Recent Texas Cases of Interest to Cities

Note:  Included cases are from December 11, 2016 through January 10, 2017.

Utility Rates:  Oncor Elec. Delivery Co., L.L.C., v. Public Util. Comm’n of Texas, No. 15-0005, 2017 WL 68858 (Tex.  Jan. 6, 2017). This is a Texas Supreme Court case which held several things, but the main issue of interest to local governments is factors used in determining rates as well as the validity of certain franchise fee agreements.

Oncor Electric Delivery Company, LLC (Oncor) is the largest transmission and distribution utility in Texas and the sixth largest in the United States. Oncor is regulated by the Public Utility Commission (PUC), even after deregulation of certain parts of electric utility operations. In June 2008, Oncor initiated a ratemaking proceeding at the PUC, its first request for a comprehensive rate increase since deregulation. Several parties intervened during the administrative matter. After extensive hearings, the administrative law judges recommended only an increase of 1/7th of the requested rate. Oncor and other parties to the administrative proceeding sued for judicial review and then appealed to the court of appeals. Various parties appealed to the Texas Supreme Court, which granted all petitions and consolidated the cases.

The court first held that while the Public Utilities Regulatory Act (PURA) requires an end-user electrical utility to discount rates to a state-funded university, Oncor cannot sell to end-users. It can only charge for transmission and distribution. As a result, it does not have to provide any such discount. Next, the court held that when Oncor’s parent corporation sold 19% of the ownership to other investors, it could not file an “affiliated group” consolidated tax return with the parent corporation.  Filing under a consolidated tax return can affect the tax liability in a calculation for long-term expenses. Long-term expenses is one element the PUC reviews in determining rate changes. Oncor filed its return individually, not consolidated and the court held it was proper.  Next, the court held cities are entitled to franchise fees for a utilities use of streets, alleys, and other public areas. The court then held that the PUC’s determination Oncor could not pay a negotiated franchise fee to the cities was improper. Section 33.008(f) of PURA does not restrict renegotiated franchise charges to only those agreed to on the expiration of franchise agreements existing on September 1, 1999. The provision simply precludes the inference that Section 33.008(b) is exclusive.*

Contracting:  Byrdson Svs., L.L.C. v. South E. Tex. Reg’l Planning Comm’n, No. 15-0158,  2016 WL 7421392 (Tex.  Dec. 23, 2016).  After South East Texas Regional Planning Commission (commission) received federal hurricane relief funding it contracted with Byrdson Services, LLC (Byrdson) to rebuild certain areas within its jurisdiction. Under a contract between the State of Texas and the commission, the state provided $95 million to the commission for various disaster-relief and housing-restoration services. Under this contract, the commission committed to provide homeowner-repair services to area households. The contract authorized the commission to subcontract the repair work, which it did to Byrdson.  A dispute arose between the commission and Byrdson regarding the quality of Byrdson’s work and payment due under the contracts. Byrdson sued the commission for payments allegedly due.  The commission filed a plea to the jurisdiction, which the trial court denied but the court of appeals reversed and granted. Byrdson appealed.

The commission asserts Local Government Code Chapter 271 does not apply because its contracts do not state essential terms “for providing goods or services to the local governmental entity.” Citizens benefitted, not the commission.  Byrdson counters the warranty and indemnity provisions provide the requisite services to the commission. These provisions require Byrdson to warrant its work to the homeowner and to hold the commission harmless.  The court held it was not going to analyze the case in that fashion since contractual provisions intended to shield the commission from liability would have the effect of waiving immunity. Instead, the court noted the contract with the state obligated the commission to provide services to the property owners. By subcontracting the work, Byrdson was helping the commission fulfill its obligation to the state. “For this reason the Byrdson agreements provided real and direct services to the Planning Commission that brings the agreements within chapter 271.” Finally, the court held “[w]e have never suggested that the agreements covered by chapter 271 are limited to those where the governmental entity obtains a property interest, nor can such a limitation be gleaned from a plain reading of the statute.”*

Tort Claims Act: Tarrant Reg’l Water Dist. v. Johnson, No. 02-16-00043-CV, 2016 WL 7601840 (Tex. App—Fort Worth Dec. 30, 2016). This is an interlocutory appeal in a Texas Tort Claims Act (TTCA) case where the Fort Worth Court of Appeals affirmed-in-part and reversed-in-part the denial of the Tarrant Regional Water District‘s (TRWD) plea to the jurisdiction. This is a 32-page opinion, plus the dissent.

