Recent Texas Cases of Interest to Cities

Note: Included cases are from April 11, 2020 through May 10, 2020.

Eight Liners: City of Fort Worth v. Rylie, No. 18-1231, 2020 WL 2311941 (Tex. May 8, 2020). In this case, the Texas Supreme Court determined the issue of constitutionality of eight-liners must be addressed in deciding the case. The court remanded the case to the Second Court of Appeals to address the issue.

In Texas, lotteries are unconstitutional with limited exceptions. Lotteries include activities that involve, at a minimum, (1) the payment of consideration (2) for a chance (3) to win a prize. There is a “fuzzy animal exception” to the prohibition on lotteries. A machine that would otherwise constitute a “gambling device” is excluded from the definition if (1) it is used “solely for bona fide amusement purposes,” (2) it rewards only “noncash merchandise prizes, toys, or novelties, or a representation of value redeemable for those items,” and (3) the reward for “a single play of the game or device” is worth no more than the lesser of $5 or ten times the cost of the single play. Tex. Penal Code § 47.01(4)(B).

Soon after the legislature adopted the fuzzy-animal exception, owners of machines known as “eight liners” began taking the position that their machines fall within the exclusion’s protection. Eight liners generally operate like a video slot machine and award coupons based on play. The player can then exchange the coupon for a “prize” or for a “right of replay,” meaning credits to use on a different machine.

The eight liner operators admit that their eight liners qualify as “gambling devices,” but they contend that they operate their machines in a way that brings them within the fuzzy-animal exception. The city argued eight liners are unconstitutional lotteries and therefore not governed by Chapter 2153 because it does not apply to unconstitutional devices. The city did not contest that the operators’ eight liners qualify as coin-operated machines, but instead contended that Chapter 2153 does not apply to them at all if they are unconstitutional or illegal.

The Texas Supreme Court agreed the issue needed to be decided. The court determined the issues were: (1) whether the eight liners constitutionality and legality affect Chapter 2153’s applicability, and if so, (2) whether eight liners are constitutional and legal. On the first point, the court concluded that constitutionality and legality matter because Chapter 2153 does not apply to or regulate unconstitutional or illegal machines. The operators argued that Section 2153.003 merely clarifies that, although Chapter 2153 applies to and regulates unconstitutional and illegal machines, it does not thereby make them constitutional or legal. Tex. Occ. Code § 2153.003. As they construed it, although the state may license and tax machines, the Chapter does not provide a shield of legality to someone charged with operating an illegal machine. They argued their machines are not illegal because the state licenses their machines under Chapter 2153.

The city contended the eight liners are unconstitutional or illegal, therefore, the fact that the state has licensed and taxed them would not change the meaning of Section 2153.003 any more than it could change the meaning of the constitution’s requirement that the legislature prohibit lotteries. The court found that this issue needed to be addressed. If the legislature exercises power the constitution says it doesn’t have—that is, if it permits lotteries when it only has the power to prohibit them—the court takes the constitution’s word over that of the legislature. It concluded Chapter 2153 does not apply to unconstitutional or illegal machines.

The Court did not address the second issue of whether or not eight liners are unconstitutional. Instead, it remanded the issue to the Second Court of Appeals to decide in the first instance.

Contractual Immunity: San Antonio River Auth. v. Austin Bridge & Road, L.P., No. 17-0905, 2020 WL 2097347 (Tex. May 1, 2020). In this construction contract dispute, the Texas Supreme Court held Chapter 271 of the Texas Local Government Code waives immunity for arbitration clauses.

The San Antonio River Authority (Authority) hired Austin Bridge and Road L.P. (ABR) to perform repairs of the Medina Lake Dam. Disagreements about the scope of work and payment arose. ABR triggered the arbitration provision in the contract. When the arbitrator denied the Authority’s assertion it was immune, it sued ABR in district court seeking a declaration the Authority lacked the ability to waive immunity for arbitration. The trial court denied the Authority’s summary judgment. The court of appeals reversed in part, holding that while the arbitration provision was enforceable, only a court could determine immunity was waived. The Authority appealed.

