Date: 07-30-2009

Case Style: The City of Corinth, Texas v. Nurock Development, Inc., Nurock Corporation, NDG-Tower Ridge 1, LLC and Tower Ridge Corinth 1, Ltd.

Case Number: 02-07-00422-CV

Judge: Cayce

Court: Texas Court of Appeals, Second District on appeal from the 362nd District Court of Denton County

Plaintiff's Attorney: Jim L. Flegle

Defendant's Attorney: Tim G. Sralla

Description: In this interlocutory appeal, appellant, the City of Corinth (the City), challenges the trial court=s denial of its plea to the jurisdiction on sovereign immunity grounds against claims asserted by appellees NuRock Development, Inc., NuRock Corporation, NDG-Tower Ridge 1, LLC, and Tower Ridge Corinth 1, Ltd. (collectively, NuRock). We affirm in part and reverse and dismiss in part.

I. Background

This appeal arises from the City=s alleged breach of a settlement agreement between the City and NuRock by which the parties settled NuRock=s claims in an earlier federal lawsuit, NuRock Development, Inc. v. City of Corinth (the Federal Action).[1] In the Federal Action, NuRock sought damages and injunctive relief from disputes stemming from NuRock=s efforts to develop and construct an affordable housing project called Tower Ridge in Corinth (the Apartments). NuRock claimed that the City violated both the Federal Fair Housing Act[2] and the Texas Fair Housing Act[3] because the City=s actions regarding the Apartments were intended to exclude families with children and minorities. NuRock also asserted a takings claim under the Texas constitution,[4] as well as a section 1983 claim.[5]

The April 2005 settlement agreement, as amended in July 2005 (the Settlement Agreement), provided that NuRock would construct the Apartments to certain specifications, that the City would acquire certain right-of-ways along Tower Ridge Road, that NuRock would make specified improvements to Tower Ridge Road, that NuRock would place $120,000.00 in escrow as collateral for the improvements, and that the City would pay NuRock $120,000.00. The parties agreed to dismiss the Federal Action and NuRock began construction of the Apartments.

The City sued NuRock in state court in April 2006, alleging that NuRock breached the Settlement Agreement by failing to place the funds in escrow. NuRock filed counterclaims based on the City=s alleged breaches of the Settlement Agreement, seeking damages, injunctive relief, and a declaratory judgment. NuRock asserted that, despite the Settlement Agreement, the City was interfering with and delaying construction of the Apartments, particularly by refusing to perform inspections or issue building permits or certificates of occupancy for the apartment buildings. At the City=s request, the trial court realigned the parties so that NuRock was the plaintiff and the City was the defendant.

In July 2006, the trial court entered a temporary injunction for NuRock, which the City did not appeal. The injunction required the City to stop refusing to issue temporary certificates of occupancy on the grounds that the Tower Ridge Road improvements had not been completed.

In June 2007, the City filed a plea to the jurisdiction alleging sovereign immunity. The trial court denied the plea and this appeal followed.

II. Standard of Review

We review the trial court=s ruling on a plea to the jurisdiction based on immunity from suit under a de novo standard of review.[6] In reviewing the denial of a plea to the jurisdiction, we do not review the merits of the case.[7]

When a plea to the jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that affirmatively demonstrate the court=s jurisdiction to hear the cause.[8] We construe the pleadings liberally in favor of the plaintiffs and look to the pleader=s intent.[9] If the pleadings do not contain sufficient facts to affirmatively demonstrate the trial court=s jurisdiction, but do not affirmatively demonstrate incurable defects in jurisdiction, the issue is one of pleading sufficiency and the plaintiffs should be afforded the opportunity to amend.[10] If the pleadings affirmatively negate the existence of jurisdiction, then a plea to the jurisdiction may be granted without allowing the plaintiffs an opportunity to amend.[11] However, if a plea to the jurisdiction challenges the existence of jurisdictional facts, we consider relevant evidence submitted by the parties when necessary to resolve the jurisdictional issues raised, as the trial court is required to do.[12]

III. Governmental Immunity

A. Settlement Agreement

In its first and second issues, the City asserts that it had immunity from NuRock=s claims for breach of the Settlement Agreement, which settled the Federal Fair Housing Act claim among others.[13] Governmental immunity protects governmental entities from lawsuits for damages absent legislative consent.[14] The doctrine of governmental immunity encompasses two distinct concepts: (1) immunity from suit (barring a lawsuit unless the legislature expressly gives its consent to suit) and (2) immunity from liability (even if the legislature has expressly given its consent to the suit).[15] AImmunity from liability is an affirmative defense, while immunity from suit deprives a court of subject matter jurisdiction.@[16]