Brandy Johnson drowned in the Trinity River after attempting to walk across Trinity Park Dam No. 2 (dam), which had been redesigned and reconstructed in 2002.   Plaintiffs alleged the kayak chutes cut into the middle of the dam allowed water to flow unregulated and up to 2,700 cubic feet per second, which constitutes a Class II+ whitewater rapid.  The chute was designed to be slippery to allow for kayak travel.  Additionally, the materials partially filling a scour hole had been washed away, making the hole dangerous to anyone who fell in. According to the Johnsons, Brandy drowned when she fell from the kayak chute into the scour hole, which was not visible to Brandy and had become deeper than designed.  The Johnsons further detailed three previous drownings and two near-drownings at the same site, all involving people falling off the dam. The chute was not designed as a walkway but these events made TRWD aware people were using it as such. The only warning sign present stated “Safety First Please Watch Your Children.”   No additional warning signs were added to the dam after the prior incidents.  The plaintiffs alleged the dangerous condition was created by “altering the natural flow of the Clear Fork of the Trinity River by diverting the river through a series of artificial man-made dams and kayak chutes” creating “a smooth looking yet powerful and deceptively dangerous current through the kayak chute.” The plaintiffs further allege the TRWD negligently implemented policy by not filling in the scour hole.  The family sued TRWD under the TTCA asserting a special and/or premise defect on the dam. It also asserted a tangible personal property claim. TRWD filed a plea to the jurisdiction which the trial court denied. TRWD appealed.

After a detailed factual analysis, the court first held the death is a result of the chute’s intentional design and not a malfunction of the chute or TRWD’s failure to maintain it. The entire design of the dam indicates an intentional design to bring people down to the river to fish and not to parade them across the dam.  No waiver of immunity exists for discretionary acts such as design elements. Further, the complaint about the warning signs is a complaint about the decision of whether or not to install safety features, which is likewise barred. The court held the plaintiffs did not allege a special defect, only a premise defect. Further, they did not allege the negligent use of personal property; this was a premise defect claim only.  However, with regards to the scour hole, the evidence showed the hole was deeper than it was ever designed to be and TRWD was aware of the depth. The primary maintenance for the dam is “debris removal after storms [and] flow events.” Thus, the complaints about the deepening scour hole and possible related boil effect are not complaints about the original design, but rather the failure to maintain the original design.  The complaint alleged it was a dangerous condition of which TRWD had actual knowledge, so the plea was properly denied as to that claim.

The dissent disagreed with the majority’s holding on the premise defect claim regarding the kayak cut, specifically that there still exists a duty to warn and the “Safety First Please Watch Your Children” sign comes nowhere close. As a result, the dissent would not have reversed any portion of the trial court’s order denying the plea.*

Whistleblower Act:  Connally v. Dallas Indep. Sch. Dist., No. 08-15-00310-CV, 2016 WL 7384188 ( Tex. App—El Paso Dec. 21, 2016).  This is a Texas Whistleblower Act case where the El Paso Court of Appeals affirmed in part and reversed in part the granting of the school district’s plea to the jurisdiction.

The Dallas Independent School District (DISD) hired Connally in 2009 as its director of compliance, with part of her duties being to make recommendations for University Interscholastic League (UIL) rules. In order to prevent illegal recruiting of student athletes, the UIL requires the filing of a prior athletic participation form (PAPF) to ensure that a student athlete transferring into a new high school actually lives within the new school’s attendance zone. This triggers a host of other forms to be signed and submitted. Connally pointed to several instances of what she categorized as inaccurate or fraudulent forms. She was not in charge of reviewing the forms so had no power to enforce compliance. Connally reported her suspicions of wrongdoing at various times to three departments within DISD: (1) the Office of Professional Responsibility (OPR); (2) the Internal Audit Department (IA); and (3) the Professional Standards Office (PSO); (4) the chief and assistant chief of the DISD police department; and (5) the PSO’s manager, Jeremy Liebbe, who was a commissioned police officer and a former detective with the DISD police department.  Connally participated as an expert on UIL rules during the investigations. PSO issued a detailed report in which it confirmed virtually all of Connally’s reports of wrongdoing, including falsification of government forms.  Sometime later, Connally was terminated for reported performance issues. She sued under the Texas Whistleblower’s Act. DISD filed a plea to the jurisdiction which was granted.

