Posted by: Patricia Salkin | October 31, 2018

TX Appeals Court Upholds City’s Immunity Defense in Development Agreement Litigation

This post was authored by Matthew Loeser, Esq.

In 2013, CHW and the City entered into a Development Agreement in which “CHW will sell 22 acres of land and dedicate 18 acres of land to the City and the City will, in turn, construct a multi-use complex, including but not limited to an outdoor amphitheater, an Aquatic Center and a conference center, and will facilitate the construction of a hotel within said 40 acres.” About four years after the effective date of the Development Agreement, CHW sued the City alleging the City failed to: construct roads to adequately take care of Plaintiff’s subdivision; increase the water pressure to serve Plaintiff’s development lots and subdivision; and construct the amphitheater required by the Agreements. CHW further alleged claims for breach of contract, declaratory relief and fraud. The City filed a plea and amended plea to the jurisdiction asserting immunity from suit. In this case, CHW-Lattas Creek, L.P. appealed the trial court’s order granting a plea to the jurisdiction filed by the City of Alice.


On appeal, CHW first argued the trial court erred in granting the City’s plea because the City was engaged in a proprietary function when it entered into the Development Agreement, thus waiving its immunity from suit. The court noted that a city is not immune in performing a proprietary function regardless of whether a city commits a tort or breaches a contract, provided that in each situation the city acts of its own volition, for its own benefit, and not as a branch of the state. Here, because the purpose of the Development Agreement was to promote economic development, the court held that the City was engaged in a governmental function when it entered into the Development Agreement.


CHW next contended that even if the court determined the City was engaged in a governmental function, the City’s immunity was waived under section 271.152 of the Local Government Code, since the Development Agreement was a contract for the provision of services to the City. While the record reflected that the City was a “facilitator of the project,” the Development Agreement did not obligate or require CHW to provide any services to the City, and the City did not agree to pay CHW for any services. Furthermore, although CHW referenced the actions it took in furtherance of the development, the court found these actions were in furtherance of CHW’s desire to develop its land, and were not services provided to the City under the essential terms of the Development Agreement.


CHW next argued the Development Agreement involved municipal legislative discretion and courts do not have authority to interfere with a municipality’s exercise of its legislative discretion. However, CHW cited only cases that involved ordinances or zoning regulations adopted by a municipality, and none holding a city’s execution of a development agreement was a legislative function or how such an agreement would be an enactment of a municipal legislative body. As the City’s execution of the Development Agreement did not involve the actions of the City as a municipal legislative body, the court found that the law relating to the exercise of municipal legislative discretion did not apply to the facts of this case.


Lastly, as to CHW’s estoppel claim, the court found that although it did not agree with the city officials’ inclusion of the immunity waiver in the Development Agreement, the facts in this case did not present an exceptional case for estopping the City. The record reflected that both CHW and the city officials engaged in negotiating the Development Agreement were clearly aware of the applicable law. As such, CHW knew the City’s immunity would only be waived if the agreement required CHW to provide services to the City. Since CHW did not negotiate an agreement in which they were required to provide any such services, the trial court’s order was affirmed.


CHW-Lattas Creek, LP v City of Alice, 2018 WL 5623614 (TX App. 10/31/2018)

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