Until the waiver in Chapter 271 existed, governmental immunity shielded a local government from enforcement of its contract obligations. Currently, Section 271.154 expressly provides that arbitration agreements are enforceable. The term “Adjudication” in Chapter 271 means “the bringing of a civil suit and prosecution to final judgment . . . and includes the bringing of an authorized arbitration proceeding….” Further, an arbitration is an “adjudication procedure” under the plain meaning of the statute. However, immunity is waived only to the extent authorized by Chapter 271. As a result, the Authority was authorized to agree to arbitrate disputes arising from its contract with Austin Bridge, within Chapter 271’s expressed limits. However, the Texas Supreme Court agreed with the court of appeals and held the judiciary has a non-delegable duty to determine whether immunity has been waived. Because immunity bears on the trial court’s jurisdiction to stay or compel arbitration, and to enforce an arbitration award in a judgment against a local government, a court must decide whether governmental immunity is waived. An agreement to arbitrate is unenforceable against a local government to the extent it purports to submit immunity questions to an arbitrator.

The court then analyzed the contract and determined that while the contract was for the benefit of a river district, it also provided a benefit to the Authority and the Authority is the entity that entered into the contract. As a result, in this situation, the Authority’s immunity is waived. The court held the decision of whether ABR is seeking actual damage or consequential damages is not factually developed, although, ABR at least pled some possibility the damages sought are actual damages.*

Whistleblower Act: City of Madisonville v. Sims, No. 18-1047, 2020 WL 1898540 (Tex. April 17, 2020). This is a Texas Whistleblower Act case where the Texas Supreme Court held the 90-day deadline for filing suit is jurisdictional.

David Sims was a police officer in the Madisonville Police Department. Sims received information that his boss, Sergeant Jeffrey Covington, planned to plant drugs in Covington’s ex-wife’s car to assist in his ongoing child-custody dispute. Sims and Covington had a bad history, both before and during Covington’s time at Madisonville PD. Sims told the Chief of Police, Charles May, but Chief May dismissed the information. Sims later discovered, by using an administrator access login, that Covington was compiling an “investigative file” on Sims presumably to have him fired. Sims was “dishonorably discharged” shortly afterwards for violating the department’s computer-use policy. The dishonorable designation was later changed to honorable by a State Office of Administrative Hearings (SOAH) administrative law judge. Sims sued under the Texas Whistleblower Act after the SOAH determination (which was past the 90-day deadline to file suit). The city filed a plea to the jurisdiction, which was granted. The court of appeals reversed, holding the deadline was not jurisdictional. The city appealed.

Texas Government Code Section 311.034 of the Code Construction Act makes statutory prerequisites to suit jurisdictional as to claims against governmental entities. The Texas Supreme Court has held “the term ‘statutory prerequisite’ refers to statutory provisions that are mandatory and must be accomplished prior to filing suit.” When a statutory prerequisite to suit is not met, “whether administrative (such as filing a charge of discrimination) or procedural (such as timely filing a lawsuit),” the suit may be properly dismissed for lack of jurisdiction.

The Whistleblower Act clearly and unambiguously waives sovereign immunity to allow plaintiffs to obtain relief, but an employee with a Whistleblower Act claim must strictly abide by the procedural limitations set out in the Act to obtain relief, including the statute of limitations. The Act states the employee “must sue” within ninety days. The ninety-day filing deadline is thus a jurisdictional statutory prerequisite to suit. The plea should have been granted.*

Texas Tort Claims Act: Reyes v. Jefferson Cty., No. 18-1221, 2020 WL 1898542 (Tex. Apr. 17, 2020). This is a case about notice under the Texas Tort Claims Act (TTCA).

Reyes sued Jefferson County under the TTCA for injuries he allegedly sustained in an automobile accident with a county law enforcement officer. Within six weeks of the accident, Reyes’s attorney contacted the county to file a claim. The county instructed Reyes’s attorney to direct all claims to the county’s authorized third-party administrator. Reyes’s letter to the third-party administrator: (1) notified the county of Reyes’s negligence claim; (2) identified the date of the accident, described it as a “crash,” and named the county employee involved; (3) requested the crash reports and copies of statements Reyes had made; and (4) expressed interest in “a quick and amicable resolution of this claim.”

