Kirby Lake Development, Ltd. v. Clear Lake City Water Auth

In Kirby Lake Dev. Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 838 (Tex. 2010), the Texas Supreme Court addressed the question of whether an agreement fell outside Tex. Loc. Gov't Code section 271.152's waiver of immunity because the plaintiff failed to plead for damages allowed by section 271.153. 320 S.W.3d at 839-40 (citing section 271.153's provision limiting "the total amount of money awarded in an adjudication brought against a local governmental entity for breach of contract" to "the balance due and owed by the local governmental entity under the contract"). The water authority argued that there was no "balance due and owed," and thus its immunity from suit was not waived. Id. he supreme court held, "The purpose of section 271.153 is to limit the amount due by a governmental agency on a contract once liability has been established, not to foreclose the determination of whether liability exists." Id. at 840. In Kirby Lake Development, Ltd. v. Clear Lake City Water Auth., residential developers entered into agreements with a local water authority requiring the developers to build water and sewer facilities according to the authority's specifications and then lease the facilities to the authority free of charge until the authority purchased them. 320 S.W.3d at 832. The authority agreed to reimburse the developers a portion of their construction costs after it received voter-approved bond funds. Id. at 832-33. In considering the developers' arguments that section 271.152 waived the authority's immunity from a suit arising from the agreements, the supreme court noted that the 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." Id. at 838. It also cited the bill analysis, in which supporters of the bill had explained that a local governmental entity's blanket immunity from breach of contract claims had "created a fundamentally unfair situation that denied redress, for example, to a contractor who completed a project for a city that refused to pay." Kirby Lake Dev., Ltd., 320 S.W.3d at 838 n.2. The court also noted that the "services provided . . . need not be the primary purpose" of an agreement in order for immunity to be waived under section 271.152. Id. at 839. The supreme court concluded that the agreements obligating the developers "to construct, develop, lease, and bear all risk of loss or damage to the facilities" entailed "services provided directly to the authority" and, thus, the court held that the agreements "contemplated the provision of services under" section 271.152. Id. In sum, several developers entered into agreements with the Clear Lake Water Authority. 320 S.W.3d at 832. The development agreements required the developers to build water and sewer facilities and lease the facilities to the Water Authority free of charge. Id. The court of appeals held that the developers' "agreement to hire third parties to construct the Facilities and to build the streets, roads, and bridges" was "sufficient to constitute the provision of services to the Water Authority." Clear Lake City Water Auth. v. Friendswood Dev. Co., Ltd., 256 S.W.3d 735, 751 (Tex. App.--Houston 14th Dist. 2008, pet. dism'd) (op. on reh'g). Affirming and holding that the Water Authority's immunity from suit was waived by section 271.152, the supreme court stated: "We agree with the court of appeals that the Agreements entail services provided directly to the Water Authority. The Developers contracted to construct, develop, lease, and bear all risk of loss or damage to the facilities, obligations far more concrete than those at issue in Ben Bolt. We therefore hold that the Agreements contemplate the provision of services under the statute." Kirby Lake, 320 S.W.3d at 839. The Clear Lake City Water Authority argued that previous agreements with Kirby Lake violated the reserved powers doctrine because the agreements imposed an ongoing obligation to submit bond proposals in future bond elections, such being the exercise of the Water Authority's political power. Id. The Supreme Court, however, held that the doctrine did not apply because: (1) the Water Authority did not contract to bargain away a future power but contracted to pay invoices if and when funds become available through a bond election, and because; (2) a contractual obligation to include a bond reimbursement proposition in future elections does not affect the performance of the Water Authority's public duties, such as the manner in which it holds elections or its power to determine how and to whom it will extend water services. Id.