The court first held none of the departments (OPR, IA, and PSO) were appropriate law enforcement authorities as they only had the power for internal review against employees. None of these departments had any external authority to investigate criminal law violations against third parties. Likewise, the PSO manager, Liebbe, was not acting in the role of a police officer while he acted as a manager and had no external authority regarding PSO roles. No law authorizes an individual police officer who is commissioned through a police agency the unfettered authority to conduct an investigation of any nature he chooses without the permission or authority from the agency. Even though Liebbe briefly held his commission with the DISD police department after his transfer, there is nothing in the record to suggest that the DISD police department had authorized him to continue to investigate criminal law violations. The Texas Supreme Court made it clear that it is the governmental arm or entity to which the report is made that is the key focus, and that any report must be made to an individual within that governmental arm or entity. However, DISD police department has the authority to investigate virtually all violations of criminal laws occurring within its jurisdictional boundaries. While the UIL rules are not criminal in nature, the falsification of a governmental record is a violation of Section 37.10 of the Texas Penal Code. This falls under the DISD police department’s authority, which is outward reaching.  Therefore, the granting of the plea is sustained as to all reports except the falsification reports to the police chief and assistant Chief. The claims associated with those reports are reversed and remanded for trial.*

Tort Claims Act:  Montgomery Cty. v. Lanoue, No. 09-16-00195-CV, 2016 WL 7473896 (Tex. App—Beaumont Dec. 29, 2016) (mem. op.).  This is a Texas Tort Claims Act slip-and-fall case where the Beaumont Court of Appeals reversed the denial of the county’s plea to the jurisdiction and dismissed the case.

When Lanoue entered the Montgomery County Courthouse, the floor had recently been mopped and waxed. The county placed a sign in the area noting the floor was wet. Lanoue asserted the sign was confusing since the floor looked dry and the sign did not say he should watch out for wax, only that the floor was wet. The undisputed evidence included a still photograph of Lanoue in mid-fall, right next to the warning sign. When he entered onto the floor he slipped, fell, and was injured. The county filed a plea to the jurisdiction asserting it met is duty to warn of the dangerous condition. The plea was denied and the county appealed.

Premises owners have a duty to either “warn a licensee of, or to make reasonably safe, a dangerous condition of which the owner is aware and the licensee is not.” Lanoue asserted the “wet floor” warning sign was inadequate because the floor was actually dry, but was covered with a slippery wax.  However, “[a] warning of the specific material causing a condition is not required, so long as the existence of the condition itself is conveyed.” The warning need not identify the specific substance that made the floor wet. Therefore, the court held that the “‘wet floor’ sign inches from the location where Lanoue fell was adequate as a matter of law to warn Lanoue that the floor was slippery.”  The plea should have been granted.*

Temporary Injunction: Vera v. City of Hidalgo, No. 13-16-00088-CV, 2017 WL 56380 (Tex. App.—Corpus Christi Jan. 5, 2017) (mem. op.). This is a dispute between the City of Hidalgo and the BorderFest Association as to who owns the rights and ability to control the BorderFest annual cultural festival.

The BorderFest festival has been held in the City of Hidalgo (Hidalgo) for the past thirty-nine years. The BorderFest Association (association) determined that in 2016 the festival would be held in neighboring City of McAllen (McAllen). Hidalgo sued the association and Joe Vera, the assistant city manager of McAllen for a declaratory judgment and injunctive relief regarding ownership of the festival. Vera was the former city manager of Hidalgo. Hidalgo was counter-sued for federal trademark infringement and unfair competition. The association claimed sole ownership and rights to the BorderFest brand and sought its own injunctive relief against Hidalgo from using the BorderFest mark, name, and goodwill.  After a two-day temporary injunction hearing, the trial court granted Hidalgo’s temporary injunction and prohibited the association from using the BorderFest name or utilizing the event in McAllen. The association filed this interlocutory appeal.

