain offsetting claims.” Id. We conclude

the trial court did not err in denying the City’s plea to the jurisdiction on the City’s

claim that TPProperty failed to exhaust its administrative remedies.

                        VII. Declaratory Judgment Claims

      TPProperty also seeks declaratory relief relating to the Abatement

Agreement and the HOT Agreement. The Uniform Declaratory Judgment Act

(“DJA”) is a remedial statute and “its purpose is to settle and to afford relief from

uncertainty and insecurity with respect to rights, status, and other legal relations[.]”



                                          48
Tex. Civ. Prac. & Rem. Code Ann. § 37.002 (West 2015); IT-Davy, 74 S.W.3d at

855. The Act provides:

      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.

Tex. Civ. Prac. & Rem. Code Ann. § 37.004(a). “The DJA does not extend a trial

court’s jurisdiction, and a litigant’s request for declaratory relief does not confer

jurisdiction on a court or change a suit’s underlying nature.” IT-Davy, 74 S.W.3d at

855. The DJA provides a waiver of governmental immunity, but it is limited in

scope to certain declaratory claims against governmental entities challenging the

validity of certain legislative enactments. Carowest Land, 432 S.W.3d at 530; see

also Tex. Civ. Prac. & Rem. Code Ann. § 37.006(b) (West 2015) (“In any

proceeding that involves the validity of a municipal ordinance or franchise, the

municipality must be made a party . . . .”).


      TPProperty seeks the following declarations: (1) that the Abatement

Agreement has been transferred from French Quarter to TPProperty; (2) that

TPProperty has succeeded to the interests of French Quarter under the Abatement

Agreement; (3) that TPProperty is not in breach of any of the material terms and
                                          49
provisions of the Abatement Agreement; (4) that TPProperty has performed under

the Abatement Agreement; (5) that TPProperty has no obligation for any back

taxes under the Abatement Agreement; (6) that neither the City of Conroe nor its

tax assessor is entitled to recapture any back taxes from TPProperty related to the

Abatement Agreement; (7) that neither the City of Conroe nor the tax assessor is

entitled to place any tax liens on the Hotel related to the Abatement Agreement; (8)

that neither the City of Conroe nor its tax assessor is to assess any penalties or

interest against TPProperty related to the Abatement Agreement; (9) that the

Abatement Agreement is a valid and binding agreement pursuant to which

TPProperty can submit tax abatement applications to MCAD; (10) that MCAD is

not entitled to fail to process TPProperty’s tax abatement applications under the

Abatement Agreement; (11) that TPProperty has succeeded to the interests of

French Quarter under the HOT Agreement; (12) that TPProperty is not in breach of

any of the material terms and provisions of the HOT Agreement; (13) that

TPProperty has performed under the HOT Agreement; (14) that neither the City of

Conroe nor the tax assessor is to assess any penalties or interest on TPProperty

related to the HOT Agreement; (15) that the City of Conroe is not entitled to

recapture any back taxes from TPProperty related to the Abatement Agreement or



                                        50
the HOT Agreement; and (16) the tax assessor is not entitled to collect any future

taxes except pursuant to the Abatement Agreement.

      The City contends that suits to establish a contract’s validity, enforce its

performance, or impose its liabilities are barred by immunity. According to the

City, TPProperty is essentially trying to avoid immunity by framing its breach of

contract claims as a suit seeking declaratory relief. Most of the declarations

TPProperty seeks would have the effect of establishing the parties’ rights and

liabilities under the agreements. We have held the very issues these declarations

seek to affirm are within the trial court’s jurisdiction to adjudicate by virtue of the

City’s limited waiver of immunity arising from the City’s counterclaims seeking

monetary relief. See Carowest Land, 432 S.W.3d at 534. We conclude the trial

court did not err in denying the City’s plea to the jurisdiction as to TPProperty’s

claims seeking declarations that have the effect of establishing the parties’ rights

and liabilities under the Abatement Agreement and the HOT Agreement.

                                  VIII. Conclusion

      Based on the foregoing analysis, we affirm the trial court’s order denying the

City’s plea to the jurisdiction, but only to the limited extent that any allowable

claims of TPProperty may properly offset any recovery by the City on its

counterclaims.

                                          51
      AFFIRMED AS MODIFIED.



                                            ______________________________
                                                   CHARLES KREGER
                                                        Justice


Submitted on February 27, 2014
Opinion Delivered June 25, 2015


Before McKeithen, C.J., Kreger, and Horton, JJ.




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