The appellate court held Reyes did not comply with the formal-notice requirement in Section 101.101(a) of the Civil Practice and Remedies Code because his letter to the third-party administrator “failed to provide a place of the incident and failed to ‘reasonably describe’ the incident.” The appellate court also concluded the county lacked actual notice within the meaning of Section 101.101(c) because the county’s investigation failed to uncover any negligent conduct, so it had no knowledge “that it might have been at fault.”

Section 101.101 requires “notice of a claim” to include specific information, unless the governmental unit has “actual notice that death has occurred, that the claimant has received some injury, or that the claimant’s property has been damaged.”

The court declined to consider if Reyes’s letter to the third-party administrator was sufficient to constitute formal notice because the actual-notice exception was satisfied as a matter of law. Actual notice exists only when the governmental unit has knowledge of: (1) a death, injury, or property damage; (2) the governmental unit’s alleged fault producing or contributing to the death, injury, or property damage; and (3) the identity of the parties involved. Actual notice means the governmental unit is subjectively aware that it may be responsible for death, injury, or property damage in the manner ultimately alleged by the claimant.

In this case, the county and its authorized claims administrator knew about Reyes’s allegations that a specifically-identified county employee had injured him in an automobile accident. Reyes’s communications with the third-party administrator coupled with its acknowledgment, investigation, and denial of his claim establish the county’s subjective awareness that Reyes was claiming the county was at fault in the manner ultimately alleged in this lawsuit. The actual-notice standard does not require proof that the county believed it was liable. Because of that, the Texas Supreme Court reversed the appellate court’s ruling.

Red Light Cameras: Van Der Grinten v. City of Sugarland, No. 01-17-00626-CV, 2020 WL 2201100 (Tex. App.—Houston [1st Dist.] May 7, 2020) (mem. op.). In this constitutional challenge to red-light camera case, the First Court of Appeals held the plaintiffs were required to exhaust administrative remedies before bringing their constitutional-takings claim.

The plaintiffs sued the City of Sugarland. Two of the plaintiffs had paid a civil penalty for violating a city ordinance for red-light infractions caught on camera. They claimed they paid under “duress.” One of the plaintiffs did not pay the penalty, but claimed the city would put a hold on his registration for failure to pay. The plaintiffs sought declaratory judgment, injunctive relief, and reimbursement for penalties. The city filed a plea to the jurisdiction, which the trial court granted. The plaintiffs appealed.

The court found the two plaintiffs who paid the penalty paid it voluntarily. Their claims could not proceed against the city because the plaintiffs did not exhaust their administrative remedies. Therefore, the government retained immunity from suit for their claims for reimbursement.

Additionally, they could not bring a takings claim because a litigant must use his administrative remedies rather than filing a claim in district court. The district court did not have subject-matter jurisdiction because the plaintiffs failed to exhaust their administrative remedies.

The third plaintiff who did not pay the penalty could not assert a takings claim, either, because he did not pay the penalty. He presented no evidence that the city would put a hold on his registration for failure to pay. He did not properly plead a takings claim.

The court affirmed the trial court’s grant of the city’s plea to the jurisdiction.

Texas Tort Claims Act: In re City of Houston, No. 01-19-00805-CV, 2020 WL 2026978 (Tex. App.—Houston [1st Dist.] Apr. 28, 2020) (mem. op.). The plaintiff in the case sued a City of Houston police officer for injuries arising from an automobile accident. The police officer (who was represented by the City of Houston’s legal department) filed a motion to dismiss pursuant to Section 101.106(f) of the Texas Civil Practice and Remedies Code, asserting that he was acting in his capacity as an employee of the city and therefore the suit must be filed against the city. The officer attached a proposed final judgment dismissing the case. The draft judgment was entitled a final judgment, granted the motion to dismiss, and declared that it disposed of all parties and claims. On the same day, the plaintiff amended his petition to remove the officer and add the city as the defendant.

On June 3, 2019, the trial court signed the police officer’s proposed final judgment, which provided that it “disposes of all parties and claims and is final and appealable.” The judgment does not mention the city.

When the plaintiff tried to schedule depositions with the city, the city refused, citing the final judgment. The trial court amended the final judgment more than 30 days after it entered the judgment. The city filed a writ of mandamus with the First Court of Appeals on the grounds that the judge lacked plenary power to amend the final judgment because more than 30 days had passed after entry of the final judgment.