The preliminary record shows BorderFest has been held exclusively in Hidalgo for the previous thirty-nine years and has brought the city “fame” over these years. The city had paid the cost of the festival each year, although the association provided some funds to “defray” the full cost to the city. The city also contributed a large number of personnel and man hours to the festival. The record further shows that the 40th anniversary of the festival being held in Hidalgo was threatened by the actions of the association agreeing to hold the BorderFest festival in McAllen. Based on these facts, the court of appeals held the trial court was within its discretion to grant Hidalgo’s temporary injunction application because Hidalgo pled and proved it had: (1) a cause of action against Vera and the association; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. The trial court’s rulings show that it sought to preserve the status quo because these orders were issued approximately one month prior to BorderFest’s 40th anniversary, while the underlying ownership issues would be resolved later at trial.  The court of appeals expressly disclaimed any aspects of the opinion were meant to address the ultimate resolution of the case and is limited only to a temporary injunction standard of review.

Water Rights: R.E. Janes Gravel Co. v. Texas Comm’n on Env. Quality, No. 14-15-00031-CV, 2016 WL 7323307 (Tex. App.—Houston [14th] Dec. 15, 2016). The City of Lubbock applied to the Texas Commission on Environmental Quality (TCEQ) for an amendment to an existing permit, which would authorize the city to use a portion of the Brazos River to convey treated wastewater effluent from a discharge point to a point downstream, where the effluent would be diverted for beneficial purposes. The R.E. Janes Gravel Company (company) owned property downstream from the proposed diversion point and contested the application under the belief that the city’s diversion of water upstream would threaten the company’s viability.  TCEQ granted the amended permit and the company filed suit in district court against TCEQ. The city intervened in the suit. The trial court ultimately signed a final judgment in favor of the city and TCEQ and the company appealed.

The company’s two issues on appeal were: (1) that TECEQ failed to comply with Texas law when authorizing the amended permit; and (2) even if TCEQ were authorized to grant the permit, TCEQ failed to properly measure carriage losses (the amount of flow lost during conveyance between the discharge and diversion points). On the first issue, the company argued that because the city had been discharging the effluent derived from surface water into the Brazos River before obtaining a permit, existing discharges had become surplus water and the city’s requested diversion would constitute a new appropriation of water that subordinated diversion to senior water right holders downstream. The city contended that its requested amendment complies with Water Code Section 11.042(c) in that it sought to divert no more than the amount discharged so that the effluent is actually not a new appropriation of state water subject to appropriation by senior water rights holders. Thus, the company was seeking to improperly lay claim to the city’s own effluent which it has a right to transport for reuse. The court of appeals agreed with the city, reasoning that the TCEQ’s authority to grant a party the right to use a stream to convey surface water from a discharge point to a point downstream where it will be diverted for reuse under Water Code Section 11.042(c) would be meaningless if, under Water Code Section 11.046(c), the water became surplus water available for appropriation by senior rights holders upon being discharged into the stream. The court overruled the company’s first issue.

In its second issue on appeal, the company argues that its substantial rights have been prejudiced because there is no evidence to support TCEQ’s finding, conclusions, and decision with regard to the calculation of carriage losses. TCEQ requires that an application for a permit under Section 11.042(c) includes an estimate of carriage losses. The city submitted with its application a memo prepared by its water-planning manager calculating carriage losses. The company did not believe that TCEQ’s determination of carriage losses based on the city estimate was reasonably supported by substantial evidence. The court of appeals disagreed, concluding that substantial evidence supported the reasonableness and reliability of the city’s calculation of carriage losses, as the city’s calculation was supported by more than a scintilla of evidence. The court overruled the company’s second issue and affirmed the trial court’s judgment.

*Case summaries taken largely from the work of the Law Offices of Ryan Henry, PLLC, and reprinted with permission from Ryan Henry.  To sign up for the firm’s blog, go to www.rshlawfirm.com.

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