Recent Texas Cases of Interest to Cities

Note:  Included cases are from June 7, 2013 through July 10, 2013.

Public Safety Pay: City of Houston v. Bates, No. 11-0778, 2013 WL 3240206 (Tex. June 28, 2013).  This case concerns cities with over 1.1 million in population and the treatment of a retiring fire fighter’s pay.  The Court interpreted Chapter 142 and 143 of the Local Government Code regarding termination pay related to overtime, vacation, and sick leave.  The Court interpreted Chapter 142 to only include paid leave in calculation of pay.  The Court interpreted Chapter 143, as it pertains to vacation and sick leave, as including all of the fire fighter’s normal pay including all premium pay.  There was a dissent that found differently on both issues.  The Court rendered judgment on both pay questions.

Sales Tax:   Combs v. Healthcare Svs. Corp., Nos. 11-0283 and 11-0652, 2013 WL 2663985 (Tex. June 7, 2013).  In this case, a company sought a refund of state and local sales taxes it paid on items purchased to fulfill a federal contract.  The comptroller, based partially on the appeals court opinion, has ordered at least one city to refund those sales taxes to the federal defense contractor and not to collect them going forward (the comptroller is refunding the state’s share).  The case and the comptroller’s refund order are based on the “sale for resale” provision in the Texas Tax Code.  Contractors claim that they purchase items – office supplies, office equipment, furniture, software, utilities, and so forth – that ultimately belong to the federal government.  Thus, the contractors’ position (and the opinion of the court of appeals) is that the items are sold for resale and thus exempt from sales tax.  Section 151.006(a)(1) of the Tax Code provides that “sale for resale” includes a sale of:

tangible personal property or a taxable service to a purchaser who acquires the property or service for the purpose of reselling it with or as a taxable item as defined by Section 151.010 in the United States of America or a possession or territory of the United States of America or in the United Mexican States in the normal course of business in the form or condition in which it is acquired or as an attachment to or integral part of other tangible personal property or taxable service.

Justice Willett of the Supreme Court of Texas discussed the different types of taxable items including tangible personal property, taxable services, and leases of tangible personal property.  The Court held that the Healthcare Services Corporation was eligible for sales tax refunds for everything, including purchases of tangible personal property and taxable services, but not for the leases of tangible personal property.

Public Safety Employment:  City of Houston v. Wilburn, No. 01-12-00913-CV, 2013 WL 3354182 (Tex. App.—Houston [1st Dist.] July 2, 2013).  Wilburn was terminated by the city after his drug test came back positive.  Wilburn sued the city, arguing that the city did not follow the provisions of Chapter 614 of the Government Code and therefore did not have the authority to terminate his employment.  The trial court agreed and granted Wilburn’s motion for summary judgment, granting him relief including reinstating his employment and granting him back pay, seniority rights, and attorney’s fees.  The city appealed. Section 614.023 of the Government Code requires that a fire fighter be given a written complaint and that the complaint be investigated before the individual may be disciplined.  The court of appeals reversed, holding that Wilburn had failed to meet the summary judgment burden of proof that the city had not complied with Chapter 614, as there was proof that the medical review officer had sent two letters addressing the drug test complaint to Wilburn before he was terminated.  Evidence was also presented that the medical review officer had investigated the complaints.

Public Safety Employment:  City of Rice v. Texas Comm’n on Law Enforcement Officer Standards & Educ., No. 03-11-00047-CV, 2013 WL 3186194 (Tex. App.—Austin June 21, 2013).  A City of Rice police officer was terminated, and the police chief filled out the report required by the Texas Commission on Law Enforcement Officer Standards and Education (TCLEOSE).  The chief checked the box that the officer received a general discharge for a failure “to complete agency probation period.”  The officer contested this discharge, arguing that she should have been given an honorable discharge.  TCLEOSE referred the complaint to the State Office of Administrative Hearings, and the administrative law judge (ALJ) found in the officer’s favor.  The city was ordered to change the report to declare the officer was honorably discharged.  The City of Rice appealed, and the trial court affirmed the ALJ’s order.