The appellate court agreed the trial court lacked authority to modify the judgment. First, the judgment was final. The judgment satisfies the first test for finality because it includes finality language stating “This order disposes of all parties and claims and is final and appealable.” The plaintiff did not file any motions that would have extended the court’s plenary power beyond 30 days. Therefore, the trial court could not amend the final judgment more than 30 days after its final judgment. The appellate court concluded that the trial court abused its discretion by modifying its final order when it had lost its plenary power.

Texas Tort Claims Act: City of Sugar Land v. Gaytan, No. 01-18-01083-CV, 2020 WL 2026374 (Tex. App.—Houston [1st Dist.] Apr. 28, 2020) (mem. op.). This is a Texas Tort Claims Act (TTCA) case where the plaintiff claimed the city was liable for his injuries when a police officer was directing traffic during a triathlon. The plaintiff was biking during the triathlon when a car hit him at an intersection. A city police officer was directing traffic at the intersection and at least one of them directed the car that hit the plaintiff to proceed through the intersection. The car proceeded and then paused in the lane of traffic, disregarding the officer’s instruction, which then caused the plaintiff to collide with the car. Plaintiff alleged the city, in controlling traffic, was operating or using the motor vehicle for the purposes of the TTCA. The city filed a plea to the jurisdiction, which the trial court denied.

The city argued that the plaintiff’s allegations did not contain an allegation that a city employee was operating a motor vehicle. The court analyzed cases out of other Texas appellate courts, which found that controlling traffic did not arise from the operation or use of a motor vehicle. The court found that the plaintiff’s claims did not arise out of the operation or use of a motor vehicle. However, in doing so, the court noted it was not establishing a bright-line rule that a governmental employee must always be personally driving the motor vehicle to qualify for the waiver of immunity under the TTCA. Even assuming there is no bright-line rule, the plaintiff’s claims did not allege that it was the officer who caused his injuries. The officer directed the car through; it was the car’s failure to follow the officer’s instruction and its pause that injured the plaintiff. The court overruled the trial court and granted the city’s plea.

Annexation: Comanche Peak Ranch, LLC v. City of Granbury, No. 02-19-00412-CV, 2020 WL 1949628 (Tex. App.—Fort Worth Apr. 23, 2020) (mem. op.). In this annexation case the appellate court affirmed that the proper vehicle for challenging the city’s annexation was a quo warranto proceeding because it is the proper way to challenge procedural faults with annexation.

The city initiated the process to annex the plaintiff’s property prior to the effective date in H.B. 347, passed during the 2019 legislative session. The city sent the property owners proposals for “development agreements” for their agriculture-exempt properties that would postpone annexation if the property owners signed the agreements. The property owners dispute that the proposals met the requirements of the annexation statutes and that the failure to meet those standards render the annexation void.

The property owners filed suit challenging the annexation. The city filed a plea to the jurisdiction, which the trial court granted. The appellate court only addressed whether a quo warranto proceeding was the proper vehicle to challenge the annexation because that disposes of all issues.

Generally, the only appropriate mechanism for challenging the validity of an annexation is a quo warranto proceeding, in which the State of Texas acts to protect itself and the good of the public generally, through the duly chosen agents of the state who have full control of the proceeding. The purpose of a quo warranto proceeding is to question the right of a person or corporation, including a municipality, to exercise a public franchise or office. The attorney general or a district or county attorney brings quo warranto proceedings in the name of the State of Texas. They serve the purpose of avoiding numerous successive suits by private parties attacking the validity of annexations, which could lead to different results.

A quo warranto proceeding is the proper way to challenge procedural faults such as the adequacy of a service plan, lack of notice, lack of a quorum for hearing, and other deficiencies in the procedure of adopting the annexation ordinance. The determination of whether an individual landowner, as opposed to the state in a quo warranto proceeding, has standing to challenge annexation turns on whether the challenge attacks a city’s authority to annex the area or merely complains of a violation of statutory procedure. The issue is whether the property owners’ claims are based on a procedural defect in the annexation, or the city’s exceeding its annexation authority as delegated by the legislature.