The City possesses immunity from suit and from liability.[17] Although a governmental entity like the City waives its immunity from liability when it contracts with private citizens, it does not waive its immunity from suit solely by entering into such a contract.[18] Rather, express legislative consent in clear and unambiguous language is required to show that immunity from a breach of contract suit has been waived.[19]

In Texas A & M UniversityBKingsville v. Lawson,[20] a plurality of the Supreme Court of Texas concluded that when a governmental entity settles a claim for which immunity from suit has been waived, immunity from suit is also waived for a breach of the settlement agreement.[21] The plurality reasoned that Awhen a governmental entity is exposed to suit because of a waiver of immunity, it cannot nullify that waiver by settling the claim with an agreement on which it cannot be sued.@[22]

The City asserts that Lawson does not apply here because NuRock has not pleaded in this action any state law claim in the underlying Federal Action for which immunity was waived.[23] The City reasons that the holding in Lawson is limited to waivers of immunity by the Texas Legislature under state law, and that because NuRock did not assert a claim in the Federal Action for which the immunity is waived under state law, there is no basis for finding a waiver of immunity from the settlement of the Federal Action.[24]

The City=s argument is based on the concepts of federalism that are embodied in the Eleventh Amendment to the United States Constitution.[25] The Supreme Court of the United States has stated that the Eleventh Amendment presupposes two ideas: Afirst, that each State is a sovereign entity in our federal system; and second, that >[i]t is inherent in the nature of sovereignty not to be amenable to the suit of an individual without its consent.=@[26] Under the Eleventh Amendment, the State of Texas and its agencies are immune from claims based on federal law, whether brought in federal or state court, absent either a clear indication by the United States Congress that it intends to abrogate the immunity afforded to states under the Eleventh Amendment to the federal Constitution,[27] or a waiver of immunity by the Texas Legislature.[28]

Eleventh Amendment immunity, however, does not extend to municipalities. A[T]he [United States Supreme] Court has consistently refused to construe the [Eleventh] Amendment to afford protection to political subdivisions such as counties and municipalities, even though such entities exercise a >slice of state power.=@[29] Accordingly, notwithstanding the fact that the State may enjoy immunity from Federal Fair Housing Act claims, the City has no immunity from such claims.[30]

Therefore, because the City has no immunity against NuRock=s Federal Fair Housing Act claims, and, because the City is not immune from a claim for breach of an agreement settling a claim for which it has no immunity, we hold that the City is not immune from NuRock=s claim for breach of the Settlement Agreement.[31] We overrule the City=s first and second issues.

B. Inverse Condemnation

In its third issue, the City argues that the trial court did not have jurisdiction over NuRock=s exaction-type inverse condemnation claim because NuRock agreed to make the improvements to Tower Ridge Road which are the basis of its takings claim. The City concedes that it does not have immunity from a valid takings claim.[32] But, when the government entity=s taking is pursuant to colorable contract rights, it does not constitute a compensable taking under article I, section 17 of the Texas constitution.[33]

It is undisputed that the Tower Ridge Road construction was part of the consideration NuRock voluntarily promised to provide in the context of the Settlement Agreement. Thus, the City accepted the improvements NuRock made to the road under color of its contract with NuRock, and not pursuant to its powers of eminent domain. The City is, therefore, not subject to liability under article I, section 17 of the Texas constitution.[34]

NuRock contends, however, that because the City breached the Settlement Agreement before the improvements were made, the agreement was no longer enforceable, and, therefore, the City=s requirements that the improvements be completed constitute an illegal taking. But, the City=s alleged breach of the agreement is immaterial to whether the City had the requisite intent to take the improvements when the agreement was executed.[35] While the City=s alleged breach may have excused NuRock from making the improvements,[36] it does not alter the fact that the improvements were agreed to well before the alleged breach occurred.[37] We sustain the City=s third issue.

C. Declaratory and Injunctive Relief

In its fourth issue, the City asserts that the trial court should have dismissed NuRock=s claims for declaratory and injunctive relief.