The city, then, appealed the trial court’s ruling contending that the trial court erred in affirming the ALJ’s order and that the ALJ’s order contained errors of law.  The Court of Appeals affirmed the trial court’s judgment, affirming the ALJ’s order and requiring the city to change the report to reflect an honorable discharge.

Contractual Immunity: North Cent. Tex. Council of Gov’ts v. MRSW Mgmt., LLC, No. 03-12-00692-CV, 2013 WL 3186189 (Tex. App.—Austin June 20, 2013).  This is a contractual immunity case in which the Austin Court of Appeals held that a local council of governments is immune when performing its function for administering funding programs. The analysis can be used to apply to various different interlocal agreements.

In this case, the North Central Texas Council of Governments (NCTCOG) entered into a procurement agreement with the Texas Department of Public Safety (DPS) to procure planning services statewide.  One of the contracts to DPS was for homeland security grant management, which was provided by MRSW Management (MRSW).  The funds to pay for the services were to flow from DPS to NCTCOG to MRSW. After DPS terminated the agreement and did not release funds to NCTCOG, it did not pay MRSW.  MRSW then filed this lawsuit.  NCTCOG filed a plea to the jurisdiction on immunity grounds, which was initially granted, then reversed on a motion for new trial, and this interlocutory appeal followed.

The Austin Court of Appeals held that regional planning commissions like a local council of governments have express statutory authority to enter into contracts with the state and was therefore performing governmental functions.  The court discussed the proper definition of certain key terms such as “purchasing,” “planning” and “administrative functions.”  The court also took an interesting look at Texas Local Government Code Section 271.152, and determined the statute did not waive immunity since the “goods or services” of MRSW were not provided to NCTCOG, but rather to DPS.  Because of the plain language of Section 271.152, it applies only to goods or services provided to the contracting entity, not mere conduits of federal or state funding.  In a footnote, the court stated that MRSW brought a separate administrative claim heard by the State Office of Administrative Hearings against DPS which was dismissed because the “contract” was not directly with DPS but with NCTCOG and was therefore not a “contract” under Chapter 2260 of the Government Code which waives the state’s immunity.  In other words, because of the “conduit” format of the contract, immunity was not waived for either DPS or NCTCOG, even though it might have been if any direct contract was entered into by either entity for direct goods or services.*

Board of Adjustment:  Board of Adjustment for City of San Antonio v. Kennedy, No. 04-12-00757-CV, 2013 WL 3354187 (Tex. App.—San Antonio July 3, 2013).  This is an appeal from a board of adjustment decision; the court conducts a detailed analysis of the standard of review regarding such decisions.

Trinity University (Trinity) acquired four houses located in a historic neighborhood.  The zoning at the time listed single-family and college use as permissible uses.  In 2001, the city changed the zoning to R-5 residential.  Trinity asserted it was entitled to nonconforming use and development preservation status. Trinity wanted to use the houses for administrative offices and ultimately applied for certificates of occupancy for office use.  The city issued the certificates but several homeowners appealed to the board of adjustment (board). The board upheld the granting of the certificates and the homeowners filed suit in district court. The trial court granted the homeowners summary judgment motion and the city and Trinity appealed.

The Fourth Court of Appeals took significant time to explain how critical the standard of review of board of adjustment decisions should be. Even if the weight of the evidence is against the decision, as long as some evidence exists to support the decision, it must stand. The board’s order is presumed to be legal, and the party attacking the order has the burden of establishing its illegality. A party attacking the legality of the order must establish that the board could reasonably have reached but one decision, and not the decision it made. The specific factual details are outlined in the opinion.  The court makes several presumptions it concluded were necessary in order for the board to have made the decision it made. Essentially, “college use” includes housing as well as offices and therefore Trinity had a nonconforming status to use for either, but was not required to have a registration.   Ultimately, the court determined it was not an abuse of discretion for the board to have sustained the granting of the certificates as some evidence existed for each element necessary to uphold the decision. The court reversed and rendered a dismissal.*