The property owners specifically complain that the development agreement did not: (1) guarantee the continuation of ETJ status and exemption from annexation; and (2) contain a property description. Regarding the continuation of ETJ status, the property owners complain the development agreement did not meet the requirement of Local Government Code Section 43.016(b) that has the language “may not annex . . . unless.” However, the property owners confused being offered a development agreement with acceptance of the agreement. The property owners and the city did not reach an agreement; therefore, the adequacy of the development agreement is a defect in the procedure and must be brought in a quo warranto proceeding.

Likewise, the property owners’ complaint regarding the insufficient property description is a defect in procedure. The law only requires an adequate legal description. The description the city used is the one it received from the properties’ taxing entity, which meets that requirement.

Because the property owners did not accept the proposal and the parties never entered into a final agreement, all of the property owners’ complaints are just about the procedure. Complaints about procedure must be brought in a quo warranto proceeding. Therefore, the appellate court affirmed the dismissal but modified the judgment to reflect that the dismissal is without prejudice to allow the claims to be brought in a quo warranto proceeding.

Short Term Rentals: Anding v. City of Austin, No. 03-18-00307-CV, 2020 WL 2048255 (Tex. App.—Austin Apr. 29, 2020) (mem. op.). This is a case challenging the constitutionality of the City of Austin’s short-term rental (STR) regulations where the court of appeals affirmed summary judgement in favor of the city and reversed the plea to the jurisdiction as it applied to the municipal court judge.

Robert and Roberta Anding own a vacation house in the City of Austin that they rent out to others when they are not using the property. In an effort to avoid the city’s STR ordinance, which applies to short-term rentals of periods of less than 30 consecutive days, the Andings entered into 30-day leases with multiple, unrelated lessees, who in turn entered into co-tenant agreements amongst themselves to grant to each other, in return for a reduction in the total lease cost, the right to exclusively occupy or use the house for portions of the 30-day term. The co-tenant agreement specified that the Andings were not parties to the co-tenant agreement.

In response to a complaint by a nearby homeowner, the city’s code enforcement interviewed the occupants of the Andings’ house, and, based on that information, issued the Andings with four administrative citations for operating without an STR license and violating the STR ordinance. The Andings paid the fines but challenged their validity in an administrative hearing process. The hearings officer upheld the fines, and the Andings appealed to city’s municipal court. Judge Clervi affirmed the hearing officer’s decision and denied the Andings’ motion for a new trial. The Andings filed suit against the city seeking declaratory and injunctive relief related to the city’s citations, asserting that the STR ordinance was unconstitutionally vague as it did not give fair notice that a lease violates the ordinance if some, any, or all of the tenants do not actually stay at the home for a continuous 30 days or if the tenants share the rent and periods of possession. They also sought mandamus relief to compel Judge Clervi to apply the law correctly. The Andings and the city filed cross motions for summary judgment on the Andings’ constitutional claim, and Judge Clervi filed a plea to the jurisdiction challenging the request for mandamus relief. The district court denied the Andings’ motion for summary judgement, granted the city’s motion for summary judgement, and sustained Judge Clervi’s plea to the jurisdiction. The Andings’ appealed.

On appeal, the court found that the trial court had jurisdiction over the Andings’ constitutional claim because the UDJA waives immunity for claims alleging that an ordinance is unconstitutional. However, the court determined that the STR ordinance gave fair notice of what conduct was subject to the ordinance. Applying the common and ordinary meaning of “rent” and “rental” and incorporating the city’s code definition of “short-term rental use,” the court concluded that the city’s STR ordinance applied to the paid-for grant of occupancy or use of a residential dwelling for less than 30 consecutive days. Additionally, the court held that the city is not required to expressly list every fact pattern that would not be subject to the STR ordinance, and not doing so does not make the ordinance vague and does not invite the city to expand the scope of the ordinance beyond its plain language. Accordingly, the court denied the Andings’ motion for summary judgement and upheld the city’s motion for summary.

With respect to the mandamus claim, the court found that the trial court erred in sustaining Judge Clervi’s plea to the jurisdiction because the court had jurisdiction over the request for mandamus relief. The court remanded the claim to the trial court for further proceedings on whether the Judge’s actions were ministerial.