1. Declaratory Relief

The Uniform Declaratory Judgments Act[38] does not extend the jurisdiction of Texas courts; it only provides a procedure by which a trial court may Adecid[e] cases already within [the] court=s jurisdiction.@[39] Thus, a declaratory judgment claim can be maintained only where there is a justiciable controversy between the parties as to their rights and status that the declaration would actually resolve.[40]

The Supreme Court of Texas has distinguished between suits against governmental units in which a party seeks a declaration to clarify rights under a statute or regulation, for which the Declaratory Judgments Act provides a waiver of immunity, and suits in which the request for declaratory relief is no more than a recasting of a claim for money damages, for which the Act does not provide a waiver of immunity.[41]

NuRock asserts that it is seeking declaratory relief to construe a legislative act by the City and attempts to categorize the Settlement Agreement as the equivalent of a statute or municipal ordinance. We disagree. The Settlement Agreement, however, is a contract, not a statute. Statutes or ordinances enacted by legislative bodies are designed to address broad questions of public policy and to promulgate laws that those subject to the government=s power must follow in future conduct.[42] The Settlement Agreement clearly lacks these characteristics. Instead, it memorializes a specific act to resolve a specific, isolated dispute between specific parties. It establishes no rule or law that all members of the public must adhere to in future conduct.[43] Thus, the Settlement Agreement involves the construction of a contract, not the interpretation of a statute.

NuRock sought declaratory relief that it did not materially breach the Settlement Agreement or otherwise fail to meet its obligations to the City. This is not a permissible use of the Declaratory Judgments Act.[44] Consequently, the City=s immunity is not waived as to NuRock=s Declaratory Judgments Act claim.[45]

2. Injunctive Relief

NuRock also sought permanent injunctive relief against the City. Specifically, it asked that the City be ordered A[t]o cease and desist from arbitrarily and capriciously applying the ordinances and variances therefrom of the City of Corinth.@ The City contends that the injunctive relief NuRock sought regarding the City=s approval of certificates of occupancy for the Apartments is not ripe and, therefore, the trial court had no jurisdiction to grant the relief. NuRock contends that because the City failed to challenge NuRock=s request for injunctive relief in its plea and supplemental plea to the jurisdiction, the City cannot seek relief from that request in this appeal.[46] We disagree.

Ripeness implicates subject matter jurisdiction.[47] This court is obligated to consider subject matter jurisdiction, even when it was not raised in the trial court or asserted by either party on appeal.[48]

A case is ripe when facts have developed sufficiently that an injury has occurred or is likely to occur.[49] A case is not ripe if the injury is contingent or remote.[50] The possibility of future arbitrary and capricious conduct concerning the Apartments is too remote to support a claim for a permanent injunction. Accordingly, we conclude that NuRock=s request for a permanent injunction is not ripe and, therefore, that the trial court lacked jurisdiction over that request. We sustain the City=s fourth issue.

D. Attorney=s Fees

In its fifth issue, the City asserts that NuRock is not entitled to attorney=s fees under either its declaratory judgment or its breach of the Settlement Agreement claims. We agree. Because we conclude that NuRock=s declaratory judgment claim must be dismissed, there is no basis for NuRock to recover fees pursuant to the Declaratory Judgments Act.[51]

NuRock, however, asserts that it may recover attorney=s fees under section 38.001(8) of the Texas Civil Practice and Remedies Code.[52] This section provides that A[a] person may recover reasonable attorney=s fees from an individual or corporation . . . if the claim is for . . . an oral or written contract.@[53] NuRock asserts that the City is Aan individual@ for purposes of section 38.001(8). We disagree.

AIndividual@ is not defined in section 38.001 or in the Code Construction Act. Webster=s Third New International Dictionary defines Aindividual@ to mean Aa single human being as contrasted with a social group or institution.@[54] @Person,@ on the other hand, is defined broadly in the Code Construction Act to include governmental entities.[55]

In light of the definition the legislature has given the word Aperson@ in the Code Construction Act, the fact that the legislature chose to use the word Aindividual@ in section 38.001, instead of the word Aperson,@ indicates a clear legislative intent to exclude government entities from those against whom attorney=s fees may be recovered under the statute. Moreover, the legislature expressly exempted municipalities from being a Acorporation@ under section 38.001.[56] It would be incongruous to conclude that the legislature, nonetheless, meant to implicitly include municipalities under the term Aindividual.@ Accordingly, we hold that section 38.001(8) does not authorize recovery of attorney=s fees by NuRock against the City. The City=s fifth issue is sustained.

* * *

See: http://www.2ndcoa.courts.state.tx.us/opinions/htmlopinion.asp?OpinionId=20664

Outcome: The City is not immune from NuRock=s claims for breach of the Settlement Agreement. The trial court, therefore, properly denied the City=s plea to the jurisdiction as to this claim. The trial court erred, however, by denying the City=s plea as to NuRock=s takings claim, requests for declaratory and injunctive relief, and for attorney=s fees. Accordingly, we affirm that part of the trial court=s order denying the City=s plea to the jurisdiction as to NuRock=s breach of Settlement Agreement. We reverse that part of the order denying the City=s plea as to NuRock=s takings claim, requests for declaratory and injunctive relief, and for attorney=s fees, and dismiss those claims.

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