Economic Development Corporation Contract:  City of Leon Valley Econ. Dev. Corp. v. Little, No. 04-12-00142-CV, 2013 WL 3054308 (Tex. App.—San Antonio June 19, 2013).  This interlocutory appeal involves Little, a commercial real estate developer, who agreed to sell certain land to the city’s economic development corporation (EDC).  The parties agreed to a sales contract in which the EDC would purchase the properties from Little; however, the sale was subject to the EDC obtaining financing at a specific rate.  Little contends that the EDC was approved for a loan to purchase the property.  The EDC claims that it did not receive financing at the rate required by the closing date.  Little sued the EDC for breach of contract.  The trial court denied the EDC’s plea to the jurisdiction, and the EDC filed an interlocutory appeal.  

The court of appeals analyzed whether or not the court had jurisdiction to hear the interlocutory appeal.  The Texas Civil Practices and Remedies Code permits an interlocutory appeal from a district court order that grants or denies a plea to the jurisdiction by a governmental unit.  Section 501.055(b) of the Texas Local Government specifically states that EDCs are not political subdivisions but are non-profit corporations.  The court noted that Section 505.106(b) provides that EDCs perform governmental functions for the purposes of the Texas Tort Claims Act negligence claims (and are therefore entitled to immunity).  Because Little’s claims are breach of contract claims, though, the EDC is not entitled to immunity for such claims.

Ultimately, the court concluded that because the EDC is not a governmental unit, it does not meet the statutory exception permitting an appeal of a trial court’s order denying a plea to the jurisdiction.  The court did recognize that several other courts have determined EDCs to be governmental entities for breach of contract claims.  However, they distinguished these cases by noting that other courts did not analyze why the EDCs are governmental entities.

Board of Adjustment: Town of Bartonville Planning & Zoning Bd. of Adjustments v. Bartonville Water Supply Corp., No. 04-12-00483-CV, 2013 WL 255827 (Tex. App.—San Antonio June 12, 2013).  The court of appeals withdrew its prior opinion from March 27, 2013, and substituted this opinion.  The trial court reversed the decision by the Town of Bartonville Planning and Zoning Board of Adjustments (board) to deny the Bartonville Water Supply Corporation’s (BWSC) application for a building permit for constructing a water tower.  The board argued on appeal that the trial court exceeded its subject matter jurisdiction by finding that the town’s zoning ordinance restrictions were unenforceable against BWSC and issuing BWSC a building permit.

The court of appeals indicated that it was undisputed that the proposed water tower and its use do not comply with the town’s zoning ordinance.  However, the board has not been given authority to determine whether the Texas Water Code “trumps” the town’s zoning ordinance and thus whether BWSC is subject to the town’s ordinance.  Instead, the board has only been given authority to ensure the ordinances are followed.  Since it is not within the board’s jurisdiction to make a determination that the Water Code trumps the town’s ordinance, the court found it was also not within the trial court’s jurisdiction to make that determination.  The court pointed out that a district court sits only as a court of review, and the only question that may be raised by a petition for writ of certiorari is the legality of the board’s order.  Therefore, the court reversed and remanded the case.

Employment Law: City of Dallas v. Salyer, No. 05-12-00701-CV, 2013 WL 3355027 (Tex. App.—Dallas July 1, 2013).  Salyer was a temporary employee assigned to work for the city by a staffing agency. He was assigned to the Bachman Transfer Station where dump trucks deposited refuse.  While working, a city dump truck backed into him causing injuries.  Salyer filed suit under the Texas Tort Claims Act asserting the city had waived immunity for negligent actions arising out of the operation or use of a motor vehicle.  Tex. Civ. Prac. & Rem. Code § 101.021(1).  He also argued that he was an independent contractor so the Worker’s Compensation Act exclusion did not apply.  Additionally, he asserted the exclusion clause is an affirmative defense which does not affect jurisdiction. The city filed a plea to the jurisdiction which was denied. The city appealed.