Contractual Immunity: Elizabeth Benavides Elite Aviation, Inc. v. City of Laredo, No. 05-18-01527-CV, 2020 WL 2044678 (Tex. App.—San Antonio Apr. 20, 2020) (mem. op.). This is a case involving a breach of contract claim where the court of appeals found that the City of Laredo engaged in a governmental activity when it entered into a lease agreement with Elizabeth Benavides Elite Aviation, Inc. (Elite).

In 2006, Elite entered into a lease agreement with the city for the use of a tract of land at the Laredo International Airport solely for the purpose of storage and dispensing of aviation fuels for fueling aircraft. Elite was also required to construct a concrete fuel containment pad for the installation of aboveground fuel storage tanks. In 2019, Elite filed a breach of contract claim against the city. Elite’s pleading alleged that the city was acting in a proprietary capacity when it entered into the lease with Elite, thereby waiving its immunity. In its plea, the city argued it was protected by governmental immunity. The trial court granted the city’s plea and dismissed Elite’s claim against the city. Elite appealed.

The court of appeals began its analysis with a discussion of the law surrounding the governmental/proprietary dichotomy under the Texas Tort Claims Act (TTCA), which expressly categorizes certain municipal activity as governmental or proprietary. Where it does not, the Supreme Court of Texas has articulated four factors to consider in determining whether an act is proprietary or governmental: (1) whether the city’s act is mandatory or discretionary; (2) whether the act is intended to benefit the general public or the city’s residents; (3) whether the city is acting on the state’s behalf or its own behalf in undertaking the activity; and (4) whether the city’s act is so related to a governmental function to render the act governmental even if it would otherwise be proprietary.

Although Elite’s brief focused on the above four factors in arguing that entering into the contract was a proprietary activity, the court of appeals noted that it did not need to resort to those factors because the TTCA expressly lists “airports” as a governmental function in Section 101.0215(a)(10) of the TTCA. Further, the Supreme Court of Texas has explained that when determining whether governmental immunity applies to a breach-of-contract claim against a municipality, the nature of the contract governs the activity. Because the nature of the contract involved airports, a subject specifically defined as governmental, the court found that the activity was governmental. As such, the court concluded that the city engaged in a governmental activity when it entered into lease with Elite. Accordingly, the court held that the city was immune from suit and affirmed the trial court’s order dismissing Elite’s claim.

Immunity: Texas Dep’t of Transp. v. Ives, No. 05-18-01527-CV, 2020 WL 1909999 (Tex. App.—Dallas Apr. 20, 2020) (mem. op.). This is a personal injury case in which the court of appeals ruled that the Texas Department of Transportation’s (TxDOT’s) immunity was not waived under the Texas Tort Claims Act (TTCA).

Ives was driving his car in Collin County when he ran out of gas. He left his car on the shoulder of the road and walked in the grass along the road toward a gas station. He fell into a drop inlet grate and badly injured his leg. TxDOT owned the drop inlet grate. An engineer for TxDOT testified that the area where Ives walked was intended to facilitate water drainage and was not intended for pedestrian traffic.

After a jury trial, TxDOT filed a motion for judgment notwithstanding the verdict, arguing it retained its sovereign immunity. The trial court denied the motion. TxDOT appealed, arguing dismissal was warranted for two reasons: (1) the discretionary exception of the TTCA prevented waiver of sovereign immunity; and (2) there was no evidence TxDOT had the requisite actual knowledge of the alleged danger posed by the drop inlet grate.

The court of appeals first addressed TxDOT’s second argument. Ives relied on a photograph showing three orange traffic control panels on the side of the road near a drop inlet grate to show that TxDOT attempted to warn of the dangerous condition or make it safe. In response, a TxDOT engineer opined that the panels were used by maintenance crews to divert traffic to another lane in the event of a flood, not to warn pedestrians of the grate.

The appeals court agreed with TxDOT finding that there was no evidence that TxDOT had actual knowledge of the alleged danger posed by the drop inlet grate; the devices were placed in that location to warn about the grate or make it safe; and TxDOT never received reports of prior injuries or the alleged dangerous condition. Because the court held that there was no evidence showing TxDOT had the actual knowledge required to waive its immunity under the TTCA, the court did not consider TxDOT’s first issue. As such, the court concluded that the trial court lacked subject matter jurisdiction, reversed the trial court’s judgment, and dismissed the case.

*Indicates 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