The Dallas Court of Appeals first noted that pursuant to the recent Texas Supreme Court case of City of Bellaire v. Johnson, No. 11–0933, 2013 WL 2450151 (Tex. June  7, 2013), the Worker’s Compensation Act is a jurisdictional bar, not an affirmative defense.  Second, the court noted the key issue was whether or not Salyer was an employee, and analyzed the type of control the city had over him. Salyer was undisputedly paid by the city through the staffing company based on hours worked, assigned his work schedule and tasks, and provided equipment for work.  Based on the evidence in this case, the court determined Salyer was an employee, not an independent contractor.  Interestingly enough, the court noted the city’s response to interrogatories stating Salyer was not a “borrowed servant” were not factual admissions, but legal conclusions non-binding on the court. Therefore no fact issue existed precluding the granting of the plea. The court reversed and rendered, dismissing Salyer’s case.*

Higher Education Facility Authority:  Texas Student Housing Auth. v. Brazos Cnty. App. Dist., No 07-11-00421-CV, 2013 WL 3337670 (Tex. App.—Amarillo June 27, 2013).  This case involves the tax exempt status of certain real and business property of the Texas Student Housing Authority (TSHA), a higher education facility authority created by the Town of Westlake.   At issue was a residential facility with dorm-like rooms.  The trial court held that the TSHA property was not entitled to a tax exemption.  This conclusion arose out of the fact that the TSHA property had been used in the summer months to house individuals attending certain camps and events put on by Texas A&M University (TAMU) and events put on by other non-university entities.

TSHA appealed, claiming it was entitled to exemption under Texas Education Code Section 53.46, which provides that “[b]ecause the property owned by authority will be held for educational purposes only and will be devoted exclusively to the use and benefit of the students, faculty, and staff members of an accredited institution of higher education, it is exempt from taxation of every character.”  TSHA also contended it was entitled to a tax exemption based on Article XI, Section 9 of the Texas Constitution and Texas Tax Code Section 11.11(a),(e).  Article XI, Section 9 provides that the property of cities and towns, owned and held only for public purposes shall be exempt from taxation.  Section 11.11(a) of the Tax Code provides that, with some exceptions, property owned by a political subdivision is exempt from taxation if the property is used for public purposes.  Section 11.11(e) of the Tax Code provides that certain property of an institution of higher education is exempt.

The appellate court opinion contains a discussion of each of TSHA’s contentions.  The court held that the provision of housing for TAMU-sponsored events was exempt under Section 53.46.  However, housing provided for the events sponsored by non-university entities fell outside of 53.46, and such events did not meet the exclusive public purpose test under either Article XI, Section 9 or Section 11.11(a) of the Tax Code.  The court also rejected the contention that TSHA is an instution of higher education under Section 11.11(e).  In sum, the appellate court reversed the trial court in part, and affirmed in part.

Contractual Immunity:  City of Canton v. Zanbaka, No. 12-12-00006-CV, 2013 WL 3377436 (Tex. App.—Tyler July 3, 2013) (mem. op.).  In this case, Zanbaka entered into an agreement with the Canton Economic Development Corporation to fund a sewer line and lift station to its travel plaza.  The city delayed construction of the line and station after Zanbaka fulfilled certain requirements under the agreement.  Zanbaka filed a declaratory judgment under Local Government Code Section 271.152, alleging it had entered into a written contract for the provision of goods and services.  Specifically, Zanbaka argued that the goods and services provided to the city were the annexation of its property, the creation of new jobs, and the installation of a fire hydrant on the annexed property.  The city filed a plea to the jurisdiction and motion to dismiss arguing it was immune from suit because the agreement did not involve the provision of goods and services as required for the waiver of immunity under Section 271.152.  The trial court denied the plea and motion to dismiss, and the city appealed.

The appellate court held that any benefits that flowed from the construction of the line and station were indirect and attenuated, and that Section 271.152 does not apply to such benefits.  Therefore, the court held that the city did not waive its immunity under Section 271.152, reversing the trial court’s judgment and dismissing the case.

Plats:  Riner v. City of Hunters Creek, No. 14-12-00339-CV, 2013 WL 3087061 (Tex. App.— Houston [14th Dist.] June 20, 2013).  This is a denial of a replat application where the court held the property owners did not pursue all avenues to remedy any deficiencies, so the claims were not ripe for consideration by the court.

The Riners own a home on a large lot in the City of Hunters Creek Village which they wished to subdivide into three lots.  The city’s planning and zoning commission (commission) denied the preliminary plat application but the Riners did not appeal to the board of adjustment, seek a variance, or try to remedy the problem.  Instead, they filed this suit.  The Riners claimed the commission disapproved the plat primarily because the commission misconstrued an ordinance specifying the minimum lot size of residential properties and erroneously excluded the area beneath a public street easement.  The city filed special exceptions, but the Riners did not amend their pleading even though ordered by the court. The trial court dismissed their claims and the Riners appealed.

The Fourteenth Court of Appeals first held that the “special exception” was for failure to allege jurisdictional facts and was, in reality, a plea to the jurisdiction.  The Riners’ pleadings focused on the “primary” reason for the plat denial even though the commission listed fourteen reasons. The commission is statutorily entitled to insist on compliance—and not simply “substantial compliance”—with “technicalities.”  Because the commission disapproved a plat that admittedly did not satisfy technical requirements, the question of whether the commission also misconstrued the ordinance concerning lot size cannot be shown to be “essential to the decision of an actual controversy” (a ripeness requirement).  The court noted that at least two of the fourteen examples were legitimate reasons to deny the plat so the court need not address all fourteen (one of which is the alleged misinterpretation of lot size).  The Riners could have isolated the “essential question” of lot size by remedying the remaining deficiencies and reapplying to the Commission, but they did not do so.  Because the Riners did not seek a variance or attempt to remedy the deficiencies, their claims are not yet ripe for consideration.  They also did not submit any appeal to the board of adjustment.  The evidence on file (mainly several well-phrased letters from the commission’s attorney) also indicated that the attempt to remedy the deficiencies would not be futile.  The way the city handled this controversy may be instructive and helpful to other cities.*

Regulatory Takings:  Comunidad Balboa, LLC v. City of Nassau Bay, No. 14-12-00619-CV, 2013 WL 2635676 (Tex. App.—Houston [14th Dist.] June 13, 2013).  This is an appeal by a non-profit developer whose claims were dismissed in the City of Nassau Bay’s plea to the jurisdiction.  Comunidad sued the city and several elected officials for city actions and ordinances Comunidad claims destroyed all economic use of its property.

In 2003, Comunidad purchased a 1969 apartment complex intending to make housing available to low-income individuals.  In 2006, the City amended its fire-prevention ordinance making sprinkler systems mandatory for new and existing structures (Comunidad’s property was the only existing structure which fell within the regulations criteria).  Comunidad asserts it would cost $1,000,000 to upgrade the property, so instead, in 2010, racked up over 50 citations punishable by up to a $2,000 fine for each day of non-compliance.  Comunidad sued for conspiracy and inverse condemnation and sought injunctive and declaratory relief.  The trial court granted the city’s plea to the jurisdiction.

The Fourteenth District Court of Appeals affirmed the dismissal noting:  (1) while the higher cost for low-income housing was created by the ordinance, it did not render the property void of all economic use, (2) while the regulation had a significant economic impact on Comunidad, the court must balance that against the public purpose of upgrading life-saving fire codes, (3) fire regulations change all the time and Comunidad should have planned for the need for future upgrades, (4) the city’s actions were not in bad faith or targeted solely at Comunidad since new construction must also comply, (5) the city allowed a three-year compliance schedule which Comunidad failed to utilize, and (6) upgrading the city’s fire-prevention ordinance was well within its police power authority.  Comunidad brought several other claims such as conspiracy and nuisance, but the court disposes of those noting simply that Comunidad failed to brief the issues.  As a result, the trial court properly granted the city’s plea to the jurisdiction and the judgment is affirmed